The Nation's Telcos Are Hemorrhaging Customers Because They Refuse To Upgrade Their Networks

from the don't-build-it-and-they-won't-come dept

So we've noted for a while how despite all the hype surrounding next-gen wireless and gigabit fiber builds like Google Fiber, vast swaths of this country are actually facing less broadband competition than ever before. That's in large part thanks to the nation's phone companies, which have effectively given up on upgrading their lagging DSL networks at any real scale. One net result is millions of customers paying an arm and a leg for sub 6 Mbps DSL service that doesn't even technically meet the FCC's new standard 25 Mbps definition of broadband.

And it's not changing anytime soon. Verizon has all but frozen next-gen upgrades as it shifts its focus to gobbling up failed 90s internet brands to help it sling video advertisements at Millennials (poorly, we might add). But smaller telcos like Frontier, CenturyLink and Windstream have similarly been losing broadband customers hand over foot as they flee to faster cable competitors. Even Wall Street, which has historically and myopically disliked putting any money back into broadband networks, has started to take notice, resulting in the nation's telco stocks taking a precipitous dive in recent months:

"Shares in the wireline ILEC/RLEC space (CenturyLink, Frontier, Windstream) have endured the worst three consecutive quarters in industry history, with shares plummeting an average of -20% in 4Q16, -21% in 1Q17, and -24% in 2Q17 (we note another -5% in 3Q17 thus far), mostly from Frontier and Windstream as CenturyLink shares are being supported by the Level 3 acquisition,” Cowen said in a research note."

It has gotten to the point where some Wall Street analysts have even gone so far as to *gasp* recommend that some of these companies actually upgrade their networks if they want to remain relevant. Ironic, since it was Wall Street's relentless focus on short-term gains and avoiding these necessary network upgrades that help put these companies in this position to begin with:

"Jennifer Fritzsche, senior analyst for telecommunications services at Wells Fargo, doesn't think Frontier can actually right said ship without offering consumers a better broadband product.

"It is hard to fix a problem just by cutting costs when your competition (cable) is only pressing its foot heavier on the capex and fiber pedal," Fritzsche said.

But instead of upgrading the networks they already have, many telcos are trying to please Wall Street by focusing on growth for growth's sake. Frontier recently gobbled up Verizon's unwanted DSL customers in California, Texas and Florida in the belief that bigger automatically means better. But Frontier not only saddled itself with massive additional debt and outdated copper landlines Verizon had neglected for years, but it bungled the acquisition so badly it actually forced many of these subscribers to flee to cable even faster. Focusing on growth for growth's sake now has Frontier teetering on the verge of bankruptcy.

But the more problematic impact of all this is that across countless markets, consumers looking for current-generation broadband often only have one option: cable providers. These cable providers are on the cusp of enjoying a greater broadband monopoly than ever before, resulting in less incentive than ever to shore up their historically awful customer service, and only encouraging their slow but steady deployment of arbitrary and unnecessary usage caps. Combine that with the Trump administration's intense focus on eliminating all consumer protections in the telecom space, and it shouldn't take a tea leaf reader to see how this could potentially end very badly for consumers and competitors alike.

Filed Under: broadband, competition, dsl, investment, telcos, wall street
Companies: centurtylink, frontier, verizon, windstream