Wednesday, November 02, 2005

Cox, Lafayette, Subscribers, and History

In a dog bites man story (this is a surprise?) an online-only brief in yesterday's Advertiser noted that Cox was not going to sell its Lafayette System. (Today's more extensive local story didn't make it online, unfortunately. Try 8B in the print copy. The most complete story I've found so far is from Reuters; more info will surely emerge.

It's hard to write about why a non-event is important to a community but this one is. It'd been reported before that Cox was planning to sell much of its rural properties including almost all of it's rural holdings at a time when every other telecom company is trying desperately to expand by acquisition. In fact Cox grew to its present size by just such a program of acquisition.

What's changed? Both Cox and Cox's environment.

Cox recently bought itself private at such a huge expense that it damaged its ability to borrow money for system upgrades, much less acquisition. The company had announced its sell-off as a way to pay for the buy-out expense and to work toward freeing capital to engage in system upgrades, consistently mentioning phone-like VOIP.

The competitive environment is heating up as well. It is beginning to look like the fabled convergence of technologies that allows phone companies and cable companies to enter each other's business is about to result in some real competition instead of functioning merely an excuse for deregulating monopolies. Standing pat and milking current network capacity to pay for buying out public shareholders is apparently made impossible by that looming threat.

It looks like Cox is trying to order its troops for a long battle with the telephone companies and has decided to bulk up its urban holdings with VOIP services. Both taking itself private and selling off invaluable subscribers to help build that bastion would be consistent with positioning yourself for a bitter battle that would put a premium on defending your most valuable assets and making sure that you can do it sheltered by the secrecy that only a private company can sustain.

In the same vein a deal revealed in the last hour between multiple cable providers (prominently including Cox) and Sprint-Nextel will result in the cable companies expanding their offerings beyond phone and into wireless allowing them to compete with wireless/wireline combines Verizon-Verizon Wireless and SBC-BellSouth-Cingular by offering bundled products. The quadruple play is bound to be just around the corner: a situation where you could buy wireline phone, cable TV, Internet services AND wireless phone from a single provider. The deal is apparently an 20-year exclusive one...meaning that Sprint-Nextel is pretty much throwing in its fate with the cable companies. The details on that exclusive deal will be very revealing of the shape of the telecom universe when they are publicly released.

Mike's post yesterday points to the weaknesses of BellSouth's strategic position which include no active plan to enter the video market directly (the directTV partnership is NOT such direct entry) and it's weakening partnership with its senior partner SBC in Cingular. We are seeing huge partnerships coming together and falling apart whose members' interests are not clearly aligned except that they stand in deathly fear of other, similarly divided, partnerships.

I'm reminded of nothing so much as Europe's late medieval through early modern system of grand but fragile collations which resulted in a history of deadly and often pointless warfare that left both the victors and the vanquished weak and incapable of taking advantage of the emerging fruits of the renaissance and enlightenment. (It was this horrific example that lead the founding fathers to be so fearful of foreign "entanglements.) A few small countries, principalities, and free cities managed to avoid getting tied down by the large combines--or with considerably more risk managed to play them off against one another-- and prospered far more commercially and culturally than the large countries ever did. Innovation and especially the commercial implementation of innovation took place in these small areas of freedom and prosperity.

We're entering a time when history may be our only guide. You don't suppose our civic leaders could be convinced to start doing a little historical research do you? Lafayette might well have a chance to be a "free city" in an era dominated commercially by massive telecom wars that drain the regions dominated by major powers of both the resources and the freedom to act intelligently.

LUS offers us the possibility of declaring, and taking advantage of, the decimating telecom war to come. But if I'm right we'll have to be very clear on taking advantage of our relative freedom. Worth thinking deeply about.

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