Are the Telcos in Deep Trouble?

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

Are the Telcos in Deep Trouble?

When you bet the farm on cellular things may not go as planned, especially when you are spending $9B a year on the network alone.

"Verizon ended the fourth quarter with 108.2 million total retail connections and 102.1 million total retail postpaid connections," according to Fierce. At an ARPU of $51.55 according to this site. That is $5.58 Billion per month! However, cost of acquisition is now just above $650- give or take a phone or tablet. Bring in one million new additions and that will cost you a lot of semolies.

Moody's is worried about the debt load of both former RBOCs: "AT&T and Verizon are the most indebted non-financial corporate issuers in Moody's-rated universe, with total debt of $129 billion and $120 billion respectively as of 30 June, according to the report, "AT&T Inc. and Verizon Communications Inc.: As Credit Cycle Fades, Big Debt Balances Leave Narrow Safety Margin."

Seeking Alpha calls into question the cash flow and debt problem of VZ. After the $130B deal to buy Vodafone out of VZW and a couple of years of $10B spectrum buys, VZ is looking for cash.

It is selling wireline in 3 states - FL, TX, CA - to Frontier for $10B if it gets approval and FTR can get the money from the Street.

It first shopped Terremark around, a company it acquired for $1.4B in January of 2011. Revenues are about $300M there.

Then rumors were flying about VZ selling VZB, essentially the enterprise division consisting of old MCI assets. They couldn't get their asking price.

Now Reuters is reporting that VZ is auctioning off its data center business. The data center space is still hot. One reason: unlike other aspects of telecom, data center closely resembles real estate, something that every investor can wrap their head around.

"AT&T Inc (T.N) has been exploring a sale of its data center assets since last year, while CenturyLink announced in November 2015 that it was exploring strategic alternatives for its data centers. Windstream Holdings Inc (WIN.O) also sold its data center business for $575 million to TierPoint last year." [Reuters]

Frontier is riddled with debt as it buys old assets from the RBOCs. It hasn't upgraded DSL to FCC broadband speeds yet - and as this DSL Report shows, it is paying dearly for it. Fairpoint keeps its head down after its BK. We have all seen the carnage that is the Windstream story.

When the price of the commodities you sell is declining or flat and your market share has eroded due to cable competition, you have to find cash somewhere. You also have to take some risk and look for a pivot - like buying AOL and launching an OTT video service.

We live in interesting times. Who thought the RBOCs would ever be up against it.

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