May 17, 2007

Copper Spines

By Jim Barthold

Lest anyone think that stealing business customers from the telcos is like collecting taxes from New Jersey residents - easy and fun since they complain so loudly and can do so little about it - several big telco players made it clear this week that they're not giving up without a fight.

"In our small business category, small-medium, regional business customer base, we're seeing terrific growth; seven percent plus in the first quarter of this year," AT&T CFO Rick Lindner told the Morgan Stanley 12th Annual Communications Conference in Washington, DC, this week. "We have a great relationship with those customers."

Lindner dispelled thoughts that the big telcos are annoying their customers and chasing them into the arms of MSOs either through lousy service or lack of features.

"We were just recently awarded the J.D. Power Award for small-medium business communications providers nationwide. We're bringing products and bundling them down from our enterprise space into that space. (There is) terrific growth in data and IP data there, but also nice stable voice revenues," he said.

The bundled Qwest

A sometimes forgotten voice in the telco space - Qwest Communications - is also not ignoring its commercial roots, as was explained during another presentation at the Morgan Stanley conference. The Denver-based RBOC has, however, applied some bleach to touch up those roots and make it more attractive for customers who want more than a brunette phone.

"We've been competing with all forms of telephony providers for years, and we've competed with Cox in Arizona and Omaha for a long period of time," said John Richardson, executive vice president and CFO of Qwest Communications.

Qwest, said Richardson, has a "good three-product bundled offering that's being sold just under $100 and a four-product bundled offering that's around $110 and continues to "add subscribers in high-speed Internet and attract customers to our bundles."

The naysayers will point out that Qwest, unlike Verizon and AT&T, isn't building its own video network but is using DirecTV.

"They have great products, too," rebuts Richardson. "We've indicated in the past that we want to be a fast follower. We really want to see how the AT&T IPTV product plays out as well as FiOS. We're not sure either one of those strategies is a long-term solution."

Also unlike AT&T and Verizon, Qwest doesn't own its own wireless carrier; it uses cable's old buddy Sprint as an MVNO. According to Richardson, the name on the bill is more important than the name on the wireless tower.

Bundling in wireless

"The wireless product is a very important part of our bundle. When we have wireless in the bundle, it reduces our churn fairly significantly, around a 10 percent reduction on churn in that bundle. We're happy with the relationship we have as an MVNO with Sprint," he said.

For its part, Sprint's just as happy to have a relationship with cable - especially since it helps pay for its long-distance business, which, in turn, comes in handy for its mobile business, which, of course, helps Qwest.

"Cable enablement, cable VoIP, is a business that will be close to $1 billion run rate this year," said Sprint Chairman-CEO Gary Forsee during yet another presentation.

Since that money's all honey because "that structure has been put into place," Sprint can leverage that long-distance network to make other pieces of its business more attractive and hopefully steal away business customers from, among others, cable operators.

"We believe that particularly with enterprise customers you have to be able to have a discussion about IP and MPLS services that in the future will converge with wireless data services," said Forsee. "If you look at our wireless network and how substantial that is, serving 56,000 cell sites and so forth, our ability to run that network on our own assets and economics ... and the investments that we make are part of that" makes it worthwhile to keep the long distance business.

- Jim Barthold