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Oct 27 2009   3:59PM GMT

Verizon quarterly financials tell classic telco story



Posted by: Tom Nolle
Verizon, wireless, FiOS, revenue, LTE, capex

Verizon delivered a classic US-telco story in the third quareter: Wireless was doing very well, telco TV was doing better, enterprise services were under price pressure, and wireline losses continued.

For Verizon, the net was better than Street expectations. Most encouraging were revenue gains of more than 10%, though about half of that was from the Alltel acquisition. Customer churn was up slightly in wireless, and DSL broadband subscribers continued to decline, but the latter was more than offset by broadband FiOS growth, suggesting that Verizon FiOS is attracting broadband users beyond its own DSL base.

The company promised investors that LTE would not generate a big capex surge, a relief given that the large up-front FiOS load is finally tapering down. In all, the story was good but not great. You can see that Verizon, like AT&T, is spending a ton of money on wireless and making a big bet it will be able to capitalize on that investment. We think that in the near term, that is almost certain. But the long-term viability of wireless depends on the ability of the operators to create value beyond voice and Internet.

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Jun 15 2009   1:05PM GMT

Unresolved: Broadband traffic, profits and investment



Posted by: Tom Nolle
Broadband, tiered services, capex, content provider

BT is apparently throttling some video download traffic to optimize experiences overall, in the words of the company. The news shouldn’t be a surprise given that operators worldwide are facing shrinking margins on broadband, demands for more capacity that would drive the need for incremental capex, and no clear opportunity for new revenue.

BT is also reportedly looking for content providers to share some of the costs of broadband media delivery, which again is no surprise given that it’s been a behind-closed-doors topic for almost a year now. We think the juxtaposition of these two items is no coincidence; access providers want everyone to understand that somebody is going to pay in some way; it’s just a question of the who and how.

As providers consider what to allocate capex dollars to for 2009/2010, they’re finding it harder to justify much of anything in wireline broadband, and certainly can’t do anything aggressive. The signs of this problem will be very clear in the second half of this year and through 2010, in our view.

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Jun 12 2009   1:42PM GMT

Networks are essential, but higher-layer services are the focus



Posted by: Tom Nolle
capex, enterprise services, Verizon, wireless

The head of Verizon Business says that the company is battling the perception that it’s a network player, a statement that shows just how much service providers like Verizon are focusing on above-the-network revenue for growth.

Its “strategic services” are growing, according to Verizon, and that’s also what we found in our spring review of service provider spending plans. There was an enormous focus on higher-layer opportunity for enterprise services simply because there was a universal reduction in profit for connection/transport services to enterprises.

Companies like Verizon are realizing that while networks are going to be essential to them forever, they’re not going to be profitable enough. In wireline, in fact, there is no hope of profit anywhere, which is why capex will be shifting more to mobile/wireless over the next three plus years.

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Apr 30 2009   1:10PM GMT

EU telecom profits and spending trends



Posted by: Tom Nolle
recession, EU, France Telecom, Deutsche Telekom, capex, Regulations

France Telecom missed consensus but had decent results, particularly in contrast to Deutsche Telekom’s miss earlier in the week. Mobile and TV services within France were the strong points; emerging market numbers and Eastern Europe were off.

Two interesting points: The company reiterated its full-year guidance and it indicated its capex-to-sales ratio was about 12%. This is well below the average of the industry in normal times. We’ve noticed that EU providers are being more sanguine regarding capex than those in many other markets, including the U.S.. We believe this to be in part because recovery there is not likely to come as quickly as in the U.S., and because of the threat of regulatory intervention on things like roaming rates and even access sharing that would likely lower profits.

The pan-EU regulatory program that creates this risk reached a compromise solution on file sharing and will now be sent to the member countries for ratification.

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Mar 23 2009   3:41PM GMT

Internet free ride wins “unrealistic” prize



Posted by: Tom Nolle
Cloud computing, over-the-top, Internet, capex, Internet adversiting

The Economist is sounding a warning that we’re resonating with (because we’ve sounded it too). The most recent issue points out that Internet companies and consumers have been vying for the crown of “most unrealistic.” Consumers want free services; Internet companies want a free ride on infrastructure, and nobody wants to acknowledge that advertising budgets worldwide for all ad forms wouldn’t pay the capex bill of network operators.

The tragedy of the current situation is multi-faceted. Silicon Valley is threatened with an unnecessary recession because it wants to pursue vacuous flips instead of more useful and thus eventually more sustainable models. The Internet companies are likely doomed to 50% or more attrition. The telcos are increasingly likely to throw in the towel on monetization and hunker down with bandwidth caps and tiered pricing that will stifle new applications and also stifle investment in equipment.

There is still time (through the end of this year, says our model) for radical action to save the industry from a drudge future. Media outlets are predicting a subscription model for content, and if over-the-top (OTT) players finally realize someone has to pay for stuff, the future for all will be rosier. But with all of this, there’s still a new study that says cloud computing needs open non-discriminatory access to universal communications. Sure, and we all need to win the lottery.

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