http://www.usatoday.com/tech/columnist/kevinmaney/2006-03-07-att-bellsouth_x.htm
AT&T-BellSouth merger grows from weakness Three years ago, BellSouth CEO Duane Ackerman popped into our offices to tell us how miserable his business was. Dissing your company is not normal everyday CEO behavior. But Ackerman needed regulatory help from Washington. So he might have been acting like a kid who wakes up on a school day with a sniffle and pleads that he's caught the bird flu. But still, he certainly convinced me that BellSouth - and the local phone industry in general - was about the suckiest business going. "I've lost 30% to 34% of business customers across our territory - 50% in some areas," he said, noting the success of competitors such as Level 3 and (back then) WorldCom. "On the consumer side, we've lost 8% to 9%." He brought out charts with lines and bars going in worrisome directions, showing revenue shrinking, stock prices falling and huge fixed costs that wouldn't go away. And that was before Internet phone calls, cable companies and wireless turned into more serious competitors to wired phones. If anything, BellSouth's future looks worse now than it did then. Worried that a merged AT&T and BellSouth are like some Ma Bell Frankenstein, reassembled and about to terrorize all of communications? Here's another view from some smart analysts: AT&T is already a leaky boat, and it's about to pay $67 billion for another hole. Francis McInerney of research firm North River Ventures tends to speak in dense consultantese and illustrate points by using circles on X-Y axis charts. But over the past decade, he's been right more often than not about telecom companies. His charts show that AT&T can't grow much and has poor "capital velocity" - which essentially means the company has so much debt and overhead that it can't use its income efficiently to stay ahead of the competition. "Buying BellSouth does nothing to solve AT&T's core problem," McInerney says. "All AT&T does with this deal is slow down its own decline." "They're merging out of weakness, not strength," chimes in telecom commentator Glenn Fleishman, who runs Wi-Fi Networking News. The local phone companies' biggest tribulation - and this includes AT&T, BellSouth, Verizon and Qwest - is that their main business is built on an expensive infrastructure that's quickly becoming obsolete. They are like railroads at the dawn of the jet age. They send calls around using circuit-switched networks when the world is moving to Internet-style networks. They have millions of miles of skinny copper wire underground and on telephone poles at a time when whole cities are starting to build wireless broadband Internet systems that are better and cheaper. McInerney and other analysts figure the local phone companies all together have $350 billion to $400 billion worth of obsolete assets on their books. They can't write them off without financially collapsing, so there they sit, slowly sucking the life out of these companies from inside, like tapeworms. AT&T and Verizon do have vibrant, growing wireless businesses, but it's just not enough help. Their local phone operations pull in billions of dollars of revenue, but that's not enough, either. The companies are burdened by too much legacy junk, and they have too little ability to compete with newcomers such as Vonage and Skype - which is why the Bells resort to asking the government for help, or to tactics such as trying to charge websites more for speedier access, effectively hampering voice-over-Internet services such as Skype. The phone companies have repeatedly announced plans to modernize by building Internet protocol networks running high-speed fiber to homes to bring us high-speed Internet, TV and movies on demand. I've heard this going back to the early 1990s, when Ray Smith was CEO of Bell Atlantic and he showed me demos of the Stargazer TV system he was all set to deploy - but didn't. In 2006, a few communities have phone-company TV, but for the most part it's about as common as other things we were supposed to have by now - such as flying cars and domestic robots. "Using their own data, Verizon and SBC claimed they would spend $48.9 billion and have 36.5 million households by 2000" on hot new broadband systems, says Bruce Kushnick, who this week released his e-book The $200 Billion Broadband Scandal, which details alleged phone company misdeeds in broadband. "This was fiber-to-the-curb services ... with 500-plus channels," Kushnick says. Not only did those build-outs not happen, Kushnick says, but every time one local phone company merged with another, nascent broadband projects got shut down. "These companies failed to deliver on their fiber-optic commitments, and it is now clear that the mergers were to blame," he says. After Sunday's announcement, AT&T CEO Ed Whitacre said the combined companies would be in a better position to build new networks and compete with cable TV. But if history repeats, those projects will get just about as much priority as McDonald's gives to health food. None of this discounts the power of AT&T or Verizon at this moment. The majority of people still make calls on old-fashioned land lines and the newcomers are still, well, newcomers. "While there's a lot of technology out there, the amount of actual, effective competition is much less," says Lauren Weinstein, co-founder of activist group People for Internet Responsibility, which is against the AT&T-BellSouth merger. But the not-very-distant future threatens to be a lot more harsh for AT&T. Apparently, that future becomes more likely if the local phone companies merge to their hearts' content. Kevin Maney has covered technology for USA TODAY since 1985. His column appears Wednesdays. Click here for an index of Technology columns. E-mail him at: [EMAIL PROTECTED] -- Joe Plotkin NYCwireless Board of Directors email: [EMAIL PROTECTED] phone: 212.982.9800 web: http://NYCwireless.net ======================== NYCwireless is a non-profit organization that advocates for, and enables the growth of free, public wireless networks ======================== -- NYCwireless - http://www.nycwireless.net/ Un/Subscribe: http://lists.nycwireless.net/mailman/listinfo/nycwireless/ Archives: http://lists.nycwireless.net/pipermail/nycwireless/
