Some critics like Sanford Bernstein analyst Craig Moffett say that Verizon is toast. Moffett thinks Verizon will end up losing $6 billion when all is said and done, and that the cable companies will win the telecom wars.
I find myself more aligned with Om Malik in thinking that Verizon "at least has an offering that addresses the needs of the future broadband users." Except that I go a step further: Verizon has an answer that no one else seems to, and that puts it in a position to control a lot of data business.
On the Internet, data and files only get bigger. Consider not financials, but theoretical download speeds. Verizon is solidly ahead on what it could deliver with a potential of 400 mbps, whereas cable will top out under 200, and DSL and wireless aren't even in the picture. By investing now, Verizon is positioning itself as a natural service leader for consumers and businesses. For anyone else to catch up would require an equivalent network build-out, and the numbers for, say, AT&T's stay-slow strategy aren't that appealing:
[CEO Randall Stephenson] at AT&T should be having nightmares. [The international cable model standard] DOCSIS 3.0 real speed is 4 to 50 times as fast as any service AT&T will have for the better part of a decade. Their top tech people pointed out in 2003 that [AT&T's] U-Verse was a big gamble, because it is far behind what DOCSIS 3.0 will deliver. Randall saved $10 to $20 billing by not running fiber. AT&T's capex is 30 percent less than depreciation. Great for current earnings and cash flow, of course, and [former AT&T CEO Edward Whitacre] made $100 million or more in 2006 on his options and then retired.Verizon's willingness to invest for the future is the only strategy that makes sense, at least if they want a chance to dominate a market.
Underinvestment is not good for AT&T customers or the nation; it's still unproven what serves shareholders in the long run.
Speeding taxi image courtesy Erik Sherman, all rights reserved.