In a recent article in the Economist the author states:
"Telecoms operators are seeing customers abandon landlines at a rate of 700,000 per month. Some analysts now estimate that 25% of households in America rely entirely on mobile phones (or cellphones, as Americans call them)—a share that could double within the next three years. If the decline of the landline continues at its current rate, the last cord will be cut sometime in 2025."
Well, so what! Verizon has a brilliant strategy with FIOS and its selling of its unprofitable properties. Let us briefly re-examine this strategy. We had presented it in 2002 in a paper we delivered to the White House staff. At that time we called it "The Imminent Collapse of Telecom" but it was the collapse of copper. It was not the collapse of the business.
The Verizon Strategy is simply three steps"
Step 1, Get Rid of the Junk:
Verizon is focusing on fiber and mobile, not copper. Thus in all markets which are not amenable to fiber, economically or otherwise, they sell it off. Look at Fairpoint, Frontier, Hawaii. Why keep something which is not consistent with the strategy.
Step 2, Build the Mobile Franchise
The mobile franchise is a valuable and growing franchise. When I was COO of NYNEX Mobile, a predecessor to Verizon Wireless, I saw and stressed the fact that mobile was not just a replacement for a wire but was a continual contact point with the customer. The management at the time wanted to keep the minute rate up and ensure a high ARPU. I, on the other hand, argued for penetration, even at lower ARPU because we could then expand services on the platform.
Step 3, Migrate to Low Cost Fiber
This is a simple step. Focus on markets that are profitable in fiber and build it out. Pay for this by selling central offices and have cash left over. Move to the multimedia business. Brilliant! Now instead of thousands of Central Offices and inefficient union technicians they move to two IP based hubs and use outsourced fiber optic techs. Their costs drop through the ground. Copper is higly unreliable in the long term. Fiber is glass, it lasts forever, unless cut, say by the unions as they are wont to do frequently in New York!
The critics on one I really do not get. Take for example the quote from the same article:
"Nonetheless Verizon and AT&T, its main competitor, are still mostly “wireline”, says Craig Moffett, an analyst with Bernstein Research. According to his calculations, both firms’ landline businesses generate more than 50% of revenues, and an even higher share of costs. The two firms and Qwest, America’s third-biggest landline operator, have already shed thousands of jobs and announced further lay-offs to cut costs. But the accelerating loss of landlines will put increasing pressure on profit margins, argues Mr Moffett, as the high fixed cost of running the network is spread over an ever smaller number of customers. It is also likely to lead to higher bills for captive customers such as businesses with switchboards, which cannot do away with their landlines so easily."
Moffett just does not get it. Verizon is dumping bad markets, rebuilding good markets, and using fiber to drive down long term costs while providing a platform which will control the electronic marketing and distribution channels of the future. They will be the only electronic shopping mall operator in their regions! Brilliant. Does Moffett not think that Seidenberg, who started his career as a craftsperson does not understand the costs of copper! He is a genius in strategy and Moffett appears just not to understand!
He continues:
"Even if Verizon and AT&T can overcome their “wireline problem”, says Mr Moffett, it will not go away. Most telecoms operators do not have a mobile business to fall back on. Fairpoint, a firm which took over some of Verizon’s landline business, is struggling. Hawaiian Telcom filed for bankruptcy in December, not least because it was losing landline customers at a rapid clip. Such a fate raises the question of what will happen to the industry’s huge unfunded pension liabilities. Taken together, the future obligations of AT&T and Verizon are as big as those of General Motors before its recent bankruptcy."
Two quick observations.
First, Verizon has dumped its junk on Fairpoint, Fronteir and Hawaii. The Hawaii case was one where it was purchase by Carlyle Group with Bill Kennard the former FCC Chair running it. So much for Washington insiders. Before it was taken over it was always a goldmine. New Management sent it down the tubes.
Second, the balance sheets, well if anyone looked they would see as we wrote a couple of years ago that Verizon for one is sitting on hundreds of billions of real estate! It is on the books at cost. They sell it off as they need it. Take 60 State Street in Boston. That alone could pay off the build out of fiber for the suburbs! Then there is the Back Bay CO and on and on! The real estate Mr. Moffett is not chopped liver, even in today's market.
Moffett is finally quoted as:
"The danger, says Mr Moffett, is that regulators will introduce new taxes on wireless and broadband services. Revenues from new services would then be used to keep an obsolete infrastructure alive—a recipe for lower growth. At that point, he says, the “wireline problem” really will be everyone’s problem."
Why in God's name would Verizon want to keep the copper! They are selling it off as quickly as they can and overbuilding at a similar pace. This makes absolutely no sense! Verizon, when it builds a FIOS system, closes down the copper. It is a quid pro quo!
"Telecoms operators are seeing customers abandon landlines at a rate of 700,000 per month. Some analysts now estimate that 25% of households in America rely entirely on mobile phones (or cellphones, as Americans call them)—a share that could double within the next three years. If the decline of the landline continues at its current rate, the last cord will be cut sometime in 2025."
Well, so what! Verizon has a brilliant strategy with FIOS and its selling of its unprofitable properties. Let us briefly re-examine this strategy. We had presented it in 2002 in a paper we delivered to the White House staff. At that time we called it "The Imminent Collapse of Telecom" but it was the collapse of copper. It was not the collapse of the business.
The Verizon Strategy is simply three steps"
Step 1, Get Rid of the Junk:
Verizon is focusing on fiber and mobile, not copper. Thus in all markets which are not amenable to fiber, economically or otherwise, they sell it off. Look at Fairpoint, Frontier, Hawaii. Why keep something which is not consistent with the strategy.
Step 2, Build the Mobile Franchise
The mobile franchise is a valuable and growing franchise. When I was COO of NYNEX Mobile, a predecessor to Verizon Wireless, I saw and stressed the fact that mobile was not just a replacement for a wire but was a continual contact point with the customer. The management at the time wanted to keep the minute rate up and ensure a high ARPU. I, on the other hand, argued for penetration, even at lower ARPU because we could then expand services on the platform.
Step 3, Migrate to Low Cost Fiber
This is a simple step. Focus on markets that are profitable in fiber and build it out. Pay for this by selling central offices and have cash left over. Move to the multimedia business. Brilliant! Now instead of thousands of Central Offices and inefficient union technicians they move to two IP based hubs and use outsourced fiber optic techs. Their costs drop through the ground. Copper is higly unreliable in the long term. Fiber is glass, it lasts forever, unless cut, say by the unions as they are wont to do frequently in New York!
The critics on one I really do not get. Take for example the quote from the same article:
"Nonetheless Verizon and AT&T, its main competitor, are still mostly “wireline”, says Craig Moffett, an analyst with Bernstein Research. According to his calculations, both firms’ landline businesses generate more than 50% of revenues, and an even higher share of costs. The two firms and Qwest, America’s third-biggest landline operator, have already shed thousands of jobs and announced further lay-offs to cut costs. But the accelerating loss of landlines will put increasing pressure on profit margins, argues Mr Moffett, as the high fixed cost of running the network is spread over an ever smaller number of customers. It is also likely to lead to higher bills for captive customers such as businesses with switchboards, which cannot do away with their landlines so easily."
Moffett just does not get it. Verizon is dumping bad markets, rebuilding good markets, and using fiber to drive down long term costs while providing a platform which will control the electronic marketing and distribution channels of the future. They will be the only electronic shopping mall operator in their regions! Brilliant. Does Moffett not think that Seidenberg, who started his career as a craftsperson does not understand the costs of copper! He is a genius in strategy and Moffett appears just not to understand!
He continues:
"Even if Verizon and AT&T can overcome their “wireline problem”, says Mr Moffett, it will not go away. Most telecoms operators do not have a mobile business to fall back on. Fairpoint, a firm which took over some of Verizon’s landline business, is struggling. Hawaiian Telcom filed for bankruptcy in December, not least because it was losing landline customers at a rapid clip. Such a fate raises the question of what will happen to the industry’s huge unfunded pension liabilities. Taken together, the future obligations of AT&T and Verizon are as big as those of General Motors before its recent bankruptcy."
Two quick observations.
First, Verizon has dumped its junk on Fairpoint, Fronteir and Hawaii. The Hawaii case was one where it was purchase by Carlyle Group with Bill Kennard the former FCC Chair running it. So much for Washington insiders. Before it was taken over it was always a goldmine. New Management sent it down the tubes.
Second, the balance sheets, well if anyone looked they would see as we wrote a couple of years ago that Verizon for one is sitting on hundreds of billions of real estate! It is on the books at cost. They sell it off as they need it. Take 60 State Street in Boston. That alone could pay off the build out of fiber for the suburbs! Then there is the Back Bay CO and on and on! The real estate Mr. Moffett is not chopped liver, even in today's market.
Moffett is finally quoted as:
"The danger, says Mr Moffett, is that regulators will introduce new taxes on wireless and broadband services. Revenues from new services would then be used to keep an obsolete infrastructure alive—a recipe for lower growth. At that point, he says, the “wireline problem” really will be everyone’s problem."
Why in God's name would Verizon want to keep the copper! They are selling it off as quickly as they can and overbuilding at a similar pace. This makes absolutely no sense! Verizon, when it builds a FIOS system, closes down the copper. It is a quid pro quo!
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