For several months now, rumors have been swirling about that Verizon may attempt to purchase Qwest, a move that would put us one step closer to a reversal of the 1984 breakup of Ma Bell. Most cite Qwest’s switch to selling re-branded Verizon Wireless service as testing the waters. Qwest is also in a weak financial position with dropping profits and subscriber losses. It’s no secret that the company has spent years trying to find a buyer after the company suffered precipitous drops in customer satisfaction and service quality from 2001 onward. Could cash-rich Verizon be the white knight they’ve been waiting for?
Maybe. Verizon has huge expenses deploying FIOS as far and wide as they can, though they have the benefit of cross-subsidizing it with wireless revenues, something Qwest can’t do. They’ve also seen big jumps in ARPU from FIOS subscribers. Qwest, meanwhile, can’t afford to do any better than FTTN and blames a high proportion of buried plant for it. As DOCSIS 3.0 ramps up and Qwest finds the weaknesses of its 896K upload speed fully exposed by increased speeds from cable providers, the value of the company will decline even further. It will also be fueled by losses in landline subscribers to cable and VoIP providers as well as an inability to go beyond the double-play for land-line services.
Given all of the weaknesses in Qwest, why would someone go buying knowing that it would take substantial investment to bring it up to par? While Verizon has the deep pockets to pull it off, they’re also starting to pick fights with AT&T by overbuilding FIOS in U-Verse territory. Verizon would have a hard time financing a war with a fellow incumbent while trying to essentially rebuild another, wireless windfalls or not. The only way it would make sense is if Qwest’s value drops low enough to make the purchase an outright steal. The alternative is that Verizon neglects Qwest service areas while focusing on its previous plans to build FIOS and lead the charge against AT&T. This says nothing of the tremendous regulatory hoops that such a deal would have to go through and Ma Bell Shill FCC Chairman Kevin Martin’s days are numbered.
Still, it opens the interesting possibility of FIOS appearing in Utah at some point in the future. I don’t think that a merger would be likely until a year or more out at the soonest. By that point, UTOPIA will be widely built-out in many markets and Verizon would still be years out from construction. Verizon charges a lot more money for a lot less speed, but their video service is arguably the best that money can buy. I’d love to see some big shake-ups in our competitive landscape.