Competitive pricing pressures ease for now

Qwest executives last week joined a chorus of voices claiming that competitive service pricing has stabilized, affording service providers better opportunity at profits. Whether that leads to a better profit picture long term remains to be seen, however.

In announcing Qwest's financial results on Feb. 14, including its first full year of revenue improvement since 2001, Chairman and CEO Richard Notebaert said the company has seen prices stabilize in some markets, including long-distance business. In the post-bubble world, over-capacity had prompted heavy price competition that had driven down wholesale and retail prices.

Chief Financial Officer Oren Schaeffer said Qwest was exercising pricing discipline that enabled Qwest to increase average revenue per user, even in the face of local resale pricing pressures.

Analysts agree that price competition has eased, prompting some carriers to be more aggressive in pricing for profitability.

Chief among those is Global Crossing, which is actively shedding unprofitable customers to better its bottom line. “They have been aggressive, as customer contracts come up for renewal, in pricing for profitability,” said analyst Brian Washburn of Current Analysis. “If that means losing some customers, so be it. It's part of their portfolio rationalization.”

As revenues shift from legacy services such as ATM, frame relay and private lines, however, service providers likely will see basic data transport revenues begin to fall, according to In-Stat.

“There is some stability in pricing taking place, but service providers took some pretty heavy hits on the wireline data arena,” said David Lemelin, senior analyst at In-Stat. Customers are moving to IP to integrate voice and data and are paying less for that service than for the legacy offerings. For now, broadband expansion is off-setting revenue loss, Lemelin said, but carriers need to expand enhanced data services to keep revenues up.