And the Telecom consolidation continues: This time is Dobson

Rural wireless provider Dobson Communications Corp. is considering strategic options, including a sale of the company as deal activity among the telecom industry's smaller players continues to accelerate. The move comes as private-equity firms are increasingly looking for high-profile telecom deals, leading to higher share prices for some smaller telecom companies in recent weeks. In fact, two private-equity firms agreed last month to acquire Alltel, the nation's fifth-largest cellphone company by subscribers, in a deal valued at $26.3 billion.

Dobson, based in Oklahoma City, markets wireless services in rural and suburban areas under the Cellular One brand, serving about 1.7 million customers. Last year, Dobson got 22% of its overall revenue through roaming partnerships with major U.S. wireless operators such as AT&T Inc. T-Mobile USA Inc. However, it is becoming more difficult to sustain those partnerships as competition intensifies in rural markets and large carriers build out networks to previously underserved areas. The company focuses in several Midwestern states, parts of the Southwest, Alaska and upstate New York. Lately, it has expanded its reach by acquiring smaller operators. Dobson's competitors include such carriers as Alltel Corp., Rural Cellular Corp. and US Cellular.

So, why anybody would be interested in Dobson? For potential buyers, Dobson offers access to markets where cellular penetration is not as high as in major metropolitan markets, thus leaving more room for future growth. However, roaming partnerships with larger wireless carriers will be difficult to maintain. Further, Dobson receives funding from the federal government's "universal service" fund to finance its network build-out in high-cost areas and the FCC is considering a cap on how much carriers like Dobson could receive. That would seriously limit its expansion. In my opinion, this is a happy story for everybody. Dobson should sale the company for a considerable profit (especially in these market conditions), whereas any big wireless carrier that buy them would gain additional cellular coverage without making huge capital investments. More to come for sure.

Business Week: Back from the Dead

Today, I won't be writing anything. I'm simply referring to Business Week's cover story from June 25th, 2007, written by Spencer E. Ante.

The article is an in-depth analysis of the bounce-back in the telecom sector after it hit rock bottom in the early 2000s. Not surprisingly, the popularity of IP/Internet-based video is seen as key factor for the telecom resurgence.

Very interesting data point from the article: "About half of the Internet's transmission capacity was going unused in 2002. Today that pipeline has almost doubled in size, and yet the unused portion is down to about 30%." Though significant challenges are in front of us, there is plenty of optimism in the market with a lot of growth opportunities, such as IPTV.

Enjoy!

http://www.businessweek.com/magazine/content/07_26/b4040001.htm

What is Qwest’s future?

Qwest Communications International Inc. CEO Richard Notebaert has announced plans to retire from the company he has run since 2002. He will step down once a replacement can be found. Notebaert took the helmet from Joseph Nacchio, now in prison, while the company was in the middle of an accounting scandal that left it $26 billion in debt. Mr. Notebaert helped Qwest stop the bleeding enough to return profitability. But the increase in earnings has come as a result of a cost cutting strategy rather than a growing business. While the company is certainly far healthier than it was a few years ago, it relies on partners to help it in the key telco growth areas of wireless calling (offered by reselling Sprint Nextel Corp. services) and residential video (offered by reselling DirecTV Group Inc. services). So, what is Qwest’s future?

While Qwest's peers AT&T Inc. and Verizon Communications Inc. aggressively pursue their own fiber based video strategies, Qwest has taken a conservative wait-and-see approach to see what customers will end up demanding the most in the future. The company says it’s watching the IPTV pioneers and will continue to experiment with several ways of delivering video services to its customers. Let’s take a look at the four main ways that Qwest sees to reach consumers with video service.

Traditional choices
ChoiceTV is Qwest's VDSL-based TV service that passes about 500,000 homes, mostly in the Phoenix area. It's offered over a fiber-to-the-node (FTTN) network with NextLevel hardware and software. Qwest doesn't have any big expansion plans for ChoiceTV. But Qwest does note that an IPTV network is the next generation of a service like ChoiceTV. There are no plans to upgrade immediately but an upgrade would give Qwest the ability to use stronger video compression technologies and more interactive services, as well as offering its own digital video recorder (DVR) service.

Qwest's satellite star DirecTV
Throughout most of Qwest's 14-state footprint, the carrier sells an assisted triple play, a voice, video, and data bundle of services, where DirecTV's satellite TV service makes up the video part of the deal. Qwest describes this as a very successful partnership but won't comment as to whether the reseller model is really a big revenue winner for anything other than DirecTV. What it does is give Qwest something to sell to prevent subscriber move to cable. But the relationship may change in the near future, Qwest says, as it could use its DSL connection to homes to provide a video adjunct to what DirecTV beams down from satellites. That is a video on demand opportunity, which would integrate broadband with DirecTV to provide additional integrated capabilities.

Qwest's broadband video plan
After a long period, Qwest says it will launch a broadband VOD service available to its customers who have PCs running Windows XP or Windows Vista operating systems. The still nameless service will be co-branded with Microsoft Corp.'s Windows Live platform. Qwest says it will be working on deals with content providers to make free, pay-per-view, downloadable, and searchable video content available through this upcoming service.

What about IPTV?
The company says it is preparing to be a "fast follower" in the IPTV space, as soon as it sees the technology and services catch on. Qwest's FTTN expansion will be big, but it will be gradual. And, as such, the carrier isn't saying much about the scope of its plant upgrades. Qwest’s fiber network can provide 20 Mbit/s of bandwidth. Obviously FiOS (Verizon) can provide higher. The question is how much bandwidth do you need? Clearly, Qwest and AT&T both think they can satisfy what the customer demand is. There is some good judgment to the Qwest "fast follower" approach. “If you are sitting on $13.4 billion of net debt like Qwest, you don’t have the luxury of thinking about a massive FTTH deployment", says Heavy Reading senior analyst Stan Hubbard. "And that may turn out to be a good thing from a strategic point of view in the near term, as this whole battle between IPTV and Internet TV plays itself out." Definitely, more to come of this, but I think the IPTV alternative will ultimately be the winner.

Juniper to launch the T1600

Juniper Networks plans to sell a new core router, called the T1600, in the fourth quarter of 2007 that will direct Internet traffic for large networks such as telecoms and cable television companies. The T1600 has higher capacity and density than Cisco’s CRS-1, with lower requirements for power and cooling. It will be Juniper's first major upgrade to its core router line-up in five years.

It is true that Juniper will likely gain share in the router market in 2008 with a new product due for sale later this year, although rival Cisco Systems will not cede its dominance. Today, most analysts estimate Cisco's market share in core routers to be around 60 percent, compared to around 30 percent for Juniper.

No question that this was a much-needed move for the company after it lost share to Cisco's high-end router, the CRS-1, in the past few quarters. Telecoms carriers and cable television companies have been upgrading their networks to handle increasing data traffic, including Internet-based video services, which require advanced core routers. So, Juniper really needed to make a come back in high-end routers if there are in fact serious about competing with Cisco.

What’s the real impact for Cisco? Probably, very little. This is more good news for Juniper than negative for Cisco. The T1600 certainly does improve performance. However, any shift in market share is likely to emerge in the second half of 2008 into 2009, and Cisco could also announce some improvements to its CRS-1 in the meantime. Some analysts said Cisco and Juniper will remain leaders in core routers for a while, but there may be more competition ahead from French equipment maker Alcatel-Lucent and smaller firms like Foundry Networks. However, with the heavy investments required to develop such types of core routers, there is modest risk that it would affect market share for Cisco and Juniper.