You have probably read about the unemployment rate. I would love to know how many jobs that the ILEC's have shed in the last 3 years. 75,000? Probably more. Verizon has shed over 25,000 themselves in the last 3 years. AT&T is around that number too. Embarq lost a bunch when CTEL bought them. Qwest has a shed a bunch - and will shed a bunch more next year after the merger with CenturyLink. Windstream has let a bunch of people go with the Iowa Telecom and Nuvox acquiistions. I'm sure the synergies at KDL and Norlight will result in losses there as well. So 75K in 3 years is probably accurate.
The rural ILEC strategy has not been about Innovation or Fiber or Layer 7. It has not been about being a Community Technology Leader. (Well, in words, as the executives surrounded by digintaries hands over a check to a charity, but not in deed. An example would be how TWC and Embarq fought Wilson, NC so hard over the Greenlight FTTX project.)
So many missteps. LUS spent over $500k of taxpayer money fighting BellSouth and Comcast over its muni fiber project. I am confident that Duopoly spent close to $4 million with lobbying, misinformation campaigns, and legal battles. I'm not saying I am supporting muni fiber projects. I am saying that in both cases - LUS and Greenlight - it would have been a far better move to work WITH the community than to fight it. That's what I mean by Community Technology Leader.
It's not even about being a Technology Leader, because ADSL is not the best technology out there. In fact, Qwest and CenturyLink are both having troubles with DSL. CenturyLink only added 29,000 total and Qwest lost 52,000 DSL users.
Gary Kim writes that Telcos are poised to take more IT spend. From who? Would you move your IT services to a company that keeps shedding talent and knowledge? To a company that is far from a technology leader? Who will outsource it?
Look, the ILEC's HAVE to get into new revenue streams because they have mounting debt. Qwest has net debt of $11 billion. CenturyLink currently has about $1.2B in debt. Windstream has $6.6B in debt. VZ and Ma Bell have a combined $100B in debt. So does the Cable Industry. That's a lot of debt.
A couple of things to consider: new housing starts are down; foreclosures also mean bad debt for the Duopoly; about 65% of households already have broadband; 20-25% don't see the value. In other words, the growth may not be there as the pie - like the TV pie, the voice pie, and the cellular pie - is a zero sum game.
Qwest, CenturyLink, Windstream - all lack a cellular play. US Cellular, Metro PCS, Cricket or Leap would make for a smart acquisition- if the market would lend them the money for that purchase. (Of course, I have <a href="http://blog.tmcnet.com/blog/rich-tehrani/broadband/should-centurylink-be-focusing-on-wireless-not-copper.html"mentioned this before).
Following the Clearwire example of going Wholesale, maybe these ILEC's need to loosen up the way they deal with CLEC's. The revenue is less, but the margin is higher. Why? No sales & marketing effort; no customer support; and they still get to bill them with errors to make about 10% more annually.
The ILEC's want to be all things to everyone - residential, small business, enterprise, Fortune 5000, government, TV, broadband, big pipe, voice - and now IT support, managed services, cloud, collocation, hosting, and SAAS. As you continue to slash employees, how exactly does that work? When your company cannot even turn up a 100MB MIS circuit without three levels of escalation, how in the owrld would I think, "Yeah, I'm going to move my data and apps to them." Or I'm going to count on them to keep my office technology running. Huh?? There is a serious disconnect from the boardroom to the streets.
Cbeyond can integrate up the vertical because they already position themselves that way. It fits the brand. It fits the customer base that they target.
Everyone is thinking about how they can make money in the Cloud, but your biggest cloud players - Google, Amazon, Salesforce - stick to the knitting of cloud computing platforms. The ILEC's would have to make more acquisitions in the MSP/Cloud/Hosting space, integrate it enough to be billed on one bill and handled by a single sales force, but tech support will be a loo-loo.
Scale for the sake of scale is a bankers move. It's about numbers, money, looks good on paper. The next move the ILEC's make has to actually look good on the streets of the marketplace.