You Will

Capsule:  Can telecommunications distributors afford to flirt with the next global meltdown by weakening their business models in the name of competition?  Who pays when phone companies have so many financial obligations, so few products and so little time?

AT&T You Will Campaign


AT&T's 1993 "You Will" ad campaign promised the world at the end of a phone line.  


Tom Selleck's voice-over--paraphrased here 16 years later--asked: Have you ever seen an EZ-Pass system that could take you through toll plazas at warp speed?  How about a video conference that helped you put your baby to bed through an airport pay phone? Or, an advanced medical imaging network that could connect an injured football player still on the field with a doctor who could read his x-rays remotely through a wireless unit as small as a cell phone?  How about an instant hospital admission through a swiped smart-card with all of your insurance information and your health records, past x-rays and immunization detail?  (Knowing what we know now, try not to smile.)


In this 1993 commercial about this brave new world, Tom Selleck reassured you, as certainly as he'd just thrilled you. "You will."  And, of course, AT&T would be the agent of this telecommunications revolution. 


Today--according to its most recent 10Q filing--AT&T has almost 80 million wireless customers, an incredible evolutionary  and M&A feat since "You Will" first framed the future.  At the same time, AT&T's wired access lines and customers have declined; its broadband connections have increased; and, its nascent video business has just under 4 million connections (a multiple of customers.)


Verizon Communications, AT&T's wireless competitor, has 88 million wireless customers, built originally by a business owned with international wireless giant Vodaphone.   According to its most recent 10Q filing, Verizon's fixed line phone business is facing line and customer losses; while its broadband connections continue to increase (although at a dimensionally lower rate than US broadband adoption has risen;) and, its nascent video business has 2.5 million TV subscribers (meaning some multiple more than 2.5 million connections.)


The growth in these amazing and still profitable telecom businesses has been mostly in wireless.  AT&T was prescient about the central importance of wireless inside of its You Will vision with its remote X-ray readers and EZ-Pass dashboard card-swipers and vast information storage capacities built inside of fantasy medical ID cards.  But it also showed a working mom dialing up her baby daughter's perfect face through a wired pay phone--an odd image looking back from today's wireless world to 1993.


A recent Business column in The Economist tallies US phone customers as  abandoning landlines at a rate of 700,000 per month and includes a current estimate that 25% of America's households rely entirely on wireless phones (August, 2009.)  No matter how profitable wireless telecom is or can be made to be, the decline of the business that "brung" it--the original fixed line, circuit-switched, five-nines, Ma Bell, US infrastructure telephone system--has far-ranging negative implications that rival the decline and crash of the US auto business.


As we've learned with the global economic crisis of the last 18 months, the disabilities we take on in the US are mirrored elsewhere.  BT--formerly British Telecom--earned an essay in an August, 2009 Economist that worried about BT's and the British government's ability to fund the telecom giant's pension obligations.  BT spun off its wireless business in 2002 in the midst of a debt crisis and now relies on a less-than-profitable enterprise government and institutional telecom market for revenue growth against its fixed line consumer declines. 


BT, like Verizon and AT&T individually, employs over 100,000 people--all requiring some level of retirement benefit funding.  Unlike Verizon and AT&T, BT does not hold comparable health insurance obligations for its employees, relying on the UK's NHS along with the rest of the country.  All of which puts our US telecom businesses and the US economy into worse shape than the UK.  The story gets uglier when we factor in America's reliance on the fixed line business for taxes and the distribution of its huge architectural costs--spanning a vast US geography--over a declining number of wired customers.


US telecom competitors--the cable and satellite industries--can fill in some of the  tax burden but not willingly or easily.  The cable business already faces heavy franchise taxes on its core business.  Both the cable and satellite businesses require platform maintenance and upgrades as well as expansion costs that reduce rate elasticity when passed back to the customer as equipment charges. 


Cable in particular is looking healthier today than it might in some interdependent re-regulated future view because of its amazing rate of free cash flow generation.  The temptation for US government regulators to dip into cable cash while looking for solutions for fixed line telecom's ill health may be significant.  And, as the health care reform debate wears on without resolution, the likelihood increases that the hundreds of thousands of telecom employees now insured by the fixed line side of the telecom business will need a new health plan with government subsidy.


If we don't embark on an intelligent road of US media expansion that accommodates some growth opportunity for each of the telecom players--wireless, wireline, cable and satellite--another American industry bill will soon come due.  While we mull over the specifics of stimulus strategies that dip into public funds for broadband expansion--a great idea for a different time, perhaps--we should also think about the telecom storm clouds gathering.  


Just as in 1993, a great potential exists for the future of wireless communication and commerce, beyond cellphones and texting.  Future services will likely be brought to you by the same media and telecom players serving us today, along with a few new and familiar distribution majors, capitalizing on expanded consumer and business markets.  But the economics of these new wireless services will require special attention to ensure that they're not adding to some of the burdensome interdependencies we're already struggling to survive.  


A few new wireless products have just entered the marketplace, but their providers, focused on competition inside a currently tight field, are offering wireless for "free."  This is a dangerous idea.  Without an economic foundation for the expansion of media distribution businesses, there's only one answer for the question of who will pay for public and private grandiosity about the future.  You will.