Thursday, May 7, 2015

"Lease Versus Buy" Decisions Rarely, if Ever, Indicate Core Business Strategy

With the caveat that any firm involved in a commercial dispute with another firm will use all lawful tools at its disposal to get its way, sometimes language gets a little heated. Florida Power and Light, for example, has a rather normal dispute with Verizon about pole attachment rates.

Buyers and sellers have disagreed about rates for pole attachments or inaction on requests for as long as pole users have wanted access to utility or telephone poles.

But it goes too far when FPL attorneys suggest “Verizon has made clear that it intends to be out of the wireline business  within the next 10 years.”  The stated reason for that belief is that Verizon “no longer wants to be a pole owner.”  

But Verizon has sold its tower network. Does that mean it does not want to be in the mobile business, or is that just a prudent business decision related to use of capital? Sprint, T-Mobile US  and AT&T  have made the same decisions.

Does anybody really believe any of those firms really wants to get out of the mobile business (with the exception of T-Mobile US, whose owners already have said they want to exit the U.S. market).

That is not to make any assumptions about what Verizon might prefer to do, long term, about any of its lines of business or assets. Some of us would make the argument that, most places in the world, one would choose to be in the mobile, rather than fixed networks business, if possible.

If a service provider decides to lease, rather than build, any particular asset, that is not a clear statement about its interest in competing in a particular line of business.

Many could speculate about what fixed network telcos might do, in the future. It wouldn’t be at all unusual to argue that the eventual course, for many companies, is to exit a business by selling assets. That is true for most small and independent U.S. telcos, both U.S. satellite video companies, nearly all application providers and most equipment suppliers as well.

The point is that, in and of itself, leasing an asset instead of building does not necessarily or even usually provide clues about a firm’s interest in a business.

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