Last week I attended the 16th Annual Oppenheimer Technology, Internet and Communications Conference in Boston. Over 100 companies also attended, with 5 to 7 presenting simultaneously in different rooms, so unfortunately I could not attend all of them and concentrated my time on the communications presentations including: American Tower [AMT], AT&T [T], Ceragon Networks [CRNT], Cogent Communications [CCOI], Frontier Communications [FTR], KVH Industries [KVHI], RigNet [RNET], Verizon [VZ], and Vonage [VG] among others.
The major takeaway was pricing continues to fall for most players in the telecom industry. This is particularly true with bandwidth pricing at all levels – fiber, wireless and satellite. New technologies involving improved spectrum utilization are proliferating – new wavelength division in fiber, Wi-Fi, small cell offloading and LTE for wireless and new high throughput satellites for increased satellite capacity.
Frontier indicated their advantage that is allowing them to succeed while many other rural telcos are struggling is their investment in their infrastructure. Cogent indicated their advantage was buying distressed fiber systems pennies on the dollar that is now far more efficient than competitors’ copper-based solutions. AT&T and Verizon are benefiting from massive infrastructure that allows them to serve complex corporate applications. Vonage, which lacks such advantages, discussed a new $9.95/month service that seemed poised to barely break even and a move to the Brazil market which they hope will be less competitive. Meanwhile, the satellite players are struggling to come to terms with the potential disruption of new high throughput satellites. These new satellite also provide a full network solution but may bypass traditional systems operators giving the satellite operators a greater share of the end-customer value. Meanwhile, Qualcomm is seeking to use satellite spectrum in a ground-based system to provide in-flight broadband at much great rates that currently possible.
Given the rapid bandwidth deflation, companies hampered by prior investments (and associated debt service) in older less efficient systems are at risk for cannibalization by competitors with more cost effective systems. This trend is nothing new in the TMT sector, but the scope of it appears to be larger than previously seen. It may lead to industry consolidation based on a company’s (in)ability to upgrade to the most efficient system versus it’s competitors. It’s also consistent with our earlier thesis of hardware/infrastructure (network equipment, satellites, small cells, wave division multiplexers etc), becoming a larger component of the communications value chain.