Bad Telecom Deals

FierceWireless recently published a short article listing the 10 worst telecom business moves of the last 10 years. And there are some clunkers on the list like Google’s purchase of Motorola, AT&T’s effort to buy T-Mobile and Time Warner Cable’s agreement to pay over $8 billion for the rights to broadcast the LA Dodgers.

One of the bad moves listed was Fairpoint’s purchase of Verizon’s customers and networks in Maine, New Hampshire and Vermont. Everything imaginable went wrong with that purchase that closed in 2007. The transition to Fairpoint was dreadful. There were numerous network outages as the cords were cut to the Verizon network. Customers lost email access. They couldn’t place long distance calls out of state and many couldn’t even call customer service. Customers abandoned the company in droves and in 2009 Fairpoint declared bankruptcy and recently sold the company to Consolidated.

There are other similar stories about companies that have bought large number of customers from the large telcos. Earlier this year there was reports of widespread customer dissatisfaction after Frontier bought a large swath of Verizon lines.

There are a number of lessons to be learned from the Fairpoint and similar transactions. First, it is exceedingly difficult to buy customers from the large telcos. The processes at the big companies are mind-numbingly complicated. I remember talking to a guy at AT&T years ago about the process of provisioning a new T1 to a customer. As we walked through the internal processes at the company I realized that nearly a dozen different departments at AT&T scattered across the country were involved in selling and connecting a single T1. It’s impossible for a new buyer to step into the middle of such complication – no matter what employees might come with the purchase of a property there will be numerous functions that the acquired folks don’t know how to do.

I recall helping a client buy a few exchanges from Verizon back in the 1990s. The buyer got literally zero records telling them the services that business customers were using. The buyer had to visit every business customer in the hopes of getting copies of bills, which were often undecipherable. I remember even years later that there were business customers that had working data circuits that the buyer didn’t entirely understand – they worked and their philosophy was to just never touch them.

The point of all of this is that the transition of a property from a big company always has major problems. No matter how long the transition process before conveying everything to the buyer, on the day the switch is thrown there are big holes. And this quickly leads to customer dissatisfaction.

The other issue highlighted by these transitions is that a buyer rarely has enough human resources ready to deal with the onslaught of problems that start immediately with the cutover. It can be massively time consuming to help even a single customer if you don’t have good enough records to know what services they have. Multiplying that times many customers spells disaster.

Not all sales of big telco properties are in massive piles and I’ve helped clients over the years to purchase smaller numbers of exchanges from the big telcos. I have several clients looking at potential purchases today, which highlights the other big problems with buying telco properties.

Today, any small buyer of a copper network probably only does so with a plan to convert the new acquisition to fiber-to-the-home. The condition of acquired copper plant is generally scarily bad. I can remember that Verizon let it be known for at least fifteen years that the whole state of West Virginia was for sale before Frontier finally bought it. Industry folks all knew that during that whole time that Verizon had largely walked away from making any investments in the state or even doing anything beyond putting band-aids on maintenance problems. Frontier ended up with a network that barely limped along.

So a buyer has to ask how much value there really is in a dilapidated copper network. If a buyer spends ‘market’ rates to buy a telco property and then spends again to upgrade the acquisition they are effectively paying for the property twice. I’ve crunched the numbers and I’ve never been able to find a way to justify this.

I think we may have reached the point where existing copper networks have almost zero market value. Even with paying customers, the revenues generated from older copper networks are not high enough to support buying the exchange and then spending again to upgrade it. This is something that prospective buyers often don’t want to hear. But as I always advise, numbers don’t lie, and it’s become obvious to me that it’s not a good economic deal to invest in old copper networks. It usually makes more sense to instead overbuild the property and take the customers.

2 thoughts on “Bad Telecom Deals

  1. The question I have for you Doug is what can be done about those copper COs that both Verizon and AT&T still hold that the companies refuse to upgrade to fiber?

    Other assets have been sold to Frontier, Fairpoint (now Consolidated), Windstream, TDS, CB and CenturyLink, and those companies are busy in selected areas ripping out the old POTS and copper systems and slowly replacing with fiber.

    As you stated in your article, those copper networks many of them are in bad state of decay and are unwanted which is why they were sold off.

    You mentioned in another past article that if AT&T and Verizon are unwilling to invest in those unwanted assets and are essentially abandoning them, then local governments should force those companies to either sell them on the cheap or outright seize the properties and the communities take over.

    How would that work?

    What I don’t understand is why do AT&T and Verizon still hold on to the copper if they don’t want it?

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    • I wish I had a good answer. While those companies want the copper to go away they are not about to let somebody else use it as a guide wire to more cheaply build fiber. Both companies want to force rural America onto cellular data for broadband and so they still don’t want any competition.

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