COMPTEL: Economic issues looming

Felipe Alvarez, president of RCN Metro, the business services arm of cable player RCN, said his company hasn’t seen the impact yet of harder times, but fully expects to. “Our business has been surprisingly steady and growing,” Alvarez said. “But something has to happen in the next six months, just based on what the economy is doing.”

Paul Glenchur, telecommunications analyst with the Stanford Group, said during a Comptel panel that TWTelecom had warned investors last week that it is seeing customers disconnect and fall behind on paying bills.

“What I am hearing from a lot of investors – the first concern is can we get past the crisis we area in right now,” Glenchur said. After that, he expects to see variable costs such as minutes consumed to drop off.

“Competition is a concern,” Glenchur said. “Are customers out there wanting more bandwidth at a cheaper price? As you see cable roll out to the SMB market, FiOS is going past businesses, and U-verse as well. Does this put enough overall pricing pressure on [CLECs]?”

As part of the same panel, Jessica Zufolo, senior policy director for telecommunications, media and technology for Medley Global Advisors, warned that capital for mergers and acquisitions, strategic initiatives such as spectrum allocation, and debt refinancing will be very hard to come by.

“U.S. consumer spending will hit AT&T and Verizon who are forecasting higher landline loss and sharper declines in DSL sale,” Zufolo said. “Google will miss revenue targets by 5% due to reduced consumer spending. M&A activity will slow down. Carriers will stay put and try to conserve cash and hold off on borrowing at very expensive rates.”

As a result, rumored deals involving Sprint-Nextel, including a spinoff of its iDen network, will be harder to pull off, she said. Anyone who wants to acquire that network will have to prove they have the resources and the know-how, Zufolo said.

“CLECs face wholesale and retail cost pressures and higher churn rate,” Zufolo said. “Carrier commitments like FiOS give investors heartburn, but Verizon has a strong cash position, so they may not need to go to the market for money.”