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WorldCom Bids On Various Rhythms Assets
iamabot writes: "DSL providers are cheap these days. After the AT&T acquisition of NorthPoint assets for 135 million, WorldCom has issued a 40 million dollar bid for various assets of Rhythms. The interesting thing here is after some other providers disconnected their subscribers, WorldCom seem to be interested in operating the existing network. I suspect this will actually be a fairly cheap endeavor, when compared to the capital and recurring expenditures DSL providers faced over the past few years, especially for WorldCom. The majority of the cost associated with lighting up a DSL network nationally involves the capital expenditures to buy the equipment and the huge recurring monthly transport costs for central office aggregation to a node.
Does anyone else see the acquisitions in the past year or so as an opportunity for the DSL industry to rebound?"
Cost, in a business, are two sorts - capital and operational. What Worldcom have done here is picked a business at a discount compared to the capital expediture they would be required to make to build the same business. A fire sale in other words.
I suspect this will actually be a fairly cheap endeavor, when compared to the capital and recurring expenditures DSL providers faced over the past few years
Now, the recurring cost will be a bit less for Worldcom compared with Rhythms but not by a huge margin (basically by the amount it takes to service the smaller debt, plus some from economies of scale). So I don't think that this will be a fairly cheap endevour to run. However, as the DSL market is undergoing a shakeout there will be less competition, and this will push user costs up.
The equation is a bit less opex, low capex for the infrastructure, and more revenue generated due to price increases (and, possibly, provision of low cost high margin services to a larger pool of users). Hopefully, opex+capex servicing+investment revenue, or it's goodbye DSL.
For those who are interested in the capital (equipment) cost of rolling out a DSL service, the current basic cost is down to about $50 for a USB modem, and $100 for the DSLAM port. (assuming you want 10,000 of them).
Of course, you have to add in the warm bodies in the call center, and the backbone bandwidth, but these are telcos, and are supposed(!) to have a good ATM backbone already. (Besides, moving surfers from dial-up to DSL saves a *HUGE* volume of voice capacity on the backbone anyhow).
Source for the above figures is the latest news report from DSL Prime.
They provide a good free (as in beer) report on the DSL industry.
-- We don't understand software, and sometimes we don't understand hardware, but we can *see* the blinking lights
To me, Verizon (and SBC) is the Microsoft of the telecommunications business. I spent a few months this year dealing with a DSL fiasco. I'm not one of those people who gets upset about little things, but when they shut off my normal phone service and so forth, I began getting really pissed off.
Verizon (and SBC) have a government-granted monopoly on local phone service. The government says they're the only ones who are allowed to string telephone wire over and under our public streets. A condition of this monopoly which the government has granted, Verizon has to let DSL providers like Covad, Northpoint and Rhythms access to the central office and so forth. Verizon has been breaking the law and not meeting this obligation. In 1999 Covad filed an anti-trust suit against Verizon.
I had Covad as my DSL provider, Verizon is my local Baby Bell Local Exchange Carrier. For people who have ever had to deal with a T-1 which is down, you know how it is maddening as Verizon and Digex (or UUnet, or Sprint, or MCI) just point fingers at each other and say it's not their fault. I am somewhat familiar with central offices and the like so I was able to discern who was at fault in my case - and it was always Verizon's. When I called Verizon to complain that my phone line was dead or at other times that my DSL line was dead they had the gall to ask me why I wasn't using Verizon DSL. Covad kept making appointments to get into my CO but the Verizon people were always no-shows. Hell, they're a monopoly, why should they care.
Verizon is also one of the biggest political contributors in New York state politics, and one of the biggest contributors to national campaigns. This is how they get the government-granted right to be the only ones allowed to string telephone wire over and under our public streets. Once Covad, Northpoint and Rhythms are out of business, they can hike DSL rates up real high.
There is a GLUT of unused bandwidth out there, and even in this economy a demand for DSL. But government-granted mononopolies like Verizon/SBC prevent us the user/consumer from getting to that bandwidth. I keep getting advertisements in my phone bill for Verizon DSL, but I will never use them. I became so mad at Verizon, I did some political work on the campaign to keep them from doing long distance in Massachusetts.
Open up our phone lines to free competition. Get rid of the Verizon/SBC monopoly over phone lines over and under our public streets, which is granted by corrupt politicians who are paid off to maintain that license.
There are a couple of issues to think about. A handful of months ago, Scott McNealy of Sun Microsystems fame said in a speech that there are going to be some "third time owned" effects in the marketplace. What he meant was that with the original (new) cost of the equipment it is difficult to make a venture (whether it be telecom or internet) profitable. The second time around is better, but still not good enough. By the time the equipment ends up in it's third set of hands the cost has likely decreased to the point where the service can be offered at the current market rate and yet be profitable.
Whether you apply this to telecom companies (360 Networks) that have buried a tremendous amount of fiber or to internet companies (Webvan and their excellent warehouses and technology or take your pick of high-flying dotcom that bought too many Sun servers) it is not difficult to understand. When you pay 10% of the original price it is easier to be profitable. How surprised would you be if Worldcom DIDN'T cut a deal with the ILECs on long distance in order to get cheaper rates for DSL?
Sounds to me like they got a good deal. DSL is not a long-term solution to broadband access provision, so you might immediately think "why would anyone voluntarily lumber themselves with a soon-to-be-obsolete infrastructure?".
...But I rather fear that too many customers have already got burned and will switch to cable, or wait for fibre, or even just wait to see what the market looks like in a years time (that's the attitute that *really* pisses off telcos!).
An obsolete infrastructure? I suspect that DSL will be with us for a long time as will cable. Both aren't ideal solutions. Both use existing lines and one or the other is sometimes the only broadband technology available to some people. The same goes for cable. Satellite broadband is another solution for those folks deep in the rural setting but that is still a rather pricy way to get broadband.
Those folks waiting are most likely unable to get broadband or can't afford it (and prices are going up). As for waiting for fiber...it will be a long time since infrastructure expenditures are going to be way, way doing with the current economic atmosphere.
I'm guessing you will get more of the same: 3rd party DSL providers getting squeezed by local telcos. The local telcos willing to absorb the pittance of a fine thrown at them for not opening up their lines (even when they do they aren't that helpful). There will be fewer and fewer 3rd party providers and a stagnation in the efforts to get fiber to close that Last Mile (heck even the Last Few Yards will be a big project).
That's just my opinion, I could be wrong.