Is Rural Wireline Profitable?

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

Is Rural Wireline Profitable?

Exhibit A: Fairpoint Communications. Small rural telco merges with New England Verizon assets and billions in debt. The 3 state utility commissions were uneasy about the merger to begin with. Two years later, Fairport is struggling to get out of bankruptcy court.

IBM has a 2015 Telco report that starts with:

"In 1999, only 15 percent of the world's population had access to a telephone; by 2009, nearly 70 percent had mobile phone subscriptions. This decade has also brought steep declines in public switched telephone network (PSTN) voice revenues, an explosion of over-the-top (OTT) communication services, phenomenal growth in mobile communications, global industry consolidation and even ground-breaking telco decisions to outsource their networks."

IBM writes about survivor consolidation stating: "Investors' loss of confidence in the telecommunications sector produces a cash crisis and elicits industry consolidation."

I don't know if that is the root of the Windstream and CenturyTel consolidation moves, but the increased debt with declining wireline revenues does indicate a long term problem. No FTTX and No cellular play makes for a tricky future, especially to repay that debt.

Look at the trouble Fairpoint is having. Competition is taking lines away from the bankrupted carrier in New England, which might be why Vermont's Public Service Board rejected Fairpoint's plan to exit BK.

"Those projections, the board said, were "based upon the assumption that FairPoint's losses in local revenue due to competition will be less than the company has experienced recently, that it can increase revenues from broadband services and special access services faster than it has recently, and that operating costs will trend downwards relative to recent experience."

This is the second BK for ILEC's. Eyes will be on Frontier (Exhibit  B) as it merges with the rest of VZ's rural assets.

Meanwhile, eyes are on VZ (Exhibit C) to see how it can grow revenue as it spends billions in all of its divisions - international, FiOS, wireless, and business services (managed services, Internet, MPLS, CDN, Cloud). Lots of billions in two flat markets - FiOS and cellular - besides the wireline. However, VZ isn't experienced in selling anything like business services like managed services, apps and the cloud. Net-head stuff versus Bell-head organization. And then there's VZ's massive debt ($61B in outstanding debt, according to VZ; $22.2 billion of Alltel debt; $187B total debt according to Yahoo.

Exhibit D: IOC's. Independent Operating Companies. These telcos have the same issues: declining landline revenue and no cellular replacement money. During the real estate boom, some of these IOC's were seeing increases in subscribers. That has halted. The NTCA works hard to educate its members on emerging technologies and success stories (mainly during webinars).

There are ways to make gold out of copper, but you have to be creative. And the customers have to be geographically dense.

Will cloud be an answer? Or just the ultra-fast dumb pipes to the apps? We'll have to wait and see.

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