Just some general thoughts on large corporations, financing, and business. While Peter's analysis about silos and funding sources is right on, I'm going to skirt that discussion because it isn't a meaningful discussion on a superficial level.
How do they make money? (Well, if they do make money--some don't). 1. Long term investments: While, in some respects the thirty year cycle doesn't work for Internet, in other respects it does, especially when you are talking transport. True, the equipment may need to change--but, fiber invested in now will be monetizable for the next 50 years. While I don't think that 10-20 year ROI is practical (or smart) for most smaller companies, many smaller players do hamstring themselves by only looking at models that can be profitable in 3-6 months. Financing may be needed, but it is often worth it. A good example to this is CLECs that took the easy money for several years and never made any long-term investments (I'm sure Peter can supply some details about the networks that were never built, despite billions of dollars that came and went). 2. Long term loans: I'm seperating this out, but it is tied into the long term investments. Sure, fiber layed today may take 5 years to pay for itself. But, if it is paid for out of a 15 year loan, it can be "profitable" from day one. 3. Better monetization: (More upsells). Take a look at your phone, cable, and cell bills, and think about how much of that is upsold from "basic" service. Basic cable costs $20; yet most people have packages costs $50 or more. Basic cell phone service is $35-45, but many pay closer to $100+. In other words, they get 2x-3x the revenue for additional services that don't really cost them anything. A good example of this is Verizon's FiOS buildout, which I gather Peter is quite sceptical of. $23 billion dollars by 2010; but only 200,000 customers by the end of 2006. On the surface, this does seem to be a little unprofitable for the next few years, but I'm not so sure... A good triple play customer can net a company an average of $125-$150 per month in revenue. This means, over the course of 10 years, that customer is worth $15,000! Those 200,000 customers, by 2015, will have paid Verizon a total of $3 billion dollars; given the reach of Verizon's buildout; those 200,000 customers are just a drop in the bucket. Given that Verizon can get long term loans on these projects; it can be "profitable" pretty early on. It may blow up in their face, given competition--but, I actually think they are in good shape considering how versitile fiber is; their network expansion will serve them for decades to come with only hardware upgrades necessary to squeeze more out of the fiber. Anyway, I digress :). I just know the Verizon numbers a little better, so it makes a clearer example. But, given that Clearwire is hoping to squeeze more than $50 ARPU from this ($600 per year) (combined voip/data), will eventually have more or less nationwide service with the ability to truly take on cellular networks in a big way, and so forth, $180 customer acquisiton cost is not a bad deal. Vonage pays more than that per customer acquisiton and only gets $300 ARPU at best--but then, they are also not doing so well financially :) -Clint On 3/29/07, Travis Johnson <[EMAIL PROTECTED]> wrote:
The problem with that is eventually all of those income sources (IPO, credit line, investors, etc.) dry up... and then you are left with revenue to try and pay all the others (hardware, long term and monthly debt, etc.). It can work, but I just don't see it in this industry. With $30/month accounts (with little or no add-ons that the cell companies used to have like vmail, long-distance, over-minute usage fees, etc.) there just isn't that much profit. The other difference is most telco's (and even cell companies) operate on a 30 year ROI. That just doesn't work in the internet world. I guess only time will tell. Travis Microserv Peter R. wrote: > I've spent much of this year analyzing the financials of Vonage and > other companies. I just finished looking at VZ. > (http://radinfo.blogspot.com/2007/03/vz-spending-billions.html) > The numbers make no sense. But then under GAAP accounting its all > about putting your numbers in the proper silo and never changing. > > Where does the money come from? > Some of it is debt. > Some of it is hardware financing. > Some of it is IPO money. > Some of it is a credit line. > Some from investors. > A little from revenue. > > George Rogato wrote: > >> I think it's the money raised from the sale of stock. >> Because if the 180 doesn't leave any profit, what about all the radio >> and tv advertizing they do? >> -- WISPA Wireless List: [email protected] Subscribe/Unsubscribe: http://lists.wispa.org/mailman/listinfo/wireless Archives: http://lists.wispa.org/pipermail/wireless/
-- Clint Ricker Kentnis Technologies 800.783.5753 -- WISPA Wireless List: [email protected] Subscribe/Unsubscribe: http://lists.wispa.org/mailman/listinfo/wireless Archives: http://lists.wispa.org/pipermail/wireless/
