The Numbers Don't Add Up

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

The Numbers Don't Add Up

When Net Neutrality folks say we need competition, I laugh. Never gonna happen. Why? Competition that is just too big and powerful (for now).

When Agents cry about the ILEC Channel programs, I shake my head because it has been about the same or slightly declining for years. They don't want one and don't think they can afford one. They certainly don't want an Agent presenting the ILEC plus 2 CLEC's as the proposal to a prospect. They want a cheerleader doing that.

While reading this analysis, I have to ask why more Street people don't see these issues as well.

"It really hit me when I looked at AT&T's 2009 annual report, where they prominently display their unadjusted five year trends. When they ended 2005, AT&T had 49.4 million in-region network access lines in service, and $30.6 billion of total debt. Then they bought BellSouth and at peak had 66.5 million access lines and nearly $60 billion of total debt. Today (end of Q1), they have 48.1 million access lines and $69.5 billion of total debt. The entirety of BellSouth and $90 billion in market capitalization lost in three short years - with $40 billion in additional indebtedness. If that isn't a Reality Check, I don't know what is." [source: RCR]

The solutions of that analyst are 12K more layoffs, cost containment, ease up on the $3B in CAPEX spending, and double-down on the iPhone. Boring.

One item I noted: Special Access is a cash cow. "Transport represents about 25% of the business revenues, but more than half of the profit of the wireline division." Ask any CLEC or cellco or cableco and they will tell you that the ILEC's are raping them on Special Access rates (and they would be right).

Then there's VZ. "$7.1 billion in Q1 2010 cash flow from operations - $3.7 billion in capital expenditures - $1.3 billion in dividends = $2.1 billion to pay down debt. Like AT&T, Verizon has $7.1 billion of debt maturing this year."

"Over 80% of Verizon's net adds came from their wholesale channel.... Assuming a paltry 20% operating margin for the wholesale unit, the "rest of Verizon wireline" lost $300 million in the quarter."

"Another thing that Verizon didn't do well was convince customers to move to FiOS. In the past 4 quarters, 839,000 FiOS Internet customers have been added, but this has been offset by 454,000 DSL losses."

AT&T and Verizon together lost $22 billion in market capitalization.

13k cut last year; 13K to cut this year! OUCH! And the Union agreed to this!

These numbers may result in disaster. Heavy debt, declining revenue, and competition from cable. What happen when Windstream and CenturyQwest start taking away some Enterprise revenue.

I have often said that VZ will collapse under its own weight. Ma Bell too. Why? Short sighted. They don't try to grow any oceans. They try to drain them dry. That's not how you acquire loyal customers or retain customers. 

You can't just look at the stock price as the only metric. 

Innovation - remember that word? Chasing every buzz word - CDN. Cloud, SAAS, etc. - is not innovation. It's what Ford and GM did.

When you shed 100K employees: do you think these folks will be loyal customers afterwards? Considering how telco treats retirees, I would say 50/50.

When your best hope for future sales is the Indirect Channel, but you make it darn near impossible to get info and place orders, then you are basically recruiting agents for your competition. 

These are the reasons that the RBOC's have sealed their own fate.

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Feedback for The Numbers Don't Add Up


Peter your analysis rocks and if you are right you will prove the investors who have put billions of dollars into these companies wrong. You do have great points but I wonder if wireless won't be the savior for AT&T and Verizon. They get recurring dollars for iPhones and iPads and the iPad dollars are all incremental. I realize I am not the typical customer but I have a laptop with built-in Verizon EVDO and an iPhone and soon an iPad. Isn't this the direction the world is heading in? Won't we see really cool Android tablets which eat 3G/4G data as well? What do you think?

BTW I didn't even mention the smart grid and M2M markets - now they are puny in size but the potential is there for billions of dollars more of new revenue with little expense since these applications aren't customer facing.

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