Must Telcos Cut Dividends and Structurally Separate Networks?

At least some small telcos that once paid rather sizable dividends have had to cut back or end such payments. 



Typically, when that happens, the company risks disruption of its owner base, as equity owners formerly buying a dividend payer are replaced by equity owners that seek growth. 



On the other hand, such moves free up capital to invest in the network. 



How well that strategy works long term remains to be seen. `But such decisions are anything but casual. 



Forrester Research analyst Dan Bieler argues that so important is the "connectivity services" function that  telcos should consider two courses of action they have traditionally opposed, namely separating network operations from retail operations, and paring back dividends.



Separating network operations from retail operations has been proposed before, and never to any widespread agreement on the part of telco executives. In part, that reflects a concern about commoditizing the access function.



Also, though, such structural separation also tends to come with greater pressure to sell transport and access services to third parties. 



Potential wholesale customers tend to argue that makes rivals "customers."  Facilities owners tend to argue structural separation eliminates a key perceived source of business advantage. 



Australia's National Broadband Network is among the more-prominent examples of the structural separation approach. Of course, that move was fought vigorously by Telstra, which arguably had the most to lose. 



Reducing dividend payments might not have direct competitive implications, but to the extent a stock price is a currency that can be used to acquire other firms, there is a negative strategic impact. 



Calls to slice dividends and separate network operations from the retail sales organization are not new. Neither are the business repercussions. 



Structural separation, and its related "mandatory wholesale" policies, arguably have proven to help competitors more than such policies help the owners of the facilities. 



The exceptions have been scenarios where the facilities owner traded vertical integration for regulator permission to enter new markets. SingTel did so. So did Rochester Telephone. 



But most telco executives continue to see more downside than upside, no matter how much advice they get to the contrary.