David Jackson

Ten Things I Hate About You: Weakness and Opportunity in the Telco Sector

What's the implication for the stocks? Over a year ago, I shorted the US telco stocks (Baby Bells) or purchased puts in them (I still own almost worthless VZ leap puts, for example), largely on the thesis that voice was becoming free. But I made a mistake: they moved from usage-based pricing to a fixed-price bundle, so Skype failed to take a chunk out of the telcos' revenues because the choice for a consumer became: "Do I cancel my Verizon service or not?" And for most people, the answer was "not". At the same time, they invested heavily in wireless, which drove revenue and profits. So the stocks have done OK. VZ's 5 year chart, for example, just doesn't show the collapse I would have expected.

So my question is: What now? Does wireless and bundling save the telcos, are are they about to lose the second stage of the war?

Can VZ's new fiber buildout generate a positive return on investment given that the limited growth of the TV, wireless, voice and gaming market makes this essentially a zero sum game: what the telcos will gain, the cable companies will lose, and given the dynamics of price competition with heavy sunk costs, that will lead to losses all round.