You would be hard pressed to find a single quarter in any recent year when the likes of AT&T and Verizon Communications did not show steady revenue growth and relatively stable earnings, with the ability to pay dividends. That isn’t to say all providers are in the same condition. From time to time, many providers have faced some distress.

But Craig Moffett, Bernstein Research analyst, has been a notable ‘bear’ on business prospects for the large mobile service providers. He now calculates that AT&T and Verizon Wireless are not even earning a return above their cost of capital.
In other words, AT&T and Verizon now are already losing money, investing in networks and services that do not earn back the cost of the borrowed money driving the investments. But most of the problem comes from the wireline businesses, he argues.
AT&T and Verizon executives would disagree, of course. In part, Verizon argues, returns have been depressed recently because of heavy investment, both in the FiOS program and wireless upgrades, but the revenue impact of the sluggish economy. Over the long term, those issues will recede, Verizon argues.
Independent telcos and competitive local exchange carriers and others without the scale of AT&T and Verizon will face related challenges, one would have to argue. It might be one thing for a global player such as AT&T to place some key bets on machine-to-machine services, new business verticals, mobile advertising or mobile payments. Most smaller entities will not have those options.
In fact, most smaller telcos would not have a viable business at all without significant government subsidies of one sort or another. But the challenges of transformation will be no different for CLECs, independent ISPs or rural telcos. As fixed line voice continues a revenue descent, other sources must be found. At a strategic level, this is not optional, however much tactical room providers might believe they have.

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