by Judi Clark
Law 595, Independent Study
JFK Law School, Walnut Creek, CA
Our regional Bell telephone companies: SBC, Verizon, BellSouth, and Qwest Communications, have been in our lives for what seems like forever. Starting with the first monopoly, AT&T agreed to divest itself of seven Regional Bells (called RBOCs) that would offer local phone service, which later merged back into four. The RBOCs have flaunted government regulations to maintain their monopoly on local phone service. Their actions and interests do not necessarily yield the best future for the public. However, the Internet, an unexpected guest, arrived at their door bringing sweeping changes to the telecommunications industry. These changes may well be the beginning of the end for the RBOCs.
As soon as people developed ways of communicating, they needed ways to communicate over distances. Yelling and messengers worked for a long time, but were not destined to be a final solution.
Following the historic transmission by Alexander Graham Bell to partner Thomas Watson in 1876 of the words "Mr. Watson, come here, I want you," the Bell Telephone Company was formed in 1877. This was followed by the formation in 1885 of the American Telephone and Telegraph Co. (AT&T), a Bell long-distance subsidiary. Bell's telephone patents expired in 1894, resulting in shifting market powers (due to mergers & regulations). In 1913, the Kingsbury Commitment was formed in which AT&T agreed to sell off its Western Union subsidiary, connect independent phone companies to its long distance network, and stop acquiring the independents. In 1982, a Consent Decree[1] AT&T was held to be a monopoly.
Prior to 1968, AT&T was a tightly regulated monopoly. In exchange for the right to exclusively provide telephone service and subsidiary Western Electric's equipment, AT&T was granted control of the entire United States telephone network. AT&T's first taste of competition came in 1968 with the "Carterphone" decision in which other vendors could offer telephones to customers. In 1969, the FCC granted MCI access to operate private lines between St. Louis and Chicago. The FCC did not specify, and AT&T quickly capitalized on, the characteristics of the connection in terms of how much to charge MCI to connect, how fast to install MCI's connections, and how much to charge MCI for its ongoing interconnections.
This struggle begot an anti-trust suit filed by MCI, and a supporting suit by the FCC, against AT&T. The court found that AT&T had monopolized the market for local and long distance phone services and telephone equipment. Several years and many legal and political maneuvers later, AT&T entered into a Consent Decree with the government. AT&T agreed to divest itself, within two years (by January 1, 1984), of their local phone operating companies (Regional Bell Operating Companies, or RBOCs)[2] and their local telephone services. In effect, AT&T retained its long distance business, Bell Labs, and Western Electric (and its leased customer-premise equipment). The divested RBOCs became our seven local telephone companies. They were prohibited from offering long distance service, but kept the profitable yellow pages and the Bell logo.
The 1984 break-up of AT&T is one of the landmark Antitrust cases in the company of Standard Oil,[3] Aluminum Co. of America,[4] American Tobacco,[5] and IBM.[6] However, the Bell breakup did not work as planned. Regulatory enforcement quickly became an imbroglio which continues to hinder development of new telecommunications technologies.
Again attempting to curb monopolistic abusive practices, Congress passed the Telecommunications Act of 1996 (the 1996 Act).[7] This Act was designed to encourage competition in telecommunications services, including local telephone, thereby improving services and lowering prices. As an incentive to cooperate, the incumbent telephone companies (now called Incumbent Local Exchange Carriers, or ILECs) would be allowed to participate in the long distance market after applying with the FCC and showing that they had allowed entry of competitors into their local markets. Many competitors were positioned to jump in to provide local phone services: competitive local carriers (CLECs), cable TV providers, even utility companies and municipalities.
The 1996 Act was based on the naïve notion that deregulation of the industry would work because competition was desirable. "The new Act's passage represented a bipartisan consensus that advances in technology, as well as the success of regulatory models based on competition rather than monopoly, called for major changes in the regulation of telecommunications."[8]
"The 1996 Act envisions a network of interconnected networks that are composed of complementary components and generally provide both competing and complementary services. The 1996 Act uses both structural and behavioral instruments to accomplish its goals. The Act attempts to reduce regulatory barriers to entry and competition. It outlaws artificial barriers to entry in local exchange markets, in its attempt to accomplish the maximum possible competition. Moreover, it mandates interconnection of telecommunications networks, unbundling, non-discrimination, and cost-based pricing of leased parts of the network, so that competitors can enter easily and compete component by component as well as service by service."[9]
Six years later, however, monopolistic abuses continue. The 1996 Act did not take into account the formidable monopolistic forces of incumbent telephone service providers, coupled with a lack of non-compliance penalties in the 1996 Act and relaxed governmental oversight on the industry.
The connection between the telecommunications network and nearly all homes and businesses is referred to as the local loop, or the last mile. Typically the wires run from a home or business to a neighborhood telephone box called a Central Office, or CO. This last mile is capital intensive, and has historically been constructed with copper phone lines controlled by the ILECs. Once installed, the ILECs have little incentive to allow competitors access to the facilities.
Gaining access to the home includes legal complications such as obtaining rights-of-ways. Potentially, one could get access through cable TV lines or via cellular or wireless connections. However, these technologies also have technical and legal limitations. Cable is not set up for two-way communications; their origin was a broadcast-only model, and their reputation for poor customer service and high prices did not make them an attractive alternative. Cell phones were plagued with limited bandwidth (slow speed, minimal quality), and operated in an industry plagued with regulatory problems (spectrum allocation, poor customer service).
Competitors in phone service (local and long distance) must use Bell access lines to reach their customers. Carefully controlling who can connect is a powerful means of promoting the ILEC agenda. Their incumbent position and market power is a handicap to competitors. Complaints of the ILEC's excessive fees, slow deployment, and unnecessary access barriers have been consistent over time. They still have the monopoly death grip on the local loop and therefore access to the customers.
Where there's monopoly control, there's profit to be made. Recognizing this, the 1996 Act mandated that the ILECs make their local loops available to competition. The ILECs, also referred to as Incumbent Local Exchange Carriers (ILECs), would have to make their neighborhoods (local loops) available and connectable to Competing Local Exchange Carriers (CLECs). In exchange, the FCC would approve ILEC's entry into long distance service once the local loops had been sufficiently opened. The 1996 Act included a 14-point checklist from which the FCC and others would measured openness.
By any reasonable metrics, the Act did not catalyze vigorous local phone competition. "As of December 31, 2000, CLECs provided 16.4 million (or 8.5%) of the approximately 194 million nationwide local telephone service lines to end-user customers," according to the FCC.[10] Of this small number, only two-thirds are resold or leased from the ILECs, while the other one-third is served over "local loop" facilities that the Competing Local Exchange Carriers (CLECs) own. As of June 30, 2001, local loop competition rose to a whopping 9.0%.[11] Over time, the seven ILECs have merged to form four companies[12] that control over 90% of their market. Re-monopolization is nearly complete.
Many are now debating the wisdom of a structural separation of the four remaining ILECs into separate wholesale and retail arms.[13] Others propose separating the telephone (and cable) providers into content and conduit providers. Ironically, industry insiders are currently reporting that either SBC or BellSouth is likely to acquire AT&T in the next year.[14]
How has passage of the 1996 Act affected customers? One year after passage, AT&T Chairman & CEO Robert E. Allen was prescient when he warned,
"The Bell companies and GTE are among the largest and wealthiest corporations in the world. ...They must not be allowed to use the public's money to finance future growth while avoiding any meaningful adjustments that would make them competitive on their own."[15]
The immediate effect was to drastically reduce the cost of long-distance calls, particularly in the commercial market, an effect that would not last. While long distance rates have dropped 14%, the overall cost of long-distance calling is now higher due to monthly service charges, universal service fees, and other hidden costs.[16] In contrast, the effect on local phone service was not as favorable to consumers. Local telephone charges have increased 17%, and are expected to rise another 5% later this year. Overall, "local prices have risen by about 180% relative to interstate prices."[17] Long distance companies have failed to disturb the local market,[18] so most people have a choice of exactly one telephone (&/or cable) provider. The incumbent ILECs have done well since passage of the 1996 Act, all at the customers' expense.
Headlines have confirmed ILEC abuses.[19] Public Utility Commissions confirm abuses.[20] Indeed, even FCC audits have revealed questionable financing.[21] Claims filed with the FCC and IRS against the ILECs include charges of violating "Fair and Reasonable" statutes, overcharging on phone bills, charging for or writing off equipment that was never purchased, and manipulation of public assets.[22]
All the foot-dragging and non-cooperation on the part of the Bells is having the effect they desire.
"Over the past several months numerous multimillion-dollar fines and countless complaints have been lodged against the Baby Bells in all regions of the nation for everything from wholesale service performance failures and violations of pro-competitive regulatory conditions to other blatantly anticompetitive behavior. At the same time, more and more would-be competitors have declared bankruptcy."[23]
Incumbent ILECs have revealed their power and arrogance in the marketplace for telecommunications services. While the 1996 Telecommunications Act was designed to encourage competition, the competing local exchange carriers (CLECs) have been unsuccessful at establishing themselves. Their positions began a steady decline in 2000, but the extent and speed of their demise was not apparent until early 2001 as most of the largest and most promising of them declared bankruptcy or closed down operations and, concurrently, their investment sector disappeared. Many of the CLECs offered expanded telecommunications services which were more profitable than plain old telephone service (POTS) but the CLEC foothold was never allowed to become secure. The ILEC's were in control of all significant access points, and thus the future of the ILEC's profits was ensured.
"When service issues first began to occur, the CLECs, failing to comprehend the [ILECs'] lack of incentive for improving service, attempted to work problems out with the incumbents," Brown said. "When this method failed, startup companies discovered that they had tremendously underestimated the influence the incumbent providers held over the legal and regulatory environment in the telecommunications industry. When an [ILEC] did not adequately fulfill its obligation, there was no true method of recourse."[24]
Let me put the Bells' profits into perspective. Public interest group NetAction looked at five icons of American business: McDonalds, the worlds largest restaurant chain; Nike, the largest footwear supplier; Exxon/Mobil, the largest oil company; Disney, one of the largest entertainment companies; and Dow Jones, a major finance company, and compared their profit margins with the Bells and GTE. "The combined average profit margin for the companies ...was only 16%. In contrast, the Bells' profit margin from all services was 42.9%, which is 167% higher than the average for the five businesses combined."[25] A Florida Public Service Commission found, for example, that two of Bell South's products, residential Call Waiting, and Call Forwarding Busy Line service for business, have profit margins approaching 50,000% and 155,000% respectively![26]
What benefits have these profits provided?
"Perhaps the most serious failure of the (ILECs) has been their failure to introduce new technology to the residential local loop. One can hardly blame profit-seeking companies for attempting to maintain and increase stockholder value by keeping competitors out and prices up."[27]
Indeed. It is more profitable to continue using existing equipment than to upgrade hardware and softwareÑat a substantial costÑfor a potentially competitive market. The ILECs' anti-competitive behavior is to be expected given that the 1996 Act does not provide any penalties for non-compliance.
"It rather relies on the firmsÕ own incentives to drive them to choose according to what the Act expects. In this respect, the Act may have underestimated the ability of incumbents to stall the implementation process of the Act. Moreover, the Act definitely overestimated the importance of ILECsÕ long distance entry as an incentive for ILECs to open their local markets to competition. In the last two years, without exception, the ILECs chose to forego long distance entry and rather continue to receive local service monopoly profits."[28]
Despite the intentions that the 1996 Act would make the marketplace for telecommunications services more competitive, it remains largely under monopoly control. This has been a costly lesson for CLECs and telephone customers alike.
Currently, there are four basic technologies for connecting homes and businesses to the larger communications network:
Twisted pair is the most widely deployed and controlled. Wireless is less dependable and more expensive, though it has managed to take a 2% cut in the local telephone business. A viable alternative as a telephone service provider, most cable TV operators have not entered the local telephone business because of fears of increased regulation and the cost of upgrading the cable infrastructure, without which local phone services and broadband Internet aren't available through cable. Fiber optic lines (called Fiber to the Home), largely impractical now due to business and right-of-way issues, are in 80% of neighborhood phone boxes (COs) but mostly have not been extended the "last mile" to residential settings.
Alternative access is possible in some municipalities as local utility districts and publicly-owned power companies take on the task of wiring and providing services to their own residents. Nine states have created barriers or have outlawed publicly-owned telecommunications networks.[29]
Overall, the picture looks pretty bleak for competition in local, residential and business telephone service as CLECs go under and other alternative providers are being legislated away. The legislative left hand wants to promote competition, while the restrictive right hand says no, no, no. Despite the ILECs lack of cooperation, the FCC is slowly approving their applications to enter the long distance market.
One example: the Tauzin-Dingell bill recently passed by the House (expected to die in the Senate, but expected to be replaced by similar proposals) essentially rolls back the 1996 Act to the days before regulation. This bill removes any shred of incentive that the ILECs might have to cooperate with other service providers. Additionally, their monopoly stranglehold on telecommunications services is once again nearly complete.
"One of the key consumer protections that Congress included in the Telecommunications Act of 1996 was the requirement that the Bells open their local phone markets to competition before they are allowed into the long distance markets. This requirement is the only incentive the Bells have to treat their customers and competitors fairly. H.R. 1542 would waive this requirement for long distance data markets, giving the Bells control of the nation's telecommunications and technology infrastructure and threatening the future deployment of both broadband and dial-up Internet access, as well as of competitive telephone service. The result for consumers would be less choice, lower quality service and higher prices for everything from basic phone service to Internet access."[30]
How is it that the Bells are getting away with this? Part of the answer is lobbying dollars:
"House members collected a total of $4.9 million in direct contributions from the Baby Bells, versus less than $1.6 million from AT&T, Sprint and WorldCom. (In all, 94 percent of the contributions came in PAC funds; the remainder came in direct contributions from telecom executives and their families.)"[31]
Other bills are being introduced in the House and Senate[32] with similar financially-influenced support.[33] This does not bode well for a competitive market in telephone and telecommunications services.
Meanwhile in the background, the Internet was slowly being developed by the US research community. Designed as an open-architecture communications network, the Internet was capable of operating on many different technologies, including but not limited to circuit switched telephone lines. From the early 1980's, the Internet grew from its infancy in research into today's global user network, carrying broad social and commercial communications and activities.
"The Internet has now become almost a "commodity" service, and much of the latest attention has been on the use of this global information infrastructure for support of other commercial services. This has been tremendously accelerated by the widespread and rapid adoption of browsers and the World Wide Web technology, allowing users easy access to information linked throughout the globe. Products are available to facilitate the provisioning of that information and many of the latest developments in technology have been aimed at providing increasingly sophisticated information services on top of the basic Internet data communications."[34]
The Internet continues to run on a wide range of interconnected networks, including telephone and cable lines, fiber optic cable, ethernet cables, radio waves, wireless modems and routers, satellites, and more. The Internet is considered "dumb"[35] or "stupid" in that the network is merely a transport mechanism that is not necessarily customized for a specific kind of content.[36] In fact, an email sent from a person's home may well travel over several kinds of networks on route to its destination. The tools used to communicate over the Internet: email, web browsing, instant messaging, streaming media, and more, were developed to be used on such a stupid network.
The phone network is in stark contrast to the nature of the Internet. The telephone network is a significant part of public communications and access to the Internet. However, the controls or "intelligence" that is inherent in the telephone network are a hindrance rather than a help. The needs of an increasing Internet user base are not entirely compatible, and sometimes incompatible, with the fixed ILEC voice network. More significantly, the tools of the Internet are cutting into the need for voice lines, including additional telephone lines for faxes and other voice-based services. The Internet represents the first really significant threat to the laissez faire future of the ILECs.
Development of the Internet was affected by two significant forces: the degree of monopoly or competitiveness in the telecommunications market which provides access to the Internet, and the proprietary or open nature of the access. The ILECs have a strong influence on the direction of each vector.
For example, the ILEC's core business is heavily invested in proprietary "intelligent" switches that have been maximized for voice quality. As we have seen above, their business methods tend toward ensuring their monopoly status. This world is asymmetric in terms of two-way communications: it is more about broadcast and controlled access than the Internet currently is. More like a public address system than a ham radio network.
The 1996 Act was supposed to encourage an alternative to monopoly. Highly competitive local access was to provide the ground on top of which a society is free to use and develop a wide range of new tools. This environment has a two-way symmetry that supports the development of a "commons" where anyone can be a producer or consumer. Here, information tends to be decentralized and, central to values served by the First Amendment, secures "the widest possible dissemination of information from diverse and agnostic sources."[37]
"The free and open exchange of information and creative expression is a fundamental value in American democracy, science and culture. Yet even as the Internet democratizes access to information and creativity, new technological locks, licensing regimes and unprecedented expansions of intellectual property law are converting materials that were once freely available to everyone into closed, proprietary "product." If the public is going to enjoy broad public access to scientific research and cultural and civic information, pro-active efforts must be undertaken now to describe how the "enclosure of the information commons" is threatening core democratic values."[38]
The ILEC forces that shape the direction of primary network and access development, and therefore the nature of the Internet, do not necessarily yield the best future for the public.
"For decades, individuals have been willing to pay much more for the privilege of participating in conversations than to receive professional contentÑexpenditures on long-distance and local telephones have been greater than expenditures on newspapers, magazines, broadcast, cable, and movies put together."[39]
While demand for connectivity to the Internet is increasing, demand for the ILEC's core business, landline telephony, is going down. The rate of up and down motion was not expected by anyone in the industry. Minutes of network use are declining as people substitute other methods of communications: cell phones, cable modems, email and the like. Consider the preliminary evidence:
Demand for residential voice telephone lines is declining for the first time in history. The percentage of copper line has steadily decreased since 1991 in the total number of Working Telecommunications Channels as fiber replaces copper. The total number of central offices (CO) has been declining since 1993.[40] Currently, about 2% of residential and business phone lines have been replaced by cellular service and another 2% by Voice over IP (Internet telephony).
This is a bell-weather indicator for long-term problems. "The goodness of the new network on one hand is a nightmare economically on the other. ...the incumbents are slowly going bankrupt, some quicker than others... (including the ILECs) because their ... networks have a very high cost of provisioning."[41] Voice-grade switching equipment that makes up the ILEC infrastructure is expensive to buy and maintain, relative to many alternative networks. That infrastructure requires an army of employees. Additionally, this model is not the best choice for data transport. New and more cost-effective technologies are being deployed whenever and wherever possible to provide access to data services which undermine the long-term well-being of costly ILEC investments.
"Whether they're brand new or a hundred years old, all of these phone companies need to figure out how to increase salesÐand, oh, yes, profitsÐfrom their data businesses. The older guys must outrun declines in their voice businesses."[42]
| 4th Qtr, 3 Mo. 12/00 - 12/01 |
4th Qtr, 12 Mo. 12/00 - 12/01 |
|
| SBC | (3.2%) | 3.2% |
| BellSouth | (2.1%) | |
| Verizon | (3.6%) | (0.5%) |
| Qwest | (3.0%) | (16.4%) |
(A quick analysis of this table is in the footnotes.[43])
Declining income, discussed above, is just the precursor to the dark and stormy night ahead. There is also the problem of stranded assetsÑlots of them.
"(Incumbent) Phone companies have spent billions over the past several years to build or upgrade their networks to accommodate a ton of new volume generated by the Internet and computer-to-computer traffic. The problem is that they have yet to develop data service that will wean them from reliance on their moribund voice business. And if they do not, they could be crushed by the fixed costs of their massive capital investments."[44]
The ILECs have for many years been investing in a high-quality, high-cost voice network with high reliability. We've long heard about the five nines: "99.999% reliability" in a network that was technically designed to maximize the quality of voice. It's been expensive: SBC carries a $26 billion debt, BellSouth a $20 billion debt, Qwest has a $25 billion debt, and Verizon a stifling $64 billion debt.[45] To cover their investments (some of which is going to buy obsolete voice-based equipment) the ILECs have multi-year loans, and covering expiring loans are new loans for 20 years and more. Many of the loans are written with accelerated paybacks in case of default.
Competing with the high reliability ILEC networks are lower cost, lower reliability alternatives such as fiber, cable and wireless. These workable new networks have an added advantage: flexibility. As technology develops it can be deployed quickly and cost-effectively, in some cases by home users as well as competing carriers. This is in stark contrast to the relatively fixed network of the five nines.
The theater being played out with Enron offers many lessons relevant to the ILECs' interests. Public shareholders are an angry bunch right now, and have shown they can move markets with incredible speed if they collectively lose confidence. Historically, ILECs have been considered safe havens for retirement accounts; assumptions that are about to be challenged again. The industry analysts are starting to take notice of the ILECs' impending troubles.
The SEC, working with new accounting rules in light of Enron's creative financing, has announced investigations on 49 big companies, including Qwest (mentioned above). Additionally, under these new accounting rules companies will not be able to amortize their goodwill and will instead require big write-downs in their next statements. Qwest just bought US West. The cost? "É[A] non-cash charge of between $20 billion and $30 billion in the second quarterÉ."[46]
Government policies can have an enormous impact on business activities, in terms of regulation and enforcement, litigation, taxation, and even publicity. Here, a public policy debate is inevitable. The ILECs have arrogantly held their position against the government's policies and against public interest. As their financial situations become apparent, there may be little mercy from any but the most pragmatic hands. In this uncertain economic climate, the ILECs' futures are far from secure: historically bad customer relations attitude, poor balance sheets, a lack of clarity in their future plans, and competitors and technology ready to change their market.
Over time, the telecommunications network has become an essential part of our daily lives. Recognizing this, incumbent ILECs have grown fat and arrogant at our expense. For years, the ILECs have held their monopoly position against the government's policies and against the public interest. The ILECs have maintained their stranglehold on the last mile, or local connections, and with it have forclosed opportunities by telecommunications service competitors. ILEC profits have come at the cost of investment-backed technological development and innovation.
Continuing public policy debates are inevitable. The ILEC future is uncertain, and with it the stock and retirement money of thousands of investors.
Serious financial and technical workings are busy undermining the well-being of the monopolistic ILECs. The Internet has captured the public's interest, and now challenges the established telephone network's profitability. As the ILECs' financial problems increase, there may be little mercy from any but the most pragmatic hands. We could be witnessing the end of an era.
List from Eileen deArmon, Director of Marketing, World Wide Packets, American Public Power Association, provided to David Isenberg's SMART Letter. Online newsletter. No. 68. March 17, 2002. 17 March 2002 <http://isen.com/archives/020317.html>.
SBC
Discussion of their core business is taking a back page to what's really going on. People want access to the Internet, not voice-grade lines. In SBC's 3rd Quarter (SBC Investor Briefings. 3rd Quarter, 2001. 12 March 2002
<http://www.sbc.com/Investor/Financial/Earning_Info/docs/3Q01_IB_FINAL.pdf>.) and Year-End Investor Briefings (SBC Investor Briefings. 4th Quarter, 2001. 12 March 2002
<http://www.sbc.com/Investor/Financial/Earning_Info/docs/4Q_IB_FINAL_COLOR.pdf>.) Operating Revenues from landline local service is steadily declining (Third Quarter declined 0.4%, Fourth Quarter by 2.8%, and down 3.2% for the year.) SBC pulled Cingular Wireless out of their income statement revealing a decline in total revenues of 13.2% (3rd Quarter) and 10.6% (4th Quarter). Why? Total access lines served is showing a decline as well (1.7% and 2.8% respectively). People are getting rid of 2nd phone lines, or substituting cell phones and broadband access for telephone lines. This means SBC is not taking in as much income as it needs to pay off their investments.
BellSouth
Their Fourth Quarter Financials (BellSouth Financials. 4th Quarter, 2001. 15 March 2002
<http://www.bellsouth.com/investor/pdf/4q01p.pdf>.) show a similar picture: a decline in access lines of 1.9%. Instead, they have an increase in Access Line Equivalents, explained as:
"Access line equivalents represent a conversion of non-switched data circuits to a switched access line basis and is presented for comparability purposes. Equivalents are calculated by converting high-speed/high-capacity circuits to the equivalent of a switched access line based on transport capacity. While the revenues generated by access line equivalents have a directional relationship with these counts, revenue growth rates cannot be compared to line growth rates on an equivalent basis." (BellSouth Financials. 4th Quarter, 2001.)
BellSouth would perhaps like us to believe that they can't make a direct comparison between access line equivalents and voice lines, but there is a technological maximum to base the comparison. They are not taking in as much income for Access Line Equivalents as they do for straight Access Lines. In fact, it's much less income. More and more lines are being used for Equivalents than for Access. This is true for all RBOCs.
Verizon
The events of September 11, 2001 had a significant affect on Verizon, but were not the entire explanation for Verizon's falling income. From their fourth quarter earnings report (Verizon's Investor area. Company web site. 15 March 2002
<http://investor.verizon.com/annual/VZ/4Q2001/4Q2001.pdf>.), we see that the number of switched access lines has remained stable over three months and 12 months. Their local services operating revenue from those lines has declined by 3.2% for 3 months, .5% for 12 months. Even their network access services changed marginally (-.1% and 1.8% respectively).
Qwest
A dismal picture with different numbers: switched access is down 3% for three months ending Dec 31, 2001, and down 16.4% for the year. ("Qwest Communications Reports Fourth Quarter, Year-End 2001 Results." Qwest press release. Jan 29, 2002. 15 March 2002
<http://media.corporate-ir.net/media_files/NYS/Q/q_1_28_02earnrel.htm>.) Significant here: the recent merger between Qwest and US West which caused a huge write-off and resulted in an increase in expensive fixed assets.
"Qwest (Q) on Tuesday reported a loss of $3.31 billion, or $1.99 a share, compared to a reported loss of $121 million, or 14 cents a share, a year earlier. The latest quarter's results included one-time and merger-related pretax charges of $3.72 billion. Excluding items, the regional telephone company earned $128 million, or eight cents a diluted share, compared with $255 million, or 15 cents a share, a year earlier." ("Qwest's Loss Widens Amid Huge Merger-Related Charges; Results Match Expectations." Dow Jones Business News. July 24, 2001. 15 March 2002 <http://www.cfo.com/Article?article=4306>.)
As with all the RBOCs, their income continues to center on data, not voice. To get around this Qwest has engaged in some creative financial deals and as a result has been under investigation on and off over the last few years. Most recently:
"Details of the deal, which was not announced at the time but has been disclosed in recent filings in Enron's bankruptcy case, indicate that the two companies raced to complete the transaction as the third quarter was ending in September. Enron and Qwest valued the transaction at more than $500 million, but analysts said the timing and the valuation would be hard to justify because a glut of fiber optic capacity had sent network prices plummeting." (Barboza, David and Feder, Barnaby J. "Enron's Swap With Qwest Is Questioned." New York Times. Mar. 29, 2002. 29 March 2002 .)
Qwest may be the first to go. Qwest's Joseph Nacchio, listed as 1999's CEO with the Largest Options Grants in Fortune's Executive Pay table (Colvin, Geoffrey. "The Great CEO Pay Heist: Tables." Fortune. June 25, 2001. 29 Mar 2002 <http://www.fortune.com/indext.jhtml?channel=print_article.jhtml&doc_id=202915>.), has cashed out on significant holdings. (Insider & Form 144 Filings - NACCHIO, JOSEPH P. From Yahoo Finance web site. 25 April 2002 <http://biz.yahoo.com/t/08/846.html.) Their 2001 10-K, filed with the SEC on 1 Apr 02, shows anemic earnings. (Qwest 10K for 2001. 2 April 2002 <http://www.sec.gov/Archives/edgar/data/1037949/000103570402000198/0001035704-02-000198-index.htm>.) They're borrowing to cover their capital investments in obsolete equipment. They're now under investigation by the SEC for inflating revenues through trades with bankrupt Global Crossing. A bleak future at best.