Saturday, May 16, 2009

Analyst Buzz from Telecompetitor: Rise of the Rural 'Super' Carrier 05/16/09 (Editor's Note: We are pleased to present one of the most incisive pieces of industry analysis on the clear current trend in rural telecom: Divestiture by the Tier 1 ILECs of rural landlines, and consolidation by the largest RLECs. Bernie Arnason is managing Partner & Founder of telecom consulting and market research firm Pivot Media, and Principal Contributor / Managing Editor of the firm' Telecompetitor industry reporting blog. We welcome his insights.)

By Bernie Arnason/Telecompetitor  via

Recent activity in the rural telecom sector leads us to speculate about a rural ‘super’ carrier trend. We define this trend as the formation of large scale, larger than we’ve ever witnessed before, telecom service providers focused mostly on rural markets.

Despite the 1,000+ carriers serving rural territory in the U.S., the three largest ‘RBOCs’ combined, still serve the majority of rural customers. That’s beginning to change, and leading to the rise of the rural ‘super’ carrier. Companies like CenturyTel, Embarq, Windstream, FairPoint, Frontier, TDS, and maybe Qwest are on a path to become rural ‘super’ carriers.

Communications conglomerates like AT&T and Verizon are laying their cards on the table – their future does not include rural access lines. Verizon referred to them as ‘non-strategic’ assets when explaining their recent Frontier transaction. Verizon also announced they have probably finished shedding access lines and will now focus on wireless, FiOS, and global IP connectivity.

That leaves AT&T and Qwest to reveal their rural plans. Will AT&T shed their rural assets as well? They have a lot to shed. The wildcard among the RBOCs may be Qwest, because they have an opportunity to become the rural ‘super’ carrier themselves. There has been speculation that Qwest would divest itself of its long distance and enterprise units and basically morph back into its US West heritage. In so doing, they may become an aggregator of rural access lines in an attempt to build the scale necessary for a so called rural ‘super’ carrier. Qwest lacks the wireless assets of its RBOC brethren, AT&T and Verizon. Are Qwest and AT&T already talking? Of course, Qwest may be limited by its financial troubles to take on AT&T’s rural assets.

Perhaps the other rural ‘super’ carrier in waiting to watch is Windstream. They were one of the largest rural carriers, but will be eclipsed by Century Tel-Embarq and Frontier-Verizon. You have to think Windstream's Little Rock, Arkansas headquarters is all abuzz over finding the right deal so they can keep up. The flights between Little Rock and Dallas, AT&T's headquarters, may be a little busier. What about a Windstream-TDS combination?

We’re not big proponents of bigger is always better. But in the quickly evolving telecom landscape, scale means everything. For carriers that lack wireless assets, building the scale that can create operational efficiencies and provide the means to profitably build and leverage broadband applications is paramount for future survival.

Whatever the outcome, the U.S. telecom industry is reshaping. Rural ‘super’ carriers are forming, as the largest communications conglomerates shed their rural access lines, and focus on wireless and broadband. It’s a scenario that’s been talked about for many years. It’s now forming in front of our very eyes.

Bernie Arnason is Partner & Founder of Pivot Media

This article is © Pivot Media 2009, and used by with the permission of the copyright holder.
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