Recent activity in the rural telecom sector leads us to speculate about a rural ‘super’ carrier trend. We define this trend as the formation of large scale, larger than we’ve ever witnessed before, telecom service providers focused mostly on rural markets. Despite the 1,000+ carriers serving rural territory in the U.S., the three largest ‘RBOCs’ combined, still serve the majority of rural customers. That’s beginning to change, and leading to the rise of the rural ‘super’ carrier. Companies like CenturyTel, Embarq, Windstream, FairPoint, Frontier, TDS, and maybe Qwest are on a path to become rural ‘super’ carriers.
Communications conglomerates like AT&T and Verizon are laying their cards on the table – their future does not include rural access lines. Verizon referred to them as ‘non-strategic’ assets when explaining their recent Frontier transaction. Verizon also announced they have probably finished shedding access lines and will now focus on wireless, FiOS, and global IP connectivity. That leaves AT&T and Qwest to reveal their rural plans. Will AT&T shed their rural assets as well? They have a lot to shed. The wildcard among the RBOCs may be Qwest, because they have an opportunity to become the rural ‘super’ carrier themselves. There has been speculation that Qwest would divest itself of its long distance and enterprise units and basically morph back into its US West heritage. In so doing, they may become an aggregator of rural access lines in an attempt to build the scale necessary for a so called rural ‘super’ carrier. Qwest lacks the wireless assets of its RBOC brethren, AT&T and Verizon. Are Qwest and AT&T already talking? Of course, Qwest may be limited by its financial troubles to take on AT&T’s rural assets.
Perhaps the other rural ‘super’ carrier in waiting to watch is Windstream. They were one of the largest rural carriers, but will be eclipsed by CenturyTel-Embarq and Frontier-Verizon. You have to think Windstream’s Little Rock, Arkansas headquarters is all abuzz over finding the right deal so they can keep up. The flights between Little Rock and Dallas, AT&T’s headquarters, may be a little busier. What about a Windstream-TDS combination?
We’re not big proponents of bigger is always better. But in the quickly evolving telecom landscape, scale means everything. For carriers that lack wireless assets, building the scale that can create operational efficiencies and provide the means to profitably build and leverage broadband applications is paramount for future survival. Whatever the outcome, the U.S. telecom industry is reshaping. Rural ‘super’ carriers are forming, as the largest communications conglomerates shed their rural access lines, and focus on wireless and broadband. It’s a scenario that’s been talked about for many years. It’s now forming in front of our very eyes.
why are the super carriers so anxious to buy lines that the big companies are so anxious to sell. it looks like verizon wants nothing to do with those lines. if the super carriers can make a business out of them, why can’t verizon?
Other articles today are quoting analysts expressing doubts (and pointing to Fairpoint’s purchase of Verizon lines in New England) that these rural telcos can take on and service the debt incurred by acquiring these divested Tier 1 telco lines. Plus these are outmoded assets: copper-based plant often not even capable of delivering first generation DSL. Bottom line, it looks like a bad deal for the acquiring companies: taking on a lot of debt to purchase yesterday’s technology.
We made the point yesterday, at StimulatingBroadband.com that the Frontier – Verizon deal positions Frontier particularly well to compete for “broadband stimulus” grants and loans under the federal Recovery Act.
StimulatingBroadband.com
so what would you do with “yesterday’s technology.” those lines have to be serviced by someone. frontier understands those types of markets better than verizon and actually wants to be there. that’s a huge difference. they’ll probably upgrade the technology faster than verizon ever would have. i guess i don’t understand your logic. are you suggesting verizon should keep these lines, and do nothing with them?
Whether these are ‘outmoded assets’ is a debate for another day. As far as the debt load – my understanding is that Frontier’s debt exposure actually improves as a result of this deal, so not sure that’s the best argument against this deal. They may have an operational challenge by basically tripling their company size (and operational responsibility), but I don’t think the debt issues raised by FairPoint’s Verizon deal necessarily apply here.
Managing Editor, Telecompetitor
I know one thing for sure, the subscribers of the acquired exchanges are the benefactors. 90%++ of all of Verizon’s rural exchanges (outside their original footprint) are former GTE properties. GTE quit spending capital $$ on those exchanges 10 years before they were acquired (in favor of spending their capital in urban/suburban areas)and that is exactly what Verizon has done. VZ did not buy GTE for those exchanges, they bought GTE for their large urban presence and a coast-to-coast reach. Today, if you live or own a business in a small VZ served town (less than 5K population) you can get DS-1 (1.544Mbs)and multiple DS-1s (at high prices), but don’t even think about an OC-3 circuit. Schools/Hospitals/ISPs are begging for better backhaul, but DS-1 is all they get from VZ… if they’re very lucky, there is a competitive broadband access carrier in town, but not likely. Frontier will change that.
History will regard this as one of America’s greatest mistakes: We killed the potential of the Internet by pricing a growing chunk of the population right offline.
Those who crow the loudest about the virtues of capitalist competition are the first to crush competition. Monopolies dominate the ISPs, leaving us with the choice of a single broadband carrier in most areas. I was not surprised to see my monthly bill for internet services soar from about $11.00 per month to over $50 per month in a few short years. I don’t think we’re any closer to breaking up the monopolies. Can’t interfere with free enterprise, you know, even if it keeps pushing the country further behind the rest of the industrialized countries.
Once Frontier takes control of Verizon rural wirelines will the deadline for the broadband stimulus have passed? With no stimulus and $3.3 billion of newly acquired debt how will Frontier compete and customers benefit? Much of Verizon rural assets is 20 years and older. It will cost Frontier to update or upkeep, Also in the Verizon rural areas is the new competing threat of the other local rural phone companies moving in to provide services and fiber to the curb.