- A TechNote on The Next Generation
- David Rohde, TechCaliber Consulting LLC
It's certainly best practice to organize your WAN buying procedures so that branch offices don't "go rogue" and order their own services from the next carrier sales rep who knocks on their door. But that doesn't mean that you can't learn from reports about exactly who it is who's knocking on those doors right now!
For example, there's an upsurge in reports of cable companies trying to sell telecom services to stores, branch offices and other enterprise affiliates - and often quoting prices that make people at your branches sit up and take notice. Your branch people may even complain that the cablecos beat the prices in your carefully negotiated national telecom contract!
Problem is, cable companies historically stick within their own franchise territories granted under rights from municipalities and counties. If you're any kind of sizable enterprise, those territories have almost no chance of matching your footprint. Comcast, Cox, Time Warner Cable, and others have territories all over the place with gaping holes in between and, up until now, no interest in trying to serve them.
That's why it's meaningful that the FCC in September granted cable companies permission to purchase CLECs, something that had been essentially forbidden to them. Cablecos have good physical infrastructure that now often does pass business hubs, but they have almost no true large-enterprise experience. Yet they certainly have the capital to buy carriers in the marketplace with quite a bit of metro presence, such as XO Communications, which is now essentially 100% owned by Carl Icahn and has been expected to consider selling out.
Yet cable companies are hardly the only prospective buyers and consolidators. One recent weekend the financial trade press was buzzing with reports that CenturyLink, the successor to Qwest as both a western ILEC and national enterprise provider, is in the market to buy not XO, but another CLEC with fairly substantial metro inroads - TW Telecom.
What's the actual next deal? Hard to tell. What matters right now is probably simply the fact that some sort of deal is imminent. XO and TW are believed to be the CLECs with the greatest number of building entrances nationally. That's the appeal for the wireline carriers - or cable companies - that are clearly vying to replace Sprint as the go-to alternative to AT&T and Verizon for WAN services. All while Sprint is tied up in what is likely to be a 9-month process of gaining approval for a majority sale of the company to the Japanese mobile provider Softbank, a deal that's almost certain to cement Sprint's near-total focus on wireless going forward.
This consolidation could also help "teach" the cable companies what it takes to compete. What a CLEC usually does in its "market" is very different from the cable approach. CLECs may have fiber in a metro market but they are still usually selling a last-mile circuit obtained from an incumbent carrier (whereas a cable company hardly ever does that). Cable companies have to learn to reconcile themselves to the telecom world where every national carrier (including AT&T and Verizon!) is often providing a service over someone else's underlying local loop, and a CLEC acquisition would basically force them to learn this lesson.
Now, does consolidation mean that a CenturyLink (or a Windstream, or a Level 3, or a Comcast) would suddenly have the ability to sell end-to-end "on-net" services nationally with such an acquisition? No, of course not - even tens of thousands of building entrances won't change the dominance of AT&T and Verizon in their ILEC territories. But just as customers need leverage, so do carriers in their dealings with one another. Metro fiber doesn't get the headlines that wireless spectrum does, but it's also a hot commodity at the moment.
If you want to war-game all this, consider the following: Level 3 and TW Telecom have almost exactly the same stock market value - $4.5 billion - while CenturyLink is almost five times as large. In fact, Level 3 has also been reported to be stalking TW Telecom but can't handle the asking price because, as is often the case with Level 3, that price would blow up its already strained debt ratios. If you're wondering how then Level 3 could have bought Global Crossing, well, perhaps this just goes to show how trans-oceanic fiber may be glamorous, but metro fiber and building entrances are more valuable!
So look out for that coming consolidation where wireline carriers make sure they have some significant facilities of their own in all of the major U.S. markets - incumbent or otherwise. The infusion of capital that SoftBank is now making in the U.S. wireless market with its big play for Sprint is likely to be echoed, albeit in the smaller way, in the wireline market, where metro fiber is fetching a pretty price.
Adapted from material originally published at TC2's David Rohde on Telecom.
What do users get out all of these ongoing mergers of CLECs, alternative carriers, and so on? Are these just more annoyances or is someone building a better model that can really compete with AT&T and Verizon?