Recently in wireline Category

I'm not the brightest guy in the world. Yet over and over I see politicians and regulators make decisions that the other 99% of the US knows will be bad news. One such decision: approving the sale of Verizon's New England region to Fairpoint.

For one thing, agents can no longer sell in that region because Fairpoint thinks they can sell better than a telecom agent can. Ha! I'd put any agent I know up against any W-2 from a telco.

Two, even VZ knew that it would become too expensive to maintain the copper plant in New England; nevermind deliver broadband to most of it. But for some reason the regulators in 3 states and the folks at Martin's FCC approved the deal. Buying into the story that while a giant like VZ can't, an elfin telco like Fairpoint could, while saddled with the debt from the $2.3B deal. 

The customers in New England are not happy either. As much as 12% of its customers have bailed out. (To cellular and cable probably). But it could get worse as Fairpoint hinted back in March that it could file bankruptcy because of its debt. Verizon still owns about 60% of Fairpoint (I think).

The only happy camper was VZ who took a huge one time credit, released $1.7B in debt, and dumped a rural liability. And smiled the whole time.

In a similar deal, Hawaii Telecom went BK - that was a former VZ area. I know when Alltel (now Windstream) took over Eastern KY, it was like buying a termite infested house. VZ doesn't leave its assets in a state that anyone can work with apparently. Hence, the WSJ suggesting that Frontier learn its lesson from the Fairpoint deal.

From an FCC Filing by Birch:

On May 11, 2009, Birch Communications, Inc. (f/k/a Access Integrated Networks, Inc.), Birch Telecom, Inc. (BTI), and BTI's certificated subsidiaries, and Cleartel Communications, Inc. and its subsidiaries, Cleartel Telecommunications, Inc., IDS Telcom Corp., nii communications, ltd., Now Communications, Inc., Supra Telecommunications and Information Systems, Inc., and Telecon Communications Corporation, filed an application pursuant to section 63.03 of the Commission's rules seeking approval to complete a proposed transaction whereby Assignees will acquire substantially all of the customers, customer accounts, and telecommunications assets of Assignors.

The interesting part is this statement: "BTI is a Delaware corporation, and together with its subsidiaries, is wholly-owned by BCI, a Georgia corporation. .. The following U.S. citizens hold a 10 percent or greater direct interest in BCI: Holcombe Green (66 percent) and and R. Kirby Godsey (32 percent)." Two people collectively own pretty much half of all the UNE-P CLEC's in the Southeast.

With VZ shedding its last bit of rural landlines to Frontier, the blogosphere is alive with talk about Super RLEC's - Frontier, Fairpoint, CenturyTel, Windstream and maybe Qwest.

CenturyTel's coming merger with Embarq will give it the title as a top 5 ILEC is size. But these are declining assets as landlines are being shed for cellular and to some extent VoIP. How Super is that?

Telecompetitor writes, "For carriers that lack wireless assets, building the scale that can create  operational efficiencies and provide the means to profitably build and leverage broadband applications is paramount for future survival."

Building Super isn't easy. Fairpoint has been a flop. Huge debt. Broken promises. Increasing consumer complaints. Lots of line losses.  That's not Super.

I can't think of a single telecom merger that resulted in the synergies or integration that was promised. For the most part, it's just a CEO and Banker feast of bonuses. The consumers lose.

Look at Frontier. It isn't exactly innovation nation now. Sure it does some VoIP, but it's TV service is DISH TV resale.  And this RLEC has seen years of complaints at state PUC's, which means poor service. How will the integration with Verizon landlines improve that? I keep see the nightmare coming. Unfortunately, the regulators can't (or won't). (The same for the Embarq-CenturyTel deal. C-Tel's systems that I have interfaced with are older than dirt or PAPER!).

None of the RLEC's have a nationwide or even a fairly large cellular footprint. So it's just a matter of getting big and hoping to ride out the cash cow of wirelines, like EarthLink is doing with dial-up.

Although it was AT&T's CEO that said We are a Wireless company, it is the actions of Verizon that make you stand up and take note. Today, VZ reached a deal with Frontier - a $8.6B all-stock deal. As Frost & Sullivan analyst Vanessa Alvarez tweets, "$VZ and Frontier will create company called Spinco, $VZ will still own 68%."  It looks like another Fairpoint deal. The only happy camper is VZ. It gets richer, rids itself of responsibilities, and screws the consumers by leaving them with a rotting network and a financially burdened phone company.  Where are th eregulators in all of this??

"The deal includes all of Verizon's wireline assets in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin as well as some assets in California." [Yahoo]

Marketwatch announced that "Frontier will be merged with a separate, newly formed entity known as SpinCo, which will be spun off to Verizon's shareholders. ...SpinCo will carry approximately $3.3 billion of debt consisting of a combination of newly issued debt as well as assumed debt. Verizon will receive about $3.3 billion of cash or debt relief."

Looks to me like another Fairpoint deal. Ask New England subscribers how they feel.

 Thanks to the Arkansas Democratic Gazette for the chart.

Despite a big drop in earnings and revenue for the first quarter 2009, Windstream still managed to buy some more lines and customers by snatching up D&E Comm.

D&E Communications is an ICP, an  integrated communications provider, offering residential Voice, Video, Broadband and On-Site Computer Support services as well as business-class Networking, Business Continuity, IT, Security, Voice and Training solutions. D&E is an ILEC and a CLEC.

This stock-and-cash deal (worth about $330M)  "nearly doubles the company's operating presence in Pennsylvania with the addition of approximately 165,000 access lines and about 44,000 high-speed Internet customers."  That's about $2000 per subscriber.

"D&E Communications generated $148 million in revenue and $64 million in operating income before depreciation and amortization (OIBDA) in the twelve months ended March 31, 2009."  So the buy is about 2x Annual Revenue for those hoping to play at home.

"The transaction also includes six wireless licenses for 700 MHz spectrum covering a population of approximately 1.3 million in central Pennsylvania," according to the press release. 

While Windstream isn't having a strong quarter with dipping revenue, it is doing okay selling Internet and TV. It passed 1 million high-speed Internet subs by adding net 31,000 this quarter. In addition, more than 21,000 digital TV customers were added, bringing the total TV count to about 295,000. "It also recently finalized an agreement with DISH Network to sell digital TV to Windstream's commercial customers, Gardner said."

 

There are only 3 RBOC's left: AT&T, Verizon and Qwest. In the new Fortune 500 listing, telecom has 21 companies listed. The top 2: Ma and Pa Bell. AT&T has revenue of $124B. VZ is $97B. Profit for AT&T is $12.9B, and only $6.4B for VZ. I say only because the profit is half that of AT&T. I guess building out FiOS and buying Alltel costs a few bucks. And I bet it adds a huge amount of debt. Factor in the LTE buildout (after the 2.5G and 3G upgrades) along with rumor that VZ wants to buy out Vodafone's 45% stake in Verizon Wireless. I guess the New England landline sale to Fairpoint only gave them a tax credit and less debt, no real profit.

Notice that Sprint is # 3 on the F500 list but lost $2.8B on $35B.

Qwest is #6 after Comcast and DirecTV! Qwest's $13.5 billion in revenue result in less than $1B in profit -- just $681M.  But they did better than Charter which lost $2.5B; Virgin Media that lost $1.7B; and Cablevision which lost $228M on $7.2B.

We'll see how the pricing and marketing pressure affects these numbers in three quarters.

There are so many mobile voice apps I cannot even keep track. Some are convoluted. Some are callback services. Some are pure packet based VoIP that eat up data usage. Others actually use up minutes.

With all the hype about Skype on the iPhone, I have to wonder why you would need it. Most cellcos offer an unlimited plan. Are you making THAT many international calls on your cell phone? How many people could that possibly be?

Don't people work in an office at all? Couldn't or more correctly shouldn't important phone calls be made at the office? Here are the benefits of calling from the office: the background noise is less, the sound of flushing toilets is minimal, and no one can overhear your conversation. Oh, yeah, HD calling! At the minimum, you have better call quality than a cell phone at the office.

I know that people travel more than I do - Rich certainly does - but how much international dialing are you doing? It would seem that any domestic calling can be done via your cell plan. Conference calls? How about Google Voice or other conference platform that dials out?

It just seems like there are so many mobile VoIP apps and not enough benefit to the caller. Also, as Gary Kim writes here, this will likely result in more expensive data plans. What Gary didn't mention is that the cellular network is based on a finite bandwidth schema. Voice calls take up less than 10K. VoIP calls have to take up at least 35k, so every VoIP call is taking up about 4 voice calls. That's a huge displacement. Add in backhaul costs that have now quadrupled and the cost structure (or more precisely the RBOC profit structure) just went out of whack.

At the end of the day, I don't understand the mobile VoIP app.

This from Telephony online and the Convergence Consulting Group:

The latest in an annual study of the bundled services market shows US telecom service providers are losing wireline voice customers at a faster pace and being transformed in the process into companies that will look very different from their traditional telecom roots. The Battle for the American Couch Potato: Bundling, TV, Internet, Telephone, Wireless, released this week by the Convergence Consulting Group, shows maintaining a broadband connection is increasingly important to telecom providers, as wireline voice services become much less important.

If you look at the numbers in that PDF report and you still think that the QBPP is a viable option or that the last 400K businesses in the BellSouth region will somehow see the light and convert, I have some land for you in South Florida.

I have written about this in years past: the telcos have finally hit the wall. Everything is flat or down now: TV, wireline, cellular, and broadband. Granted most numbers are for residential, not business accounts which agents sell, but this will affect the entire telco business. Telco moved from the most profitable service - Voice - to Internet (the 2nd most profitable) - into TV, which is te least profitable. Why? Set-top boxes cost $400 per pop. How do you recoup that $5 per month rental? Most of the pricing goes straight to the content. You know, Disney and ESPN want their dough. Then there's the network upgrade for TV (and high-speed internet), which although VZT says is under $900 per home passed, the numbers I see are closer to $2000. Let's factor in the advertising. I get something almost everyday from VZ. At even $0.75 per mailer that's $15 per month. Times how many homes passed?  See how that may slow the telco engine? Plus MSO's moved from the least profitable service (TV) to the most profitable (Voice). And MSO's are getting into mobile data and maybe cellular voice with Sprint.

When you look at the summary from Convergence Consulting Group, it looks bleak.

• We estimate Cable's double play base of TV and Internet subscribers YE2008 at 61% (we forecast 79% YE2011). The RBOC/Telcos residential telephone to broadband overlap was 33% at YE2008 (we forecast 54% YE2011). Hence, it's easier for Cable to add voice customers off this overlap than for the RBOC/Telcos to add TV customers.
• 2008 RBOC/Telcos residential wireline telephone line loss was 10%.
• Wireless Substitution was responsible for about half the loss and Cable for the other half.
• We forecast Cable will have 23% of residential telephone subscribers by YE2009.
• We estimate wireless-only households at 20% at YE2008.
• Wireless annual subscriber additions continue to slow, 2008 saw 15.6M (2007 saw 22.4M) and we forecast 13.9M in 2009.
• Data continues to drive wireless ARPU growth (voice ARPU is declining). We forecast that price competition, which intensified in 2008, will continue to increase going forward.

Telcos are building out high-speed networks for TV and Internet, which is costing a bundle, at the same time that they are forklift upgrading the cellular networks to 4G. Have they even paid off the debt from constructing the 2.5G and 3G systems? Meanwhile, Charter is bankrupt and the rest of the MSO's have to upgrade to DOCSIS 3.0 while also constructing WiMAX networks. All while the ARPU is decreasing and the customer acquisition costs are increasing.

With these kinds of pressures on the RBOCs, imagine the pressure on the ILECs without a cellular division like QWEST, Embarq, Windstream, Frontier and Fairpoint. Landline losses that cannot be off-set by TV or cellular revenues. Yikes! Basically, the EarthLink strategy right? Cost cutting as the primary executive decision. Right out the knitting until its over.

Where do you think Agents come into that play? With losses, an easy cost cutting measure is to stop paying agent commissions. Think about your Channel Partners in 2009.

I'm in Orlando today speaking all morning, starting with CLEC Therapy III. I have moderated three other CLEC sessions that discussed such things as collocation, gear, and technical details. Today, we will be pulling 2 ISP's out of the audience to give them a makeover. In other words, we will sketch what they do versus what they should do.

• Why become a CLEC?
• What is the process to become a CLEC?
• What are you going to offer?
• Who will you target?
• Is there enough margin?
• DIY or Outsource?
• Other streams of Income
• How will you Market it?

After that 2 hours, I will be moderating a panel of ITSP's on How to Sell VoIP. We will examine the sales process to sell VoIP to a small business with 15 handsets. It's one thing to take the step to offer VoIP services to your marketplace; it's another thing to actually know how to sell it. And it won't sell itself. If it did Vonage and SunRocket is all I'm saying - and I wouldn't be seeing MagicJack infomercials all over the television.

It looks like AT&T is heading for a strike. Most people at AT&T I know have already been cross trained (I use that term loosely) to handle union jobs. A wholesale account manager will be heading to Michigan to be a T1 installer. Nice. Glad I don't have any AT&T orders in the system.

Also, it looks like AT&T is keeping its sales meetings quiet. (No logos. No banners.) I guess they are afraid that if the union or press get wind of the mega-bucks parties that they threw in Dallas in January and next month in Miami, that there might be trouble. The 94 Solution Providers that won Champion awards are set to meet at the Diplomat in April.

There has been much discussion about ethics in the channel. How ethical is it for carrier channel managers to poach agents and deals away from master agencies to move them to "preferred" Champions? This has been going on for some time. It doesn't say much about the Integrity of people in the Channel. And if you are a Master Agent who benefits from poaching, it comes around. The only thing anyone at Bell is loyal to is there own pocketbook. When you start slipping -- and they all do -- you will be thrown by the wayside and picked apart -- to help build up the next "preferred" partner.