Monday, December 06, 2004

Trouble in RBOC City!

This story is from CBS MarketWatch. It's available via free registration at the site.

As John has documented, the Regional Bell Operating Companies (RBOCs) are putting on a full court press in legislatures in states across the country where municipalities have so much as mentioned the concept of network infrastructure being essential economic infrastructure. The RBOCs are, in effect, declaring network building to be rocket science and themselves to be latter day Werner von Brauns.

As we have heard in Lafayette from RBOC BellSouth, the party line is that only the RBOCs have the brains, the brawn and the deep pockets to figure out when, where and how to deploy new, more robust network infrastructure.

As you'll discover in the above-linked article, financial analysts are now saying that those RBOCs who have committed to new fiber network buildouts (SBC and Verizon) are doing so in order to try to hold on to their most lucrative, high-value residential customers. No mention of Qwest and BellSouth, who have not yet announced any new, company-wide network infrastructure initiative.

But, there is this passage which indicates that the RBOCs may not be playing from a position of strength when it comes to the cable companies — and, maybe not even the municipal fiber promoters:
Yet the cable industry, its appetite whetted by the success of its high-speed Internet business, is gearing up to offer phone service in most of the country. Cable companies already are capable of delivering phone calls to 20 percent of the homes they serve, a figure expected to reach 75 percent by 2006, UBS predicted.

By the end of 2004, cable is expected to deliver phone service to 3 million customers. While that's just a fraction of the 81.7 million residential lines served by the Bells, UBS predicts cable could reach 9 million phone customers within four years.

For the Bells, "doing nothing while cable takes high-value residential customers is a losing strategy," UBS said.

The cable competition, combined with other services such as Internet telephony, eventually could wrest millions of additional lines away from the Bells. By 2010, the number of lines served by SBC, Verizon and BellSouth could fall to under 50 million, UBS said.

Granted, the brokerage's calculations are merely a rough approximation. Still, the trend is clear. The local phone giants need to find away to cut their losses, and they know that. Hence the costly fiber strategy.

"They need to do it because the phone revenue is going to disappear," said Dave Burstein, editor of the DSL Prime newsletter, who listened to the UBS presentation.
Did you catch that? The phone revenue is going to disappear! They mean 'voice' revenue. And the reason that's trouble is that you can't move very much more than voice over copper networks, at least not without sinking a lot of fiber into the ground. This is, as the article says, an expensive proposition. And, the prospect of declining revenues, is going to add a degree or two of difficulty to securing financing for those infrastructure investments.

So, it could well be that, rather than a show of strength, the RBOCs' attempts to block munis from the network infrastructure business is a sign of desperation. SBC and Verizon clearly believe the industry is approaching a tipping point. They're committing billions to new infrastructure for a reason — they feel they must do so in order to survive.

The bellicosity of BellSouth, on the other hand, calls to mind a fabled power from another era.

Sound advice to the legislatures: "Ignore that man behind the curtain!"

No comments: