Is it the Regulatory Environment?

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

Is it the Regulatory Environment?

In a twitter exchange with Erik Cecil, former regulatory counsel at Level3, we were dialoging about the Fairpoint bankruptcy. (FairPoint aims to cut debt by two-thirds).

My reply stated, "Just 2 years after the deal w/VZ to create an unstable Fairpoint despite opposition, Fairpoint screws everyone." By everyone, I mean the customers, the economy, the state, the PUC who approved the deal despite being against it (And Erik, you think there is regulation?), the workers, the Union, shareholders and the debt holders. I actually don't care about the last two, because both should have known it was going to go POOF!

The only winner in this mess was Verizon, who got out of the rural assets and pocketed some tax credits while eliminating debt.

Oh, the cable company and a couple of WISP's also gained - because frustrated customers left Fairpoint.

Erik's reply was that I "have to appreciate how impossible it is to innovate in todays' regulatory envirnoment." I almost fell out of my chair. What Regulatory Envirnment? Since 2005, ILEC's have been steady been granted not deregulation, but UnRegulation -- even over voice lines (in Florida at least).

Lobbying & Litigation is the new R&D. Especially patent litigation.

Erik replies, "(1) lobbying & litigation = R&D since 1934;(2) next gen killed by LATA, LCA, intercarrier comp warfare; state PUCs; (3) examine network, business units, systems, call flows, gear, not screaming politicians/regulators; (4) solve not blame."

I don't see LATA, LCA or Inter-Carrier Comp as issues that get in the way of Innovation. I think the Bellhead monopoly mentality coupled with an executive suite that only worries about the stock value is what has crippled telecom.

How does any of this apply to the Fairpoint BK? Fairpoint didn't have Innovation issues. It had Integration issues. And ego issues thinking it took take on that project without collapsing.

"What got you here won't get you there" means that the Executive suite at Fairpoint has to go along with two-thirds the debt. They are not capable of pulling this company together and delivering on any merger promises. You need fresh thinking. No more Bell-heads!

Back to Erik's saying that it's regulatory: when have they tried Innovation? DSL was brought to us by 3 start-ups - Covad, Northpoint and Rhythms. Ethernet was brought to the market by start-ups like Yipes, expedient and Cogent. ILEC's had to be dragged into offering Ethernet because they had so many sunk costs in TDM. TDM was practically free for them. Only a few even tried EoC (Ethernet over Copper). What's regulatory about that?

It's painful to think that these companies are too-big-to-fail, yet have failed time and again to deliver the promises made for rate hikes - namely real broadband to every home in America.

The real pain is coming though. Windstream was downgraded. Landline loss without a cellular replacement or a FTTx project means EarthLink planning. Hunker down, cut costs, ride it out. VZ is spending billions on every front: payroll, retiree benefits and layoffs; international network upgrades; cellular upgrades from 2.5G to 3G to LTE; and FiOS build out. Plus the $22B of debt from the Alltel merger. That's a lot of zeroes.

AT&T is in a similar boat. Debt from massive layoffs due to mergers, retiree benefits, international network, cellular network upgrades (2.5G to 3G to 4G), domestic network (as it moves more and more to all-IP), and the U-Verse project. Think about this: the triple-play is just $99. They used to make more profit on just a phone line -- DSL was gravy. Even cellular ARPU is stalled. How do you pay it all back?

Qwest is stuck too. Large debt. No buyer. Layoffs. Stagnant revenues.

Cable is in a similar boat: $100B in combined debt to upgrade to DOCSIS 2.0 and now another $100B to go to DOCSIS 3.0 without calculating wireless projects, massive fiber network builds (especially for tower backhaul), set-top boxes and acquisitions.

Where do you think this will all lead? And none of this has anything to do with regulations.

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