Transcript State of Industry: Rural Cellular Association September 22

State of Industry
Blair Levin
Managing Director
Stifel Nicolaus
(202) 778 1595
[email protected]
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Rural Cellular Association
September 22, 2006
St. Louis, Missouri
All relevant disclosures and certifications appear on page 28 of this report.
Overview
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Big Picture Trends
Political/Regulatory Trends
Specific Policy Issues Affecting Rural
Wireless Carriers
Blair Levin
September 22, 2006
Big Pictures Trends
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Wireless Migration
Three Trends and Train Wreck
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Restructuring through mergers and sales
Redefinition of Production through Bundles
Broadband Based Unbundling and Innovation
Rewriting Regulation
Blair Levin
September 22, 2006
Big Picture Trends
Wireless Migration
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Key investment decision of 1990’s
What’s going up/What’s going down
Demographics makes it more so
Blair Levin
September 22, 2006
The Happy Story of Wireless
250000000
60000000
Subscribers
40000000
150000000
30000000
Revenues
50000000
200000000
100000000
20000000
50000000
10000000
Jan-03
Jan-01
Jan-99
Jan-97
Jan-95
Jan-93
Jan-91
Jan-89
Jan-87
5
0
Jan-85
0
Source: Stifel Nicolaus Regulatory Research and Federal Communications Commission
Subscribers
Revenues
Big Picture Trends
Restructuring Through Mergers and
Sales
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Restructuring of big companies to take
advantage of economics of scale and scope
in high-density, high-spend areas in an effort
to be growth vehicles
Sale of profitable assets that do not fit into
growth opportunities in an effort to be cashgenerating (dividend) vehicles
Consolidation of adjacent market segments
Blair Levin
September 22, 2006
Big Picture Trends
Implications
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All small players have to figure out where
they want to end up in the game of musical
chairs
In game of musical chairs, it is possible to
lose
Technology could make today’s good
decisions problematic in the future
Blair Levin
September 22, 2006
Big Picture Trends
Redefinition of Product Through Bundles
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Bundling as a way to achieve economies of
scope
Bundling as a way to achieve sustainable
competitive advantage
Bundling as a way to hold back new
competition from edge-based providers
Blair Levin
September 22, 2006
Big Picture Trends
Implications
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Bundling favors multi-product incumbent
networks
Bundling hurts CLECs, independent wireless,
ISPs, edge-based competitors
Bundling increases value of certain strategic,
unique assets
Blair Levin
September 22, 2006
Big Picture Trends
Broadband Based Unbundling and
Innovation
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Broadband restructuring networks as we
knew them
Broadband as the new Sections 251/252
Broadband as the driver of innovation cycles
Blair Levin
September 22, 2006
The Market in 1994:
One Network, One Offering One Service,
Terminating in One Device
Cable Headend
Multichannel
Video
Cable
Central
Office
ISP
Local Access
ILEC Network
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Modem
Bank
Source: Stifel Nicolaus Regulatory Research
IXC Network
Internet Cloud
Voice Service
Narrowband
Internet
The Emerging Broadband
Market Multiple Networks Delivering Multiple
Services to Multiple Devices
Cable
Voice
Video
Data
Local ILEC
Voice
Video
Data
Wireless
Voice
Video
Data
Voice
Video
Data
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Source: Stifel Nicolaus Regulatory Research
Satellite
Big Picture Trends
Implications
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Shifts value to equipment and software over
network services
Threatens existing pricing power for all
incumbent networks
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All time and distance charges at risk
All high margin charges at risk
Core access revenues not so much at risk until
new, ubiquitous networks arrive
Blair Levin
September 22, 2006
Big Picture Trends
Rewriting Regulation
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Rethinking classification
Rethinking universal service
Rethinking inter-carrier classification
Rethinking government fees
Rethinking the level playing field
Rethinking the thing no one wants to think
about
Blair Levin
September 22, 2006
Big Picture Trends
What Are Competitors Up To?
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Big Wireless
Cable
Satellite
Municipal broadband
Wireless broadband technologies
Edge applications
Blair Levin
September 22, 2006
Political/Regulatory Trends
Political/Regulatory Trends
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Election prognostication
General approach to telecom/tech issues
Impact of industry restructuring on telecom
politics
Blair Levin
September 22, 2006
Specific Policy Issues
Specific Issues Affecting Rural Cellular
Carriers
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Mergers and Bell line sales
Intercarrier compensation
Universal service
Spectrum
Unfunded mandates
Numbering
Local calling areas
Interconnection
Special access
Poll attachments
Blair Levin
September 22, 2006
Political/Regulatory Trends
Mergers and Bell Line Sales
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AT&T/BLS
Bell line spin offs
Blair Levin
September 22, 2006
Political/Regulatory Trends
Intercarrier Compensation
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Missoula Plan
Continuing payment dispute
Phantom traffic
Blair Levin
September 22, 2006
Political/Regulatory Trends
Universal Service
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Contribution
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Distribution
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Safe harbor
Numbers-based systems
ETC status
Payment basis
Reverse auctions
Blair Levin
September 22, 2006
Political/Regulatory Trends
Spectrum
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700 MHz auction
Cyren call
Verzion
M2Z
Blair Levin
September 22, 2006
Political/Regulatory Trends
Unfunded Mandates
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Emergency Alert System (EAS)
E911
Hearing Aid Compatible Devices
Blair Levin
September 22, 2006
Political/Regulatory Trends
Numbering
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Access to local numbers
T-Mobile petition
Blair Levin
September 22, 2006
Political/Regulatory Trends
Local Calling Areas
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Size of local calling areas
State issue
Blair Levin
September 22, 2006
Political/Regulatory Trends
Interconnection
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Neutral tandem petition
Cable industry effort
Qwest Challenge
Blair Levin
September 22, 2006
Political/Regulatory Trends
Special Access
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Issue will grow, particularly as consolidation
solidifies and prices rise
Not likely to be subject to greater legislation
Key business question: when will wireless
offer alternative?
Blair Levin
September 22, 2006
Political/Regulatory Trends
Poll Attachment
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Key asset still
No government action likely
Blair Levin
September 22, 2006
Important Disclosures and Certifications
I, Blair Levin, certify that the views expressed in this research report accurately reflect my personal views
about the subject securities or issuers; and I, Blair Levin, certify that no part of my compensation was, is, or
will be directly or indirectly related to the specific recommendation or views contained in this research report.
The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us
and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any
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