Qwest’s Request for Statewide Video Franchise Has a Weakness

The proposal by Qwest for statewide franchising for video services is not necessarily a good move for consumers unless communities have options to ensure their broadband future.  By simplifying the franchising process, Qwest/CenturyLink and others can easily re-enter the video market in Colorado without negotiating with every city they want to provide service; thereby, allowing competitors to satellite and cable TV companies.  I personally welcome Qwest’s re-entrance into the market.  Local franchise negotiations are often fraught with requests for community TV stations and equipment, free or reduced charges to schools and other institutions, municipal network access, and that pesky universal service requirement.

Elimination of these individual negotiations will reduce the cost of providing services to consumers and speed time to market.  Wireline providers such as Qwest and Frontier Communications will be able to develop successful business cases to deliver video services in communities enabling more competition and choice.  The problem is that there are still a limited number of competitors for video services in the state, and without a universal service requirement new entrants will likely serve only the markets that can be reached for the lowest cost and highest probability of market penetration leaving some suburban and rural areas with limited or no choices.  Additionally it gives new entrants an advantage over current municipal franchise holders like Comcast that are required to provide service to all households in the franchise territory.

I support Qwest’s move to simplify the franchise process with the caveat that allows communities to have control over their broadband destinies.  If a community can no longer guarantee that they will have video (and broadband) services that meet their needs, then they should be able to offer alternatives for their community.  A few years ago the legislature passed SB-152 that prevents communities from building their own broadband networks for public use.  The intent was to keep communications services in the hands of private enterprise and not divert taxpayer money for these purposes.  What is does is prevent many communities from having advanced broadband services that many of their urban counterparts have.

Building broadband networks to every home is a very expensive endeavor.  The economics to build these networks for just a single carrier use is not feasible for public companies except in the densest metro areas which is why you see Verizon’s FiOS in only major metropolitan areas.  A community could build that last mile network and lease access to multiple service providers and see it break even in 5-7 years.  Google is trying to institutionalize this model in their Fiber for Communities project.  These open-access last mile networks have proven to be economically feasible in many cities throughout the world, but in Colorado cities are prevented by law from building them.

Any proposed change in franchising and lessening of the “universal video service” requirement should come with a repeal of SB-152.  This change would allow municipalities to form public/private partnerships to build and operate network infrastructure where private service providers could purchase network to deliver voice, video, and data services.  Communities would then be assured that their citizens would have a choice of service providers and the revenue from the network would replace franchise fees.  Eventually Qwest and Comcast would see the benefits of municipal broadband infrastructure and begin purchasing capacity as well.

Denver Post Article

Technorati Tags: CenturyTel (CTL),Colorado,Comcast (CMCSA),Google Fiber for Communities,Qwest (Q),Verizon (VZ),broadband penetration,rural broadband,telecommunications,video

CenturyTel Acquires Qwest: What’s In It for Qwest?

The unwanted step child of the Baby Bells has finally found a suitor to help it beyond its awkward years, but is this acquisition good for Qwest?  After the previous CEO’s failed attempts to sell the lumbering giant to AT&T and Verizon, CenturyTel (CTL) finally a agrees to purchase Qwest (Q) for $22.4 billion including debt.  Although this is big news for CenturyTel and Qwest, the purchase will not have any major impact on the telecommunications industry or their customers.  The transaction is rather ho-hum after thinking about it.  CenturyTel’s growth has come through acquisitions of smaller players and purchasing access lines from Ameritech and Verizon.  The previous growth spurt came through the purchase of Embarq (history).  The Qwest purchase brings it from the fourth largest local phone company to the third largest with 17 million access lines and 5 million broadband users.

The advantages to CenturyTel are obvious.  It goes from a $2.6 billion per year revenue company pre Embarq acquisition to a $20 billion per year revenue company, and it increases its presence to 37 states.  The larger jewels are Qwest’s business and government customers which will more than offset the loss of land line customers all local providers experience.  CenturyTel’s business customers are mainly small and a few regional medium sized companies.  Larger companies purchase business services from AT&T, Verizon, and other carriers.  The addition of Qwest’s business services and government customers provides new and growing revenue sources.  Additionally, combining the business assets of Embarq and Qwest make the new CenturyLink a formidable competitor to AT&T and Verizon in their territories.  Once the mergers are complete and cost savings mostly realized, expect CenturyLink to make a significant wireless purchase.  Leap Wireless comes to mind.

For Qwest the advantages are difficult to find.  Qwest is clearly the acquired party with the name changing to CenturyLink and Glen Post remaining the CEO.  Watch for other executive retirements and departures in the next few months.  CenturyTel is known for its frugality so expect it to squeeze out every penny of the announced $625 million in cost reductions from mostly the Qwest assets.  Qwest employees should expect large staff reductions in marketing, accounting, operations, and engineering.  Denver and Minneapolis will be hit the hardest.  Local telephone operations will undergo a major restructuring with activities centered in Monroe, LA.  Although no one will call Qwest an innovator, CenturyTel’s services are definitely farther on the right side of the technology adoption curve.  Expect a simplification of residential and small business services to cut costs.  Also at stake is Qwest’s relationship with DirectTV since CenturyTel uses DISH.  Many of the long-haul assets will be written down in value and retired because least 33% of Qwest’s long-haul fiber routes cannot support 80-channel DWDM.  CenturyTel will leave business and government operations will remain mostly intact because those are not duplicated by the current operations and they do not want to tamper with the revenue flow.  For shareholders, the result will be a much leaner, efficient organization with a solid cash-flow.

Consumers will be impacted by the name change and a potential switch of video providers when the DirectTV contract is up; otherwise, things will stay mostly the same.  There will be no net negative impact to Qwest customers.  On the other hand, no one should expect any new innovative services or major investments in network upgrades like fiber-to-the-home or faster Internet services until the debt load is dramatically reduced.  The combined companies are firmly entrenched in DSL and will continue delivering industry average speeds at competitive prices.  This service strategy allows them to continue to milk the profits out of the old copper in the ground to pay down on the debt.  If communities are looking for faster Internet or video competition, they need to look elsewhere.

All in all, Qwest shareholders and CenturyTel benefit the most from this acquisition.  Qwest employees not in government or business services will be impacted the most and consumers are no better or worse off. 

Related Article:  Qwest Deal Is Risky Bet for CenturyTel's Chief - WSJ.com

Technorati Tags: Qwest (Q),CenturyTel (CTL)