OH,
Sorry for not getting back to you sooner...it's crunch time on a project I'd doing and if my life were a station wagon the stock market and SI are now in the "way back" and about to go to the roof rack.
The deal between T and TCI is very interesting in that several people who I normally count among the "T basher" variety are saying it's a great move. OTOH there are many (myself included) that say Mr. C Michael has let the frustration of being overregulated get to him and he has jumped too hard and fast into a single strategy of entering the home via cable. His entry will succeed in enriching a large cable company that has shown nothing in the way of desire to enter these new markets because it will cost a fortune to upgrade their network and set top boxes to provide the services everyone says people want. The actual demand people will pay for broadband is unkbown but the price points are fairly well known...in the range of only $35 per month. This isn't a lot for services that will cost a lot of money to develop and maintain plus huge network upgrades.
All this mass market stuff for broadband seems silly to talk about today when the real money to be made is from businesses, which once those models are proven, can be rolled out into higher end homes, then to everyone else. It's a good market development model. T thinks they know the answer to how this is going to develop way before anyone really knows. Who knows - someday you may pay a neghborhood association fee to build a high bandwidth/frequency radio network from a box at the end of the street that has telco fiber in it. What if they build that in a few years while TCI is still deciding which networks need overhaul, and why should they spend any money when they're doing fine selling reruns of Gilligan's Island?
The network upgrades that are required stem in large part from the fact that TCI's "good network", ie, cable that can be used today for broadband, can't easily be seperated from "bad network". It's impossible to do a mass market marketing campaign for broadband services when the people that qualify for the service have to be determined on a zip code basis, and even then there is variability in quality between blocks and streets. The equipment that was put in the ground simply did not have a consistent quality standard that envisioned provision of service beyond cable TV. Complicating that is the fact that TCI has grown a lot through acquisition of companies that used different standards when constructing their networks. The data TCI has on these networks is spotty. So, T comes in and things will change? Why? They've never displayed any vision before and I don't buy the theory that one guy can come in and breakup all the cliques, organzational inertia, and the legacy of following the rule book. Besides, T's investors are not going to idly sit back and watch billions get sunk into TCI's network without knowing when they will see returns. Their investor base is middle America and large institutions who want a guaranteed income. Even if the strategy makes sense T will need to have a large turnover in the owners of their stock, from entities who buy utilities to entities who buy tech stocks for this to work. Guess which merger broke up recently in large part for exactly this reason...give up? MCI/BT. Because the British investors in BT couldn't fathom losing their huge dividends in favor of promises of growth. So they forced BT to lower the bid for MCI...and the rest if history. Inertia takes on many forms.
OK - you asked about WCOM. Well, I used to work at MCI and I can tell you there is every emotion there imaginable from "Thank God, Bernie will know how to get us going again" to absolute unadulterated cynicism and hatred. WCOM has a great opportunity here. I don't want to go too deep because I have good relationships at MCI. But I do think WCOM's biggest contributions will be where MCI needs the most help. To say more would be an attack on the specific areas that need help and I don't want to do that publicly. But I do think the match is extremely good. I just sold my last MCI shares out of my retirement account simply to spread the risks better into mutual funds. But now that I don't have any stock at all I've had WCOM on my "next buys" list for a couple weeks.
WCOM's obviously wants global domination of the telecom market. Where they're smart is how they are identifying opportunities and making all the smartest moves. Unlike the T/TCI (or T/NCC before that) move which sounds good at first, then looks bad later, WCOM's sound strange at first, then look much better later. Look what they've gotten in the last year...MFS (which included UUNet), Brooks Fiber (the best of the CLECs after MFS at a price which would look VERY low today), ANS (the AOL network), and MCI. Excellent entries into every part of the market. MCI's elimination of their internet business will hurt WCOM from the perspective they won't control as much of the Internet backbone (and thereby make decisions on who gets access at what price) but shouldn't affect UUNet's retail prospects in the least.
UUNet's org structure is a great model to look at. UUNet has a VP in charge of every developing aspect of the Internet. They have a VP fro web hosting. They have a VP for corporate intranets and virtual private networks. A VP of e-commerce and enterprise solutions. Etc. In other words they target each developing market with a VP level exec as soon as they know the market is going to be big someday. Most other companies have one "Developing Markets" exec who is supposed to look at everything at once and tell the company where to focus. It's always a disaster. You need to spend the necessary time at the corporate level figuring this stuff out, then staff it as if it were a big business already because in a year or two it will be. Most large companies won't do that because they can't stand the quarterly losses this causes while the market develops. Very short sighted and they always get caught in the end. And have to sell out to those who do it the other way.
'Nuff said...too much for anyone to read on a Saturday.
Regards,
Phil |
