The Burstein Newsletter of 11-27-06
Dave Burstein <daveb@dslprime.com>
[uncut, unfiltered, unedited; note, ads may appear, marked by asterisks *** ; some quotation marks, hyphens and apostrophes appear as question marks due to my use of intransigent software ]
Subject: DSL Prime Whitacre Questions BellSouth Deal
Date: Mon 11/27/06 03:50 AM
* Whitacre Isn't Sure About AT&T/BellSouth Deal
* Now circulating at the FCC: "No efficiency gains" in Bell Mergers.
* Lightspeed Explodes in Houston 5,000 DSLAMs will soon be turned on
* Sistema Russia Want Deutsche Telekom, Bundestag modifies Lex Deutsche Telekom, 200M Siemens payoffs
* Conexant Promises ADSL2+ DSM 1 & 2, Loop Testing
* Alcatel-Lucent: Deal is Done Bush had to approve, painful job cuts coming in U.S. and Europe
* For your consideration
* Everyone is coming to New York.
* For Your Consideration: iHollywood at New York?s Harvard Club 28 Nov, HD World, Columbia?s Ultrabroadband NY 1, UBS Media NY 4-7 Dec, Le Web 3 in Paris 11 and 12 December
* Briefs: China?s 3G licensing February (maybe), Ken Belson and Arshad
* Mohammed leaving telecom, ?fatigue? at the Web 2.0 conference, Jessica Rosenworcel, Michele Donegan, Walt McCormick's future, Jason Calacanis Reply "Un" to be dropped, "subscribe" to be added
"We have suffered a lot. We have helped to develop the Microsoft Internet-TV platform." Ueli Dietiker, CEO Swisscom (informitv)
Ed Whitacre is willing to let the BellSouth deal die, a sensible move given the price has gone up $17B since March when the deal was announced and $29B since January. Losing the war in Iraq cost the Republicans the election, and could (but probably won't) kill the merger. The best informed D.C. folks believe the fix is in, and McDowell will suddenly discover that his conflict of interest has suddenly disappeared so he can pass the deal. Ethics be dashed. Meanwhile, a university study that sees no benefits from the merger is making waves at the FCC. (continued in policy, at end)
----------------
Stephen Harper promises to dramatically reduce cancer deaths in Canada, and if he succeeds I hope Canada re-elects him Prime Minister by a wide margin. Getting results on what's really important earns more respect from me than ideology. Broadband for all isn't as important as curing cancer, but getting a 10 meg up, 50 meg down connection to nearly everyone is a reasonable goal that Germany, Japan, Paris and Verizon?s quarter of the U.S. can achieve. Regulators in every developed country should do as well. (Ubiquitous affordable wireless might be even more important, but not our story).
Bringing those speeds to Britain requires a fire lit under Gordon Brown, incoming British Prime Minister, and Ed Richards, Tony Blair?s OFCOM CEO. Paul Reynolds at BT, after much internal debate, has decided to only offer 1 meg up, 10-25 meg down ADSL, leaving the UK behind for the next decade. Reynolds concludes, ?It is not immediately apparent where the incremental revenue would come from [FTTH] investment.? (Ken Wieland, TM) To Brown and Richards, it should be ?immediately apparent? that country deserves more. It?s hard but not impossible to find policy that delivers advanced, affordable, and near-universal service, and Brown should step in before BT?s plans leave the UK behind. In BT's case, setting the line charge 12 pounds for a high-speed line with new investment but 8 pounds for a slower line would be about right to change Reynold's decision. Better ideas from readers (and BT) requested.
Paris. Le Web 3 on 11 and 12 December is attracting the very best of the European Internet. Say hello to the round fellow with a beard and stop by Cameragirl Jennie Bourne?s birthday party.
*** Infineon takes DSL to the next level with VINAX(tm) VDSL2 chipset solution.
Supporting all eight standard VDSL2 profiles (8a, b, c, d, 12a, 12b, 17a and 30a) and fully compliant to VDSL2 standard G.993.2, VINAX offers VDSL2/ADSL2+ end-to-end solution with full frequency spectrum of up to 30 MHz to enable symmetric 100Mbps data-rates over 1000 feet. Benefit from Infineon's complete ready-to-deploy reference designs: CO line cards featuring VINAX-CO, in combination with ConverGate-D, a high-end access communication processor that provides aggregation towards GbE backplanes. CPE designs feature VINAX-CPE, a single-chip VDSL2 solution - either in hostless mode or in combination with Infineon's leading edge VoIP, WLAN, and router/switch SoCs. Visit: www.infineon.com/vdsl2 (ad)
Lightspeed Explodes in Houston
5,000 DSLAMs will soon be turned on
Deutsche Telecom has reported heat problems at remotes, BellSouth has held off deploying VDSL there, and now an actual explosion at AT&T. The Sony lithium batteries in laptops could be a harbinger, although it is not yet determined a lithium battery was the cause of the Houston explosion. It could be a freak accident, but the pictures of charred equipment, damaged siding, and a fence knocked down at unstrung.com are worth a look. Phil Harvey and Andrea Quezada hear from homeowner James Harrison that ?his wife, Mabel, who was home when the DSLAM cabinet was destroyed, said the blast was significant and debris went in at least two different directions. ?It went about 50 feet to the other side of the yard and some pieces of the box went down the street,? he says. ?It shook the house pretty good.? Wes Warnock of Fleischman-Hilliard, AT&T?s pr firm, adds ?We're looking into all the possibilities for this fire, including a gas leak, electrical issue, or an act of vandalism.?
There are hundreds of similar units deployed that are scheduled to be turned on in the next six weeks, with tens of thousands more due in 24 months. Jim Carlini, a former Bell labs engineer, is scathing ?the scene has been compromised by AT&T taking away all the pieces to look at them ?back at the lab?. If it was considered a crime scene, it should have been left untouched and proper authorities should have been brought in to investigate.?
?No job is so important
No service is so urgent
That we cannot take the time
To perform our work safely? Bell System plaque, from Carlini
Wes Warnock comments: ?AT&T puts the safety of its customers and employees first--and our track record reflects that. We're doing everything we can to get to the bottom of this, including utilizing a forensic investigation team comprised of AT&T and non-AT&T professionals. Our investigation is ongoing. To suggest this is a technology issue is presumptuous and inappropriate. ? As for our testing, we continuously test all the pieces of our network in AT&T Labs, which is known around the world for its exhaustive research and stringent criteria. We are conducting a thorough investigation of this incident. Until our investigation is complete--and we can review the facts instead of mere speculation--I won't have any other details to share with you.?
*** Copper or Fiber Zhone delivers the most scalable EFM solutions in the industry. Zhone?s NEW EtherXtend is a fast, cost-effective alternative to fiber conversion or - maximize existing fiber delivery. Field proven - Zhone is first to market and still #1. We wrote the book on EFM. Get your free copy now. zhone.com (ad)
Sistema Russia Want Deutsche Telekom
Bundestag modifies Lex Deutsche Telekom
René Obermann is firing the top team of Kai-Uwe Ricke after taking over as head of troubled Deutsche Telekom. Ricke?s last achievement was to blackmail the government into granting DT a ?temporary? monopoly on their VDSL build, contrary to EU competition laws. EU Commissioner Redding will challenge the move, although last minute modifications are creating legal doubts. Much noise coming, with the real victor buried in the fine print of the rules, James Enck suggests. t-regs.com has the latest details. Blackstone, U.S. private equity giant, had been down $500M on their DT investment, but the government tilt toward the company has made their investment profitable. Telekom Italia may be the next target.
Angela Merkel?s government went along out of fear of being blamed for the 30,000+ job cuts due soon at DT. Granting a monopoly is usually the worst way to achieve telecom results, justified only if backed with smart and strong regs. Even more upsetting to most Germans would be the virtual assumption of control proposed by Moscow?s Sistema. They are offering a share exchange that would give the Russian oligarchs 20% of DT, enough for control if the German government divests as planned. The assassination of Alexander Litvinenko in London is a grim reminder that the KGB is still with us.
Germany is also being challenged by what Heise Online calculates as a 200M payoff scandal at Siemens in the communications division. Klaus Kleinfield, Siemens CEO, saw his office searched and 6 subordinates arrested. The company has admitted guilt and is co-operating with the investigation. Siemens now joins Alcatel ($13M in Costa Rica, never fully investigated), Lucent (millions to Saudi Arabia), UTStarcom (multiple current investigations), Infineon (payoffs for sponsorships) and my neighborhood fire inspector (don?t ask) as demonstrably corrupt.
*** The TraceSpan VDSL Xpert is a unique VDSL2 protocol analyzer, which is able to help resolve interoperability problems faced by Telcos and other VDSL2 service providers.VDSL Xpert is a valuable tool for CPE modem, DSLAM makers and VDSL2 chipset developers. It is a chipset-independent, non-intrusive analyzer that provides VDSL2 standard compliance verification through multilayer display of analog signals, protocol analysis, detailed phases and messages and tables of events. The VDSL Xpert indicates compliance and non-compliance with the VDSL2 standard, as well as identifying any interoperability issues between the DSLAM and CPE modem. The VDSL Xpert is easy to use by R&D and test engineers. It also provides a reliable QA and troubleshooting technical support tool. If you are involved in VDSL2 development and deployment, and would like additional information about the TraceSpan VDSL Xpert please e-mail info@tracespan.com or call +1-734-846-0549. (ad)
Conexant Promises ADSL2+ DSM 1 & 2, Loop Testing
Potential for major improvement
Many of the techniques that yield performance improvements for VDSL are also being retrofitted into the ADSL standard. Conexant?s new 16 and 24 port CX95516 and CX95524 DSLAM chips offer:
* Enhanced Impulse Noise Protection (INP). The original ADSL standard assumed a generally ?worst case? of impulse noise, adding error correction beyond what is necessary much of the time. Conexant is using additional memory to reduce errors that cause video dropouts.
* Dual-latency with dual-interleaving, I.e. two separate streams on a single line, each having appropriate error protection. Being able to use both simultaneously allows separately optimizing for video and for data.
* Dynamic spectrum management (DSM) Levels 1 and 2. The original DSL specification was ?static?, making assumptions about what a typical line can support. The new tendency is ?dynamic,? testing the actual conditions of the line and binder and adjusting how the DSL signal is sent to optimize performance on each line.
* Mask-on-Demand (MoD). Conexant is introducing an ?adaptive version of reach-extended ADSL (READSL)? which can be tuned for better performance on some longer lines.
* RemedyDSL: Loop diagnostics, which are increasingly demanded by carriers.
These are significant features if the results in the lab are matched in the field.
*** Join mPhase Technologies CEO Ron Durando at the NYSSA Fourth Annual Broadband Communications and VoIP Conference. Tuesday, November 28, 2006 8:30 a.m.-12:30 p.m. New York Society of Security Analysts,
1177 Avenue of the Americas, 2nd Floor. mPhase Technologies develops and commercializes next-generation telecommunications and nanotechnology solutions, delivering novel systems that advance functionality and reduce costs.
nyssa.org
Alcatel-Lucent: Deal is Done
Bush had to approve, painful job cuts coming in U.S. and Europe
Alcatel has risen from #3 or #4 worldwide in wireline telecom to a clear number one. They have long been #1 in DSLAMs and adding Lucent will improve their position in Spain, France, Poland, Bell Canada and other carriers. One key reason Alcatel is the surviving company is their early commitment to move as many jobs as practical to China and India, hollowing out their presence in the U.S.
The public issue holding up the merger - Lucent classified contracts - was presumably easily settled. Tchuruk has agreed to put former Defense Secretary William Petty, CIA Director James Woolsey and National Security Agency Director Kenneth Minihan in charge of the existing classified work. The incoming CEO, Pat Russo, has long been acceptable to the security establishment. The most likely explanation is that the merger was delayed is that the NSA is required a long run ?understanding? with Alcatel that serves U.S. security interests. Alcatel has long been close to the French defense establishment, making it hard for them to switch allegiances to the U.S.. Everyone in telecom knows the ties between the industry and government is everywhere close although we rarely speak of it. When profound problems surface - the London bombings or the World Trade Center - the pervasive security watchfulness becomes public. The NSA is expected to be able to intercept everything, just as their peers in China, Russia, the UK, and France presumably do. The Indians just kept Huawei and ZTE out of the $5B mobile contract networks for ?security reasons,? although of course commercial rivalries played a major part. I don?t expect ever to find out just what Alcatel and the U.S. government negotiated, which is appropriately highly classified.
Best of luck to the over 200 DSL Prime subscribers in Alcatel and Lucent. I remain very anxious to have some positive stories about Alcatel, because the other kind keep coming in. (Same for AT&T) The win at China Netcom for Alcatel carrier grade routers is a big victory.
*** Events @ The Yankee Group Present Telecom Strategies Live Webinar
Join Boyd Peterson of Yankee Group, Bib Bissell of British Telecom, and Kurt Eckles from Texas Instruments. The live Webinar, 11 a.m. EST, Thursday Dec. 7, will cover the Economics of Delivering Triple-Play to the Home. Sponsored by Texas Instruments. To register visit yankeegroup.com (ad)
For your consideration
Everyone is coming to New York.
* IHollywood at New York?s Harvard Club 28 Nov will feature Matt Davis predictions, typically on target for the coming year; Dan Berninger, an analyst with passion and creativity; Shean Ng of NBC and a very full day. Then HD World brings Dan Rather and a dozen of broadcast TV?s top technical people on 29 and 30 Nov to the Javits Center
* Columbia?s Ultrabroadband NY 1 Dec is inspired by Eli Noam?s question, what will the change when people have 100 megabits and more? Joining Noam will be game pioneer Tim Langdell, wall street icon Simon Flannery, and Susan Crawford, a law professor who looks deeply at policy.
* UBS Media NY 4-7 Dec features the Bell CFOs in succession on the 6th. Doreen Toben of Verizon starts off, likely to explain how building fiber will protect the company's future. On the numbers, Verizon is spending about the same on capex as their depreciation, which in ordinary times means they are standing still. Rick Lindner of AT&T comes next, explaining how not spending on fiber is more profitable. AT&T capex/depreciation is about 70%, typical of a company milking profits while praying the future comes slowly. Then Oren Schaffer of Qwest comes on, who will get kudos for keeping the company out of bankruptcy by not spending on anything for several years. Impeding insolvency gave him little choice given his priority to protect Phil Anschutz and other shareholders. His customers would have been better served by a chapter 11 debt reduction if the surviving company could afford to compete, but that raised unthinkable risks for policymakers and bondholders. Schaffer has lost nearly a third of his customers in the prime growing market of Phoenix (Richtel in NY TImes). Is it time for him to write down the value of equipment in that town? UBS did a good job of reaching beyond the usual suspects. Mark Cuban of HD Net, a prominent blogger about video over the net, opens Thursday morning. Jim Buckmaster, CEO of Craig's List, is shaking the newspaper business also represented by Don Graham of WashPo, the CEOs of Gannett, NY Times, McClatchy, and Belo. Richard Zannino of Dow Jones is scheduled a few days prior to unveil the down-sized Wall Street Journal. Christie Heffner will as always inspire expectations beyond her role as Playboy's business-like CEO. She represents the most requested "video on demand," while World Wrestling Entertainment's Michael Sileck is part of the "extreme sports" sector possibly #2 in what people will pay to watch over the net.
* Le Web 3 in Paris 11 and 12 December is attracting the very best of the European Internet. Skype?s Niklas Zennström, Yossi Vardi (IM, the original), Rodrigo Sepulveda of Vpod.tv and dozens more. Marc Canter, danah boyd, Ross Mayfield, Michael Arrington, Dave Sifry, and Dave Weinberger are coming from the states. I?m particularly looking forward to meeting Martin Varsavsky of FON, just possibly the world?s next great wireless mogul. When Varsavsky comments, "The information society is essential for democracy. ? If everybody has Internet access, authoritarian governments will have a more difficult time controlling the media,? he speaks as one who has donated $11M to spread the Internet into schools in his home country of Argentina. (Quote from Brett Brune, Houston Chronicle.) Jennie and I will be there and we?ll have Jennie?s birthday party on the evening of December 11. Please let me know you?re coming. We?re staying for a few days extra to catch up with a city leading the European Internet, and hope some readers will invite us to visit. Say hello to the round fellow with a beard and Cameragirl Jennie Bourne.
News to watch for:
* AT&T will extend IP TV to Houston imminently, and will announce in the next month they have passed 2.4 million homes for Lightspeed. That?s welcome progress, of course; having some landline competition to cable is better than a monopoly.
* The Wall Street Journal will downsize the paper, but I hope it doesn?t reduce the best telecom reporting staff in the world.
* psiphon, a program to bypass totalitarian censorship, will be released Wednesday by the University of Toronto.
* Readers are invited to help me understand coming stories on Lightspeed (Houston, HD, and more cities about to announce), 90% coverage in Ireland and Western Canada, the end of Netopia, major service failures from UK to Chicago, Comcast customer complaints, James Enck?s ?ten things,? AT&T/Alcatel conflicts, Southeast Asian vendor financing, Strowger and GoDigital DSL range extenders, U-verse emergency alerts and Huawei in Venezuela. For a story about VDSL2 problems with interoperability and performance at 5,000 to 12,000 feet, I?d appreciate any chip or equipment vendors with solid data getting in touch with me right away. I hope what I?m hearing can be contradicted by solid facts.
Briefs
* China?s 3G licensing will begin in February with TD-SCDMA, Shanghai Daily reports quoting MII officials. Maybe this time it?s true.
Press
* Ken Belson is leaving the telecom beat at the NY Times to join the metro desk. Email me for details if you want to join the modest party on December 5.
* Arshad Mohammed has left the telecom beat at the Washington Post to report from the Middle East for Reuters. Alan Sipress is temporarily filling in, covering telecom as part of a technology beat. Sipress was until recently an Asian correspondent for the Post. Many good reporters have been leaving the Post, presumably less secure after the cutbacks.
* Om Malik found ?fatigue? at the Web 2.0 conference, and an excess of hype and jumping on the bandwagon. He criticizes Level 3 for ?spin and a blatant attempt to get a little Web 2.0 pixie dust. ?. Hate to break it to you guys, but you paint a pony with black stripes, it doesn?t become a zebra. You are a bandwidth provider, and might become a content delivery network, but you will still remain in the background, and a plumbing company.? While San Francisco may be post-boom on Web 2.0, few outsiders understand a major change occurred. Today?s web software (Ajax, Ruby, etc.) is so much more productive ideas become working products on the web in months; the valley is overflowing with startups. Miguel Helft in the NY Times notes the new companies are so inexpensive to create they don?t need venture capital millions. The predictable result of making innovation affordable will be breakout new apps.
People
* Best of luck to Jessica Rosenworcel, one of the best at the FCC, who?s off on maternity leave. Also welcome back from leave to Michele Donegan, one of the strong reporters at TotalTele.
* Walt McCormick, head of the USTA, held his job largely because of connections with Republicans in Congress. Given the slim chance of getting a bill before the newly elected Democrats take over in January, he won?t leave as quickly as Donald Rumsfeld. It?s hard to imagine any role he?ll play when Congress goes Democratic. The financial issues with his Telecom Next Show hurt him badly. He thought that show was going to give him cash without needing to beg the bells, but instead they had to bail him out when it flopped. It?s now been expensively cancelled, but the split cost SUPERCOMM its position as the most important show in the world.
* Jason Calacanis left AOL right after CEO Jonathan Miller, and the colorful ex-publisher of Silicon Alley Reporter created more headlines. John Paczkowski claimed ?You know it's a bubble when the resignation of the Web 2.0 booster who ran AOL?s Netscape division attracts just as much media attention as the ouster of the CEO who hired him.? Sure it?s a bubble, but Jason was a human face for AOL. Miller and everyone else at AOL/Time Warner have been ducking and boring the press for years. Listen to Jason and ?father of pod casting? Josh Harris at this pod cast and you?ll hear how much more interesting he is. fredwilson.libsyn.com Or catch Jason?s own farewell cast at stadium.weblogsinc.com . He talks about how glad he was that other AOL people joined him in blogging, and especially when they felt enough confidence to criticize him publicly. One problem at telcos is a fear of saying ?the CEO is wrong.? Maybe if some of the staffers telling me three years ago DT was betting on an unsustainable monopoly said the same to Kai-Uwe Ricke, Ricke might have done something before the board fired him this week. For the record, I printed Jason?s magazine years ago and sometimes visited his show at Pseudo.
Policy, mostly U.S.
Now circulating at the FCC: "No efficiency gains" in Bell Mergers.
Tom Barnett, U.S. antitrust chief, is simply uninformed with his contention ?the [AT&T/BellSouth] deal probably would save customers money.? (Matt Apuzzo, AP.) That?s only true if larger companies are dramatically more efficient and pass on the savings. Sumit Majumdar of the University of Dallas has made clear in his devastating filing on AT&T/BellSouth that consumer benefits aren?t likely, If Barnett reads this (his predecessor was a DSL Prime subscriber), please ask yourself if General Motors is the world?s most efficient car maker. Looking at all the U.S. Bell mergers between 1988 and 2001, Mujumdar concludes ?No efficiency gains were noted. Measures of operational performance had deteriorated following mergers. Under investment of technology was observed following mergers.? SBC overpaid $30B for Ameritech, created the worst service problems in memory, and now increased basic telephone rates.
That's just the latest of dozens of studies that merger benefits are generally overstated. This common mistake about mergers isn?t just U.S. politics. Several Euro private equity deals are set to unravel painfully. Vodafone/Mannesman and Deutsche Telekom/Voicestream and France Telecom/Mobilcom resulted in tens of billions in losses.
AT&T Isn't Sure About BellSouth Deal
I do not think the AT&T/BellSouth merger will ultimately be blocked. I am, however, firmly convinced Ed Whitacre is willing to take that chance, a sensible move given the price has gone up $17B since March when the deal was announced and $29B since January. Losing the war in Iraq cost the Republicans the election, and could (but probably won?t) kill the merger. The best informed D.C. folks believe the fix is in, and McDowell will suddenly discover that his conflict of interest has suddenly disappeared so he can pass the deal. Ethics be dashed.
$80B plus assuming $15B in debt is a very high price for a company that earned only $3B in 2005. Overpaying for BellSouth is the first fact Bernstein Research cites about AT&T. BellSouth earnings have been dropping for several years. Like most telcos, BellSouth retirement costs are probably understated and assets overstated. The key growth drivers - wireless and DSL - are approaching saturation over the next few years while landline losses continue. Both companies have seen profits enhanced by U.S. corporate tax cuts, but the enormous deficit makes further cuts unlikely. Video is a loss leader for the rest of the decade. When AT&T announced the BellSouth purchase, AT&T?s stock immediately fell.
Anyone doubting Ed?s willingness to let the deal die should review the last two month?s actions in D.C. Delaying the deal until after the election was a real risk. He could easily have reached agreement a month ago, and that was the obvious move given the risks at the polls. Whitacre isn?t stupid. Copps and Adelstein were looking to go along; a series of concessions that added up in real value to less than 1% of the deal would have reached agreement a month ago. Put Ed in a room with either and as a good businessman he would have solved things quickly - if he really wanted to. He personally did the FCC deals when he bought Ameritech.
Selim Bingol doesn?t have to ask Hewlett-Packard to recommend a private investigator to find out if this was leaked from the AT&T board. I don?t have a deep throat. My conviction that Whitacre is ready to risk the deal stems from some simple logic.
1- It was obvious some of AT&T favorite Congressman would lose.
2- Whitacre could have easily reached a deal in September, for a fraction of the $6B his stock price dropped after the election raised questions.
3- Only someone stupid wouldn?t have moved hard before the election, and similarly now.
4- Ed Whitacre isn?t stupid. He?s a wily old pro who knows D.C. well.
Ergo: Whitacre is willing to risk the deal. If the FCC blocks it, AT&T may also save a reported $1.7B breakup fee.
Instead, he offered essentially nothing but a press release claiming ?concessions.? Four of his main offerings were things AT&T was already doing, and the only one of substance - a $50M promotion for new low speed customers - represented a total value of less than 1/10th of 1% of the worth of the deal. Whitacre didn?t bother to go to D.C. himself, or even send Randall, despite the fact his main man on the job, Jim Cicconi, is anathema to the Democrats he needs to convince. Cicconi is smart and charming, but he is a major Republican operative who played a key role raising $50M or more for the most partisan Republican causes. He?ll be lucky to hold his job after this election, and he certainly wasn?t a diplomatic choice for winning Democratic votes on the FCC. Chris Rooney, AT&T senior vice president, compounded the insult this weekend when he firmly told Dow Jones ?No.? to any substantive concessions.
The original justification for the deal - $2B annually in merger synergies - was almost certainly exaggerated. Randall Stephenson?s comment ?Total synergies that we have identified reach an annual run rate of over $2 billion in 2008, and by 2010 they grow to $3 billion. The lion's share of these synergies come from the cost side, the majority from non-labor savings. The net present value of these synergies is $18 billion? is unsupportable.
BellSouth is a massive company that already has most likely economies of scale. In one product I know, AT&T in fact is paying more. Their cutbacks in technical staff and R&D have minimized their bargaining power with vendors. The combined companies won?t need 2 CFOs or 2 D.C. lobbying chiefs (goodbye, Herschel Abbott), but the headquarters staff is only a small part of the overall cost of running a telco. $500M of duplication is plausible, $2B highly unlikely. The vast bulk of expenses do not diminish. You still need as many lines connected, as much copper cable, and as many state lobbyists as before the merger. The postage cost of sending out bills doesn?t diminish because you send 50M instead of 15M, nor the paper cost of printing them. BellSouth buys LD and national data lines in such quantities they get those services close to cost from their vendors. BellSouth has taken heavy layoffs the last few years and is already running lean. They just RIF?d over 3,300 people. Their total SG&A last year was less than $4B - most of that in the local operation that doesn?t benefit from a larger company. If simply being larger reduced costs, General Motors would be the most efficient auto manufacturer. Instead, they are on the brink of bankruptcy, partly because massive bureaucracies are as likely to lose efficiency as to gain it. In addition, SBC is taking $10B out of the combined company for a stock buyback, something Standard and Poor?s is already questioning. The weaker balance sheet may raise borrowing costs.
AT&T prospects in 2008-2010 are worrisome. This spring I argued privately that AT&T is a good medium term investment because they were getting price increases in many states while the elimination of the old AT&T and MCI was significantly reducing competition. They?ve gone up a remarkable 40% since, and today?s stock price anticipates implausible profit increases.
From our advertisers:
mPhase Technologies (OTCBB: XDSL) today announced availability of its Software Development Kit, a tool for creating custom applications on its TV+(TM) System IPTV software. The mPhase system supports the latest video encoding standards as well as a host of features designed to help service providers deliver video, gaming and advanced services on its broadband network infrastructure.
"The portal SDK is a software development tool kit that allows carriers, Systems integrators and other mPhase development partners to lead the development of applications for specific applications like hospitality," said Ron Durando, mPhase's chief executive. "Customizing features like online check-out and room service ordering are a snap to create on the mPhase TV+ system."
The Portal's on-screen application can be customized in standard HTML and JavaScript authoring tools, while the full-featured TV Internet Browser incorporates a rich set of site navigation, security, cookie support, caching and other Web features. mPhase offers optional Flash integration for gaming services.
mPhase also announced that it has formed an alliance with Sweden's Accedo to offer games with the mPhase TV+ System middleware offer. The companies will market the game packages to broadband operators as a pre-configured solution for interactive IPTV services. The new Accedo Games packages will provide operators with a range of revenue-generating and differentiating games for the mPhase TV+ System.
Copyright 2006 Dave Burstein. Volume 7, #22 Issue date 11/241/06 Reply "Un" to be dropped, "subscribe" to be added
------ |
