RCN Discusses the Broadband Access Market (RCNI)

Excerpt from The Wall Street Transcript's 2/13/06 interview with RCN Corp. (RCNI) CEO Peter Aquino and SVP Richard Ramlall:

Mr. Aquino: The market is changing very quickly. When it comes to broadband and access, one thing is very clear -- facilities-based carriers are a valuable transport medium to move new broadband services across networks.

In the case of the residential market, the bottleneck to provide these services always tends to be the broadband network to the home. To stay competitive, companies are looking at all kinds of new applications to provide different types of either IP services or video services in the future.

Satellite companies are looking for a broadband play because satellite transport is not as robust for Internet access as a fiber-based network is. Some of the MSOs are looking for solutions on the telephone side. Telephone companies are looking for solutions on the video side. Each of them has to negotiate with local municipalities and franchises, and the RBOCs are having difficulty with that. The telecom world is really dynamic right now. You have other companies you wouldn't expect to see making investments in these operating companies because they think that ultimately getting to the eyeballs is the important thing.

At some point, we would expect that some of the video would be mobile; and many of us are working on that angle as well. Also, technology in the home is changing, the PC is starting to look like a TV, and everyone wants to control everything from the thermostats, to lights, to the next movie they want to see, and they want to save content for future reference.

So it's a very exciting arena that we're working in, and having the vast experience that we have collectively is important. In terms of M&A, deals where we actually get facilities ownership in our core market help to lower the cost per home and extend our license area. So we think that's pretty interesting.

All of those initiatives are outside of our day-to-day blocking and tackling, and we're making sure we run the company profitably and expand our margins. RCN is always looking for opportunities to add to our capabilities, to extend our network, and to capture additional customers. But we need to be very selective and make sure we generate the returns as we increase market share.

Mr. Ramlall: As Pete was saying, some of the non-traditional players like Google, Yahoo! or Microsoft are a lot more actively involved in looking at the infrastructure and trying to determine how their content can get to the end-user. So you can expect to see in 2006 a lot more focus on access to content issues that impact the regulatory arena. For example, network neutrality is a buzzword that will certainly be a lot more in focus in 2006, as companies such as Google try to make sure their content receives priority treatment to the end user, and those that have the infrastructure, such as telcos, try to make sure that they are compensated through the use of their facilities.

In terms of examples of M&A, deals that fit into our growth strategy, a good example would be the Con Ed acquisition that RCN announced. It was a great acquisition for us. You have a telco subsidiary of a utility company that has great assets in place for us in New York and New Jersey. ConEd will give us access to a significantly higher number of both residential and commercial opportunities in those areas.