Spring VON reporter's notebook: RBOC finances

Reporter's notebook items from the Spring VON 2006 conference in San Jose. Check back often for updates.

RBOC finances

For all their rising stock prices and enormous mergers, the incumbent local phone companies are viewed with some skepticism by Wall Street, according to comments from financial analysts speaking on a Spring VON 2006 panel.

One worry is that with at least two alternatives for broadband service into many homes - the public phone network and cable TV lines - there are few homes that will ultimately buy more than one pipe into their home, says Daniel Berninger, vice president of Tier1 Research.

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RBOC finances

For all their rising stock prices and enormous mergers, the incumbent local phone companies are viewed with some skepticism by Wall Street, according to comments from financial analysts speaking on a Spring VON 2006 panel.

One worry is that with at least two alternatives for broadband service into many homes - the public phone network and cable TV lines - there are few homes that will ultimately buy more than one pipe into their home, says Daniel Berninger, vice president of Tier1 Research.

To offer broadband services that support video programming, Internet access and phone service, the big phone companies have to build out their networks along the lines of Verizon and its FIOS project. But it's unclear to Berninger how Verizon will make enough to pay the network off. "I don't see the return when you have to build past every house, you get 30% of them as customers and you only get an extra $60 per month," he says.

The phone companies' problems are compounded by other technologies that haven't been fully developed yet, says Jessica Zufolo, senior policy director for Medley Global Advisers. Satellite providers, to the extent that they get customers, will cut into cable and phone company customers, she says.

Wireless technologies that use new bands of spectrum could also prove an alternative to wired networks, she says.

It's not out of the realm of possibility that AT&T and Verizon might some day decide it makes sense to sell off their networks in favor of developing higher growth businesses such as applications that run on the networks, says Blair Levin, managing director of Stifel, Nicholaus & Company.

Zufolo agrees, but thinks that regulators may think it's in the public interest for them to hang on to their networks. "There's pressure on the Bells to sell wireline assets, but will states allow it?"

Experts debate municipal Wi-Fi efforts

Municipal Wi-Fi - free or cheap Wi-Fi access to the Internet set up by cities and towns for all to use - is a waste of taxpayer money, according to VON panelists opposed to these programs proliferating across the country.

These wireless municipal endeavors stand little chance of being profitable and run the risk of driving up the cost of other municipal services in order to subsidize them, according to Tom Lenard, vice president of research for the Progress and Freedom Foundation.

And they do little for the public that commercial broadband access doesn't already do, says Link Hoewling, assistant vice president of Verizon Business. "The market has worked well to improve access speed with good prices," he says.

But given that municipalities such as San Francisco are successfully attracting private businesses to build a citywide Wi-Fi network at no cost to the city, the programs should continue, says Joe Van Eaton, a Washington, D.C., communications attorney who has represented municipalities setting up Wi-Fi networks.

Most municipal Wi-Fi networks are joint ventures between private businesses and municipalities and that is likely the model that will continue. "Only state or federal legislation will stop it," he says.