Analysts Question Bell Investments
By Ted Hearn -- Multichannel News, 3/14/2006 2:54:00 PM
Wall Street analysts told a Senate committee Tuesday that the billions of dollars being spent by AT&T Inc. and Verizon Communications Inc. to compete with cable might not produce a profit.
“There is a high degree of skepticism that the substantial investment underway at the [phone companies] to deliver broadband networks to the home will deliver a satisfactory return on the incremental investment,” said Luke Szymczak, vice president of JPMorgan Asset Management.
AT&T and Verizon are installing high-capacity fiber lines to rapidly deliver voice, video and data in a high-stakes battle with cable.
“The costs of these networks are far beyond what the returns of the new services can provide,” said Craig Moffett, VP and senior analyst of U.S. cable and satellite broadcasting at Sanford C. Bernstein & Co.
The two analysts appeared before the Senate Commerce Committee, which is expected to vote on a bill next month that would ease phone-company entry into cable markets and perhaps include network-neutrality safeguards.
The battle between cable and the phone giants has put sharp pressure on the stocks of both industries.
Aryeh Bourkoff, managing director at UBS Warburg LLC, expressed concern about the regulatory climate facing cable after the industry invested more than $90 billion on network upgrades to roll out digital TV and high-speed-Internet access.
He referred to possible network-neutrality and a la carte programming mandates, as well as less burdensome franchising requirements on phone companies, as negatives for cable.
“As media consumption over the Internet develops at a rapid pace, I believe it is too early to introduce regulation on key issues such as a la carte pricing and packaging and on net neutrality, as the market is still in its early stages,” Bourkoff said.
Moffett, an opponent of network-neutrality mandates by government, warned that if network owners were barred from creating a “fast lane” on the Internet to generate more revenue to cover capital expenditures, they would have to recover much, if not all, of their cost from subscribers, whose monthly bills would likely rise substantially.
“Mandated net neutrality would further sour Wall Street’s taste for broadband-infrastructure investments, making it increasingly difficult to sustain necessary capital returns, and it would likely mean that consumers alone would be required to foot the entire bill for whatever network investments do get made,” Moffett said.
Investors dislike policy upheavals in Washington that distract them from focusing on market fundamentals, said Kevin Moore, wireline telecom analyst at Wachovia Securities.
“We have enough to worry about in considering the rapidly changing competitive and technological environment. In other words, we want regulatory stability and certainty,” Moore said.
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