Maybe AT&T, Verizon, Sprint and T-Mobile US Don't Actually Make Money

When somebody says something “can’t  be done,” there normally are unstated conditions. Sometimes what is meant is that a thing cannot be done because physical conditions will not allow it (the “it violates the laws of physics” problem).

That’s the case for me beating Usain Bolt in the hundred yard dash.

Sometimes the unstated conditions refer to limitations of knowledge. In some cases, a specific set of people, in a specific discipline, might not know how a certain process can be made to work, but without claiming there is some actual physical impediment.

In many other cases there is only a business problem. A specific organization or entity might not be able to “accomplish something” with its present cost structure or capabilities, even if some other entity, with a different cost structure or skills, might be able to do so.

Verizon executives claimed, in 2011, that the new FiOS network would never be as profitable as its old copper network, a perhaps shocking statement.

To be sure, context matters. The old copper network largely supported operations that were conducted in a monopoly environment, with nearly-universal take rates and rate of return guarantees.

FiOS competes in a market where Verizon often has less than half its former market share, where mobile is the preferred voice network, its cable competitors are fierce rivals in high speed access and have the biggest share in video entertainment. And then FiOS competes also with DirecTV and Dish Network.

Stranded assets, beyond the cost of the FiOS network or the profit margins on new services such as video entertainment, are issues. Where it offers FiOS, Verizon might get only 30 to 40 percent video take rates, while cable gets a similar amount of share, and satellite gets the balance.

Verizon might get half of voice customer share, but overall demand for fixed network voice is declining, and is propped up by triple play bundles where a growing number of customers buy voice in large part because the overall cost of high speed access and video is more affordable.

So some might argue that firms such as Verizon might have lost money with their investments in fiber to the home platforms, for example.

The argument is that profits, over a 15-year period, will not recover capital investment.

Some might argue that is a problem for other telcos as well, which have a tough time earning a return on invested capital.

In fact, some might argue Verizon’s divestiture of lines to Frontier Communications illustrates the problem. The Verizon asset values arguably are less than Verizon spent to build FiOS.

The more shocking argument is that Verizon and AT&T might only be breaking even on mobile network investments, while Sprint and T-Mobile US might actually lose money on their mobile business.

Still, keep in mind the context. Even if Verizon or AT&T make much less money than you would suppose, while, Sprint and T-Mobile sometimes might not make money at all, that does not mean no other service providers are in the same situation.

Cable TV companies arguably have higher profit margins than Verizon and AT&T in the fixed network business. And it is not so clear that cable TV companies or others, when they enter the mobile business, might not fare better than AT&T or Verizon, as well.

The point is that as difficult as fiber to the home or mobile services might be for some providers, others might be able to do better. What “cannot be done” has to be taken in context. Arguing that “we cannot do so” does not mean others similarly cannot do so.
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