For 100 years, the voice telephone business was awesomely capital-intensive, heavily regulated, and incredibly profitable. The AT&T break-up didn’t really bring competition. It just turned a monopoly into an oligopoly, with three long-distance companies carving most of one market, and seven (now four) Baby Bells dominating local service.
The rise of Worldcom’s chairman Bernie Ebbers reflects this old view. Ebbers is basically an old-style telephone guy, heavy on finance and cost-cutting but weak on operations and marketing. He can buy, he can squeeze, but he can’t build.
That’s fine when customers have limited choices (and the merger with Sprint was designed to limit those choices further), but the world has changed. Europe’s objections to the deal are based on the two firms’ dominance of Internet backbone traffic, not their voice assets.
But the real problem, as a chart in CNNfn’s recent story on the merger makes clear, is that Wall Street no longer believes the deal makes financial sense.
Here as elsewhere, the Internet has changed everything. The cost of running data (as opposed to voice) now follows a variant of Moore’s Law. Costs are always declining while capabilities are rising. Each new generation of equipment is better, cheaper, and easier to use than the last. It’s a problem familiar to anyone who owns a PC, only with more zeroes. Equipment is depreciating faster than it can be written off.
MCI’s latest proposal here is instructive. It’s offering to jettison Sprint’s voice and Internet assets, if it can only keep the Sprint PCS wireless business. The wireless business looks good because frequencies are limited. Money can handle the problems of auctions and regulation, both of which limit competition. Money alone can’t win the new game.
The fall of AT&T’s stock price over the last three months indicates Wall Street has finally picked up on this lesson. Assets are out of fashion.
The question is what will replace assets as the difference maker in this business?
I think marketing and customer service will dominate the new world of Internet communications. Fiber is still worthwhile only because its capacity can still be upgraded, and because demand is sucking up that new capacity. It’s the ability to find and keep customers that will win the future.
All of which means that this is a great time to be an Internet service provider (ISP) or a competitive local exchange carrier (CLEC). ISPs and CLECs know how to move fast, they know how to work niches, and they know how to please customers. It’s not their stock or their assets that will lead them, either, but their attitude. It’s an attitude that should be the mantra of every Internet merchant as well. It is the mantra of the successful ones.
You know that mantra well. The customer is always right. It’s about them, not you.
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