The other night I dreamt of knives, continental drift divide.REM, “It’s the End of the World as We Know It”
Mountains sit in a line, Leonard Bernstein.
Leonid Brezhnev, Lenny Bruce and Lester Bangs.
Birthday party, cheesecake, jellybean, boom!
You symbiotic, patriotic, slam book neck, right? Right.
It’s the end of the world as we know it.
It’s the end of the world as we know it.
It’s the end of the world as we know it and I feel fine.
Dear Vorticians,
A couple of quick business notes before I launch into this week’s topic. First, mark your calendars. VORTEX 2005 will be held Oct. 24-26 at the Palace Hotel in San Francisco. You don’t want to miss what Geoffrey Moore and I are cooking up for you.
Second, it’s not too late to register for DEMO @ 15! – the 15th anniversary of the terrific DEMO conference, the launch pad for new companies and technologies. Executive Producer Chris Shipley has outdone herself in bringing some 75 intriguing new products to the stage for this special DEMO, which you can learn more about by clicking on http://www.demo.com.
Last week, I raised concern about SBC’s potential acquisition of AT&T, a deal on which SBC subsequently pulled the trigger. If you’ll recall, I talked about declines in both the consumer and enterprise markets and the service providers’ inability to move up the stack in terms of new, profitable services. In the wake of SBC’s actions, the industry is shaking with talk of other maneuvers and mega-deals. Case in point: MCI is being chased around like a kennel-trapped cat with a steak tied to its back.
All of this prompted an old reporter colleague, Anita Taff Rice, now a telecom attorney, to drop me this quick, cryptic note today. “John, what REM song accurately summarizes the state of the telecom industry?”
Anita didn’t include her own answer to the riddle, but I ventured this response. It could be “Everybody Hurts,” (with its anti-suicide message), but I suspect that Anita means: “It’s the End of the World as We Know It.” Although I doubt many people feel fine.
Some very smart people I know are also questioning the logic behind the SBC/AT&T deal. Consider the thoughts of Precursor Group analyst and VORTEX 2003 speaker Scott Cleland, whose comments are quoted in a New York Times article. The story reads: “Some analysts like Scott Cleland . . . foresee falling prices and more losses, driven by more competitors and the introduction of ever-cheaper Internet-based technology. ‘For SBC, this is a really dumb idea,’ Mr. Cleland said. ‘It would make them the largest negative growth company in the country.'”
Velocity Capital’s Andy Kessler, a longtime friend of VORTEX, wrote in the Wall Street Journal: “Cool stuff is coming. Fiber is being strung away from the telcos. Soon, a mesh network of wireless transmitters on old neighborhood telephone poles will offer cheap data plans with, oh by the way, free phone calls. Burned badly, the stock market will pay for all this only if it sees a truly competitive market. SBC stock and the entire telecom market has been dead money for years. Buying AT&T only props up the corpse a little longer.”
The smart people over at Eze Castle Research put together an insightful analysis of the deal and its likely impact on capital equipment spending in telecom. (By the way, this is a new company that you should get to know if you’re an investor or entrepreneur. Eze Castle is putting together some hard-hitting research that questions a lot of the common wisdom in telecom and enterprise IT. The company was founded by Doug Ashton, a former top Wall Street telecom analyst and one of the brightest guys I’ve met in this business. You can find Eze Castle at http://www.ezecastleresearch.com.)
In a report entitled “Misconceiving SBC/AT&T,” Eze Castle wrote: “SBC is positioning the purchase as justified based on ‘synergies,’ meaning areas where the two organizations can combine resources to cut costs. That is a very defensive position from an RBOC that has been talking big about IPTV. We question whether that is just a public relations spin meant to simplify the deal and nothing more.
“If true, one must wonder whether SBC is going to collapse costs to become a price leader in the enterprise and pursue consumer broadband at the same time, or whether it will attempt to develop some of the higher-layer services (managed services and application services) that AT&T talked about in 2003 and beyond. References to these new services were conspicuous in their absence in the call…
“We believe that SBC will also shift spending decisively toward the packet side, cutting back more on TDM switching. We believe it will continue to fund its IPTV and DSL initiatives and, in fact, will likely increase its pace in this area because of fear the cable companies might position the AT&T acquisition against it, saying that SBC is now an enterprise carrier and is not committed to the consumer market.”
Eze Castle sums it up this way: “Competition isn’t dead in telecom. The IXCs were dead (or mostly dead) before the SBC deal even happened. AT&T was exiting the consumer space, and the other IXCs were quietly planning the same. The battle is now between the cable companies and the RBOCs, which ironically is just where departing FCC Chairman Michael Powell wanted it to be. We can’t predict at this point what big MSOs like Comcast will do in response to the SBC/AT&T deal, but we believe the real battle between the cable companies and the RBOCs over consumer broadband will still be launched this year and will develop as fast or faster based on the acquisition.”
Doug, thanks for letting me share so much of that. I’m eager to hear what other Vorticians think of the deal and the impact it will have on the industry. Drop me a line at mailto:jgallant@vortex.net.
Bye for now!
