"Invest Where You Can Make Money," CenturyLink CFO Says
In regulated monopoly telecom markets, there is not much contradiction between investing and earning a return. That is what “guaranteed rate of return” means.
In competitive markets, investing where one can earn a return takes precedence. That has been the watchword in business customer markets for decades.
The new development is the extension of that concept in consumer markets. Pioneered by Google Fiber, the new model is to build gigabit internet access facilities, for example, initially in areas where potential demand is highest.
“Instead of focusing capital on getting broadband speeds up to 10 to 20 Mbps, you would focus your money more surgically on areas that have higher population densities and better socioeconomic demographics that are in coexistence with businesses and where wireless infrastructure might be needed to get a better return on capital,” Sunit Patel, CenturyLink CFO said. “You would focus your capital on providing much higher broadband speeds than just offering 10 to 20 Mbps.”
So investing in “facilities where you can make money” is the new rule, followed by attackers and incumbents alike.
The other new wrinkle, arguably lead by Verizon, is the deployment of “multiple-use” facilities that work for wholesale, retail enterprise and consumer customer segments.
Arguably, Verizon is relying on NG-PON2 capabilities--specifically the ability to peel off wavelengths to discrete customers, while using one physical infrastructure.
CenturyLink seems to be considering something similar, perhaps also using fixed wireless to reach consumers in areas where the optical infrastructure supports it.
The other possible conclusion one might draw from Patel’s comments is that, since CenturyLink competes against cable operators who routinely offer speeds of 100 Mbps to a gigabit per second, even investing on a wide scale to boost speeds to 20 Mbps likely does not produce an adequate return.
Such investment would mostly produce stranded assets.
That economic reality might be jarring for people who grew up with the regulated model, where it was virtually necessary to offer the same service “everywhere,” irrespective of actual purchasing behavior.
These days, incremental investment virtually has to be made first in areas where a return on the investment can be earned. That raises social issues, of course. But it now is virtually certain that “universal” service as a floor is different from highest-possible levels of service as a ceiling.
That always has been the case. High profits for business services and long distance subsidized services provided to consumers. Urban customer profits supported money-losing operations in rural areas.
These days, profits from mobility arguably cover weaknesses in fixed network service revenues.
CenturyLink and Verizon are not the only firms seeking to invest where a profit can be earned. But they also are especially interested in deploying new capital in a “multi-use” manner.