blind_html Re: Fwd: Will the Phone Industry Need a Bailout, Too?

  • From: "Sarah Alawami" <marrie12@xxxxxxxxx>
  • To: <blind_html@xxxxxxxxxxxxx>
  • Date: Sun, 10 May 2009 18:43:23 -0700

This is interesting. Thanks. 


From: blind_html-bounce@xxxxxxxxxxxxx
[mailto:blind_html-bounce@xxxxxxxxxxxxx] On Behalf Of Nimer Jaber
Sent: Sunday, May 10, 2009 5:43 PM
To: blind_html@xxxxxxxxxxxxx
Subject: blind_html Fwd: Will the Phone Industry Need a Bailout, Too?

-------- Original Message -------- 
Subject:        Will the Phone Industry Need a Bailout, Too?    
Date:   Mon, 11 May 2009 00:25:08 -0000 
From:   Ray T. Mahorney  <mailto:coffee-craver@xxxxxxxxxxxxxx>
Reply-To:       Blind-chit-chat@xxxxxxxxxxxxxxx 
To:     <Undisclosed-Recipient:;>       

May 8, 2009, 9:48 am

Will the Phone Industry Need a Bailout, Too?

By Saul Hansell

NY Times

Congress has asked the Federal Communication Commission to develop a

national policy for broadband deployment. But it might be more important

to think through how the country will handle the aging and increasingly

less relevant copper phone network.

You can see the problem building every quarter, when the phone companies

report they serve ever fewer landlines. They are mainly losing customers

to cable companies, which offer competing broadband and voice services

that make copper phone lines unnecessary. More people are also deciding

to abandon landlines for cellphones.

AT&T lost 12 percent of its landlines over the last year. Verizon, which

is converting some customers to fiber, lost 10 percent. The story is

similar at smaller phone companies like Qwest, Embarq, Fairpoint and

Frontier, but these companies don't have the wireless business to help

bail them out.

As all these companies lose wireline revenue, the costs of maintaining

the wires strung on poles and dug through trenches is not falling nearly

as quickly. It now costs an average of $52 a year to maintain a copper

phone line, up from $43 in 2003, largely because of the declining number

of lines, according to Larry Vanston, president of research firm

Technology Futures, as quoted on GigaOm. There are more reports, such as

this one about Verizon, that the telcos are skimping on maintenance of

their copper wires.

I am also having a hard time seeing how the pricing structure of the

voice business can hold up. Right now, voice traffic is such a tiny

piece of the overall data moved over the Internet that the cost is

insignificant. One clue can be found in the most recent financial

statement of Vonage, the Internet phone company, which show that its

direct costs of providing telephone service come to $6.67 a month for

each subscriber. And the largest part of that amount is not true cost,

but subsidies to rural phone carriers by way of an inscrutably complex

system that governs how companies pay each other when connecting

long-distance calls.

To be sure, the costs to run and maintain wires to people's homes (for

any combination of phone, Internet and television) is a great deal

higher than $6.67 a month. But for the vast majority of people who buy

Internet and TV service already, the extra they pay for phone service is

entirely unconnected to the actual costs of providing it.

So far, stand-alone voice-over-Internet services have not really caught

on with consumers. Vonage actually lost customers in the first quarter,

when you might have imagined the tough economy would drive people to its

cheaper service. And that's after spending more money on marketing than

it does on providing its phone service.

But as a policy maker - or an investor, for that matter - these

economics make for a great deal of risk. If competition ever creates a

significant shift to Internet-based phone service, it could quickly

decimate the already precarious economics of the local phone business.

You can see these stresses already in the local phone companies with

heavy debt burdens from leveraged buyouts. Hawaiian Telecom filed for

bankruptcy protection in December, three years after it was bought from

Verizon for $1.6 billion by the Carlyle Group. Facing stiff competition

from Time Warner Cable, the company has lost more than 20 percent of its

landlines. The debt of Fairpoint Communications, which bought the New

England operations of Verizon, was recently downgraded by Moody's to B3;

the ratings firm cited increasing risk that Fairpoint would default on

its debt.

Craig Moffett, a telecommunications analyst at Sanford C. Bernstein &

Company, suggests that even the phone companies that don't have such

high debt burdens are heading down the same path.

"These are fundamentally bankruptcy stories," Mr. Moffett said,

suggesting the government may well be forced to confront a very

expensive bailout of the telephone industry in a few years. "They have

employment that is on a par with the big three automakers. And their

pension obligations are close to being on par with the automakers too."

All of these trends, of course, have been visible for years. But

sometimes it is the slow-moving problems - like, say, rising subprime

home lending - that are the hardest for government to deal with before

there is a crisis.

What good will it do for the F.C.C. to come up with a spiffy new plan to

get faster cheaper broadband to more people if the phone companies fail

and millions of people won't be able to dial 911 in an emergency? 


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