IANAE, but what happens when major telcos start to go under? As they struggle to maintain profit margins, how despirate will they get? Can replacement technologies and companies absorb the workforce that will be laid off? How often will this type of thing happen? Think about it, the current plain old telephone system is no good unless it is ubiquitous. That's why the telcos are in trouble. They needed to put entire systems in place before they where useful. Fiber is fantastic except when it comes down to two little wires in the last mile. In for a penny, in for a pound. Telecommunications systems need to be complete or not at all. How do we get the technoloy in place before it's obsolete?
IANAE, but what happens when major telcos start to go under?
As you point out, a telco asset is only valuable if it is complete, but if it is complete it is a very valuable asset.
The remaining telcos will buy the bankrupt assets for pennies on the dollar, gaining substantial marketshare and capacity. Since fewer players control more capacity, they can idle the existing capacity and raise prices (or not keep cutting them) to recover from their debt load. They also eliminate future debt by being able to bring on the idle capacity with drastically lower capital expansion costs.
"Bailouts" happen for a few reasons. (1) The misguided populist notion that we won't have phone service, (2) the egos and political capital invested in the current business, and (3) the demands of shareholders, bondholders and other investors who do not want to see their investments become essentially free investment in other businesses.
Bankruptcy law in the US would allow companies to fail gracefully. If one of the Baby Bells were to declar bankruptcy (which is complete and utter shit. Sorry, it ain't gonna happen) then they would either be liquidated or their debts reorganized. The latter is fairly obvious. The more interesting case is the former. Someone (a collection of RBOC's, Microsoft, co-ops?) would buy out whatever the Baby Bell had. Probably at auction, and probably cheap. Whoever backed the bonds is fucked, but the customer probably isn't.
I wonder about the future of land lines for residential customers. I'm sorely tempted to drop mine in favor of cell service. Well, I'd keep just enough service to get 911 dial out.
I agree that entire systems needed to be in place for the telcos to be useful. However, I disagree that this is the cause of their current woes. The vast majority of these systems were in place decades ago. Everything lately has been upgrades. The upgrades or replacements would have occured in any event as equipment broke down.
"Be there. Aloha."
-- Steve McGarret, _Hawaii Five-Oh_
Economics (Score:5, Interesting)
Re:Economics (Score:2)
As you point out, a telco asset is only valuable if it is complete, but if it is complete it is a very valuable asset.
The remaining telcos will buy the bankrupt assets for pennies on the dollar, gaining substantial marketshare and capacity. Since fewer players control more capacity, they can idle the existing capacity and raise prices (or not keep cutting them) to recover from their debt load. They also eliminate future debt by being able to bring on the idle capacity with drastically lower capital expansion costs.
"Bailouts" happen for a few reasons. (1) The misguided populist notion that we won't have phone service, (2) the egos and political capital invested in the current business, and (3) the demands of shareholders, bondholders and other investors who do not want to see their investments become essentially free investment in other businesses.
Re:Economics (Score:2)
I wonder about the future of land lines for residential customers. I'm sorely tempted to drop mine in favor of cell service. Well, I'd keep just enough service to get 911 dial out.
I agree that entire systems needed to be in place for the telcos to be useful. However, I disagree that this is the cause of their current woes. The vast majority of these systems were in place decades ago. Everything lately has been upgrades. The upgrades or replacements would have occured in any event as equipment broke down.