The Cost of Competition

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

The Cost of Competition

As the new FCC enters a pro-Big Boy era (again), competition will not be a word we will hear often. Consolidation is making it hard to find more than one carrier in a building. - or a territory.

The Age of the CLEC - the competitive carrier - is at end. They fill gaps now, like Birch, Bullseye and Granite for POTS and other legacy services. XO is part of Verizon. EarthLink absorbed by Windstream to become like AllWorx, USLEC and Paetec, a memory. Level3 will be a division of CenturyLink, where it will cease to be a rival to the RBOC in the Enterprise.

Net Neutrality is going away. That zero rating investigation to determine if giving some content a free rideover all other content was fair has been closed.

It is simply cable or ILEC. And both groups have to be wondering how much longer they can continue to carry their massive debt. The big dilemma is that ARPU is stagnant but subscriber counts have peaked. Cord cutting is a real issue for cable, telco, satellite and content owners. NBCU closed two channels recently and re-branded another. Apparently, twenty five cents per subscriber per channel per month isn't enough any longer. And advertising rates are a little off too. The economics of many legacy businesses are being blown up!

The cost of services increases as more small cells are deployed to blanket coverage for 4G LTE, LTE-Advanced and how much will 5G cost? If ARPU is stagnant for cellcos in this price war, yet the cost to build and maintain the network remains constant and you don't lose any subscribers, all is good.

Sprint and T-Mobile have waged a brand battle against Verizon and AT&T. It has worked to a degree. But all 4 carriers are losers. The foreign owned T-Mobile and Sprint can afford to lose money for a while, but how long?

With the subsidized phones are gone so are contracts and large ETFs. More churn. Higher cost of customer acquisition. Ma and Pa Bell already saw this small business broadband and voice. Then they lost the consumer broadband and voice market. Now the cellular market is up for grabs.

Verizon is looking at buying Charter now. Rumor has Comcast looking at buying its 4G backup partner, T-Mobile. The cablecos denied cord cutting until it was too late. Telcos denied cable competition until it was too late. There really aren't any visionary CEOs in our space.

The problem remains the same: at some point you have to be make money, not just on paper.

Debt payments, network CAPEX, stock dividends, payroll and pension liabilities are a burden to ILECs - all of them: Frontier, AT&T, Verizon, CenturyLink, even Windstream and Fairpoint (who sold out to Consolidated).

Revenue is getting crushed as the cost of bandwidth, transport and transit collapse. Voice revenue has declined. Text revenue is flat. OTT apps have taken video calls (Skype, Facetime), some voice calling (Messenger, WhatsApp), SMS/MMS. What's left? The Enterprise market and the Government market.

What happens when there are just 4 carriers? Is the channel necessary to sell monopoly services? Well, see.

Some other points:

With subsidized phones gone, how will that affect phone makers long term? Will we see the leaps in tech that we have so far? Unlikely. Google Pixel at $649. The iPhone 7 is $700. Not that many folks are going to drop that cash every 18 months to two years. (Note to self: Get in the smartphone/device insurance business!)

When will the next highly desired device come along to prompt an exclusive carrier deal (a la AT&T and the original iPhone) to drive signups?

Even Sprint is Buying into the business of streaming media with a $200M investment into Tidal, another money losing music streaming service.

As someone at lunch pointed out, many foreign LECs like Vodafone, BT, Telstra, even NTT, are sitting on tens of billions in cash. They could buy into the US market.

We sit at the nexus point of some interesting times.

Did you notice that UCaaS consolidation halted? Yeah, me too.



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