Buying Big Telco Properties

Over the years I have helped several clients buy telephone properties from the big telcos. This stretches back to over 30 years ago when US West sold off some rural exchanges in the Dakotas. Over the years I’ve had some role in other transactions where bigger telcos sold off an exchange or group of exchanges around the country.

I’m writing about this today because this topic is coming up again after a hiatus of a few years when there weren’t many such transactions. A few of the big telcos have quietly put parts of their historic footprint up for sale, or they are now willing to talk about selling. The following are a few issues that anybody thinking about buying a big telco company property should consider.

Condition of Network Assets. The assets from big telcos are in sad shape. Big telco copper networks are ancient. I remember helping two different parties examine the possibility of buying a large Verizon property twenty years ago and the copper networks were already in bad shape then. The big telcos began ignoring copper networks soon after divestiture in 1984 and have completely abandoned maintenance in the last few decades. Some rural telco properties have a significant amount of backbone fiber, but even much of that is getting old. Some properties have seen a recent flurry of new fiber due to the CAF II program, but this is generally not extensive. All of the other assets like buildings, huts, cabinets, and vehicles are likely to be old and tired.

Staffing Will Be Sporadic. Often when somebody buys a smaller telco, they have a chance to pick up a qualified staff. This is important because inheriting a staff means inhering institutional memory. The employees know the customers and know the nuances of the network.

You don’t generally get that when buying big telco properties. Generally, such purchases only come with maybe a few outside technicians. Big telcos still largely perform many telco functions remotely – customer service reps will be done in distant call centers. You’ll get nobody who knows about provisioning, billing, pricing, or anything related to backoffice. The outside technicians available in the purchase are often older and near to retirement age. They are going to be unionized, which might cause them to not take a job with a buyer who’s not unionized.

Records Will Be Dreadful. The big telco will promise to give you all of the records you need to operate the business, but this will turn out to largely be a fantasy. It will turn out that many maps were never created, that customer service records are wrong, that the records showing the facilities used to serve each customer are incomplete or full of errors. This is the primary reason why customers complain about a new buyer of a big telco property because, without the records, a buyer will struggle for 6 to 8 months to figure out the business. I worked with one buyer who was still discovering unbilled circuits many years after a purchase.

Transition Costs Will be High. For the various reasons listed above, the costs to transition from the old telco to new systems and employees will be higher than expected. You’ll find yourself throwing money at trying to straighten out things like billing.

There Will be Surprises. Regardless of the preparation effort for a transition, buying a big telco property will mean some big ugly surprises. Maybe 911 circuits will go dead. Perhaps there will be no SS7 connection. Maybe emails will crash. There will be database issues and some customers will be unable to make or receive calls. Expect the first two months after the purchase to be putting out fires and dealing with irate customers.

One thing will not be a surprise. With a month or two, the public will decide that the new provider is no better than the old big telco. The telcos have already been bleeding customers and a new buyer is likely to lose up to 10% of the customer base in the first year.

Why Do You Want to Buy? I challenge any potential buyer to answer this question. It’s almost unimaginable to consider buying a big telco property without plans for upgrading or overbuilding it. The question to ask is if it’s not better to just selectively overbuild rather than buying a property and then paying again to overbuild. The math may favor buying first and then overbuilding due to the existing revenue stream. But there is also a good chance that with honest math that recognizes the reality of the transition that buying is a terrible decision. Going straight to overbuilding avoids many regulatory burdens such as being the carrier of last resort and avoids serving remote customers who are too expensive to upgrade. Overbuilders are loved by the public – something a buyer of a big telco property can only dream about.

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