Reality Check: Third quarter results summary: Signs of hope? Nope.

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
I know that many of you are thinking “Isn’t he a little late for 3Q comments?” Believe it or not, we just received the last of the Quarterly SEC filings a couple of Fridays ago. Keeping it brief, and taking my advice from a previous column, the “therefore” statements are as follows:
1. There are two growing and healthy portions of the telecom landscape: a) wireless data, and b) special access circuits that connect wireless towers and businesses to IP backbones. All other “growth engines” should be questioned. Verizon Wireless voice ARPU (non pro-forma) is down 9% year over year. Even with lower voice ARPU from the Alltel base factored in, it’s still down 7-8%. T-Mobile is down 9%; AT&T and Sprint are both down 6%. We are entering a deflationary cycle in wireless voice that mirrors the long-distance voice changes we saw over the last two decades. While wireless minutes are dropping at 6-7% (except for T-Mobile, who posted a surprise growth in minutes), many costs to maintain a voice network aren’t variable. Fortunately, current minutes are quite profitable, and network scale helps each of the “Big 4.” But the growth in voice is over, and the shift to data cannot come soon enough.
2. The “telecom” sides of the house are suffering from three trends: a) access line loss, which is continuing at a double-digit clip, resulting in un-utilized assets; b) commercial real estate vacancies, which lead to fewer (very profitable) voice and special access circuits; c) movement from traditional voice circuits to VoIP and wireless, particularly for small businesses, resulting in fewer subscriber line fees and lower access revenues. It’s hard to build a case for sustained retail profitability on the Verizon and AT&T landline units absent a significant business recovery. The remainder of their telecom business is made up of cross-carrier payments for special and switched access that the FCC is eyeing in light of the Google Voice/ AT&T fracas (more details available – see below).
3. The emerging competitors have more cash to fund innovations. Cash reserves for Google ($22 billion), Apple ($24 billion), Cisco ($35 billion) and Microsoft ($37 billion) continue to fund development of global VoIP, video, and content alternatives. Even when removing all debts, these four providers have $100 billion in cash at the end of the third quarter to invest in tomorrow’s ideas (and, from the tempo of acquisitions announced in the past six weeks, they are willing to open their wallets for selected acquisitions). Contrast that to over $200 billion in net debt and employee pension obligations that Verizon, AT&T, Sprint and Qwest have on their balance sheets, and we have a $300 billion gap between the cash “haves” and the carrier “have nots.”
There are some other “green shoots” that I am sure I’ll hear about, and I’m constrained by space to talk about the share shifts occurring between cable and telcos in the high speed data front (headline: extremely strong quarter for cable, and new DOCSIS 3.0 data standards enable more speeds that will cannibalize the telco special access cash machine described above). Profitable growth can return quickly with a) elimination of the “do it in-house” attitude that carriers are famous for, combined with a few inter-carrier cooperatives and investments; b) hiring of talent that thinks more like Google/ Apple/ Microsoft and less like the group-think that pervades this industry, and c) the tailoring of applications to businesses and consumers.
(Jim occasionally publishes the Sunday Brief which provides significant detail into the trends affecting the industry. It’s free, like Google Voice, but available to all – even to those who call free conferencing services. If you would like to be on the mailing list, please send an email to [email protected] with your name, company, and contact information. Your privacy will be protected).
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your comments at [email protected].