Last week, another big acquisition: Verizon announced it would acquire MCI for US$6.7 billion in cash and stock. As we noted when SBC announced its intent to acquire AT&T, some will cry out for the poor customers, suggesting competition is going to die. And as we said before, we don't buy the unwarranted crocodile tears. Today, we'd like to talk a little bit about why we maintain our position that competition is alive and well.
First, as we've been commenting for years, the cost (and therefore the price) of long-distance voice has been in decline because as a relative drain on today's high-speed networks, voice rides nearly free - and this trend will continue. Therefore, the income from voice alone cannot continue to sustain companies the size of AT&T and MCI.
Smartly, both AT&T and MCI have been building their infrastructure and capabilities to compensate for this revenue decline, moving more rapidly toward value-added services than have the regional phone companies. For example, both have deployed edge-managed security and hosted application services that large businesses need - endearing themselves to the large enterprise in a way that regional players haven't had to do to survive.
As a second reason, we'd like to turn to an analogy about the value of water vs. the value of the pipes used to deliver water. Contemporary philosophers may ask which is the more valuable: the water or the pipe? Of course, at first glance, the water is more valuable because water is needed to sustain life.
But let's not underestimate the value of the pipe. Without plumbing, we would be forced to carry our water from rivers and wells in a bucket. So then the question becomes which is more valuable - the bucket or the water? If we follow this argument, we must conclude that the water and some means to carry the water are BOTH important if we care to exist beyond the boundaries of rivers and streams.
So too are networks and the content they deliver both important. Plumbing that doesn't carry water isn't very valuable, and water with out a means to convey it puts a severe cramp into human lifestyles. Without a delivery mechanism (like the local loop) voice and data connectivity is like water without a bucket or plumbing.
So does that mean those who control the pipes (or the local network) will always win? We think not. More about that next time.