Light Reading
Analysts say the network overlap between Qwest and MCI might hurt vendors, should a merger occur

Qwest/MCI Could Chill Gear Sales

Light Reading
News Analysis
Light Reading
2/8/2005
50%
50%

On the heels of SBC Communications Inc.’s (NYSE: SBC) agreement to buy AT&T Corp. (NYSE: T), Qwest Communications International Inc. (NYSE: Q) has entered talks to buy MCI Inc. (Nasdaq: MCIP), and, while far smaller, Qwest/MCI could prove to have as great an impact on equipment vendor sales.

The two deals are markedly different. SBC and AT&T spend an estimated 20 percent of carrier capital expenditures (capex) nationwide, while Qwest and MCI account for only 7 percent, analysts say.

But where the network overlap between SBC and AT&T is small, the overlap between Qwest and MCI (both are in the long-distance business) is considerable. That means Qwest/MCI could have more opportunity in the long term to squeeze redundant spending from the network, negatively affecting equipment vendors.

Lehman Brothers analysts believe Qwest and MCI separately could be expected to spent a total of $3 billion during 2005, but could eliminate “a few hundred million dollars” of that by consolidating.

Contrast that with SBC and AT&T, which separately would spend a combined yearly capex of around $7 billion, but are expected to save only $100 to $200 million as a result of consolidating (see SBC/AT&T: How Painful for Vendors?).

Carriers spent roughly $50 billion on capex in North America during 2004.

Qwest reportedly has made a $6.3 billion offer, but MCI has yet to respond.

Jefferies & Co. analyst George Notter expects “modest negative impact” on equipment vendors from a Qwest/MCI merger, and expects that it could depress equipment sales in two different ways and at two different times.

A first effect is felt while the companies merge operations. “Naturally, not much capex spending occurs while employees of the two entities wring their hands over who will remain with the organization, who will get rationalized, and who their new bosses will be,” Notter says.

After the two networks are merged, the combined entity has both more purchasing power and the chance to realize “synergies” from the combined network, Notter says. Both of these exert downward pressure on equipment prices.

The Lehman Brothers analysts say Ciena Corp. (Nasdaq: CIEN) and Sonus Networks Inc. (Nasdaq: SONS) could be at particular risk because of an increased dependence on revenue from the potentially merging companies. “Vendors in our coverage with significant exposure (more than 10 percent of sales) to either Qwest or MCI include Sonus and Ciena while the combined company could also become much more material,” the analysts wrote in a research note today.

Sonus’s name also came up as a company that could be negatively affected by the SBC/AT&T merger. But Sonus’s outlook brings to focus the fact that merging huge telephone companies takes time, and the vendors that serve them will not be immediately left out in the cold.

“With the flurry of merger talk recently there has been much speculation on the effects on Sonus,” says Legg Mason Inc. analyst Timm Bechter in another brief issued last week. “If it [Qwest/MCI] happens at all, we believe that it would be premature at this point to view this potential merger as a negative for Sonus, given the time it will likely take to be completed.”

Meanwhile, MCI and Verizon Communications Inc. (NYSE: VZ) continue to hold exploratory conversations, but Verizon hasn’t decided whether to enter a bid (see Takeover Talks Take Over).

— Mark Sullivan, Reporter, Light Reading

(0)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Flash Poll
From The Founder
It's clear to me that the communications industry is divided into two types of people, and only one is living in the real world.
LRTV Interviews
The New Wave of IP + Optical Integration

11|21|14   |   04:29   |   (7) comments


At the Alcatel-Lucent Technology Symposium, Heavy Reading senior analyst Sterling Perrin talks about how SDN has reshaped the discussion around packet and optical integration.
LRTV Huawei Video Resource Center
Huawei Highlights at BBWF 2014

11|20|14   |   3:40   |   (1) comment


Broadband World Forum is one of the world's largest telecoms, media and technology events with over 7,800 senior executives from across the globe converging on Amsterdam every year to identify the Next Big Thing. BBWF is an exciting place to meet the entire industry under one roof and identify the latest in network innovation, service optimization and customer ...
LRTV Huawei Video Resource Center
How Will BCMS Stimulate Margin for Broadband Operators?

11|19|14   |   6:52   |   (0) comments


In BBWF 2014, Liu Shuqing emphasizes the value of FMC 2.0 based full service experience by throwing light on the BCMS solution. The underlying principle of this innovative technique is to create network robustness and driving network from connection oriented to ACE – BAND oriented infrastructure, in which applications, cloud, and user experiences will be an asset ...
LRTV Huawei Video Resource Center
SingleFAN3.0: Better Connected Experience

11|19|14   |   3:06   |   (1) comment


At the BBWF 2014, David Hu, the VP of Huawei Access Network Product Line, talked about the future of access networks – SingleFAN3.0: faster broadband, wider coverage, and smarter connection.
LRTV Interviews
Basil Alwan Interview: The Road to Cloud

11|19|14   |   09:09   |   (0) comments


Alcatel-Lucent's head of IP and Transport talks about the migration towards a web-like networking environment, the impact of the cloud, SDN and NFV, and the yet-to-be-announced FP4 chip.
LRTV Documentaries
FairPoint Makes a Fair Point About Analytics

11|19|14   |   1:56   |   (1) comment


The US-based communication service provider gets to grips with advanced analytics, tackling data and breaking down the silos within its own business.
LRTV Documentaries
Analytics Lets C Spire Get to Know Subs

11|19|14   |   3:01   |   (2) comments


It's all about the data for US operator C Spire as it uses analytics to personalize its customer service down to individual subscribers.
LRTV Interviews
Nuage Branches Out With SDN: CEO Interview

11|17|14   |   9:32   |   (0) comments


Sunil Khandekar, CEO of Alcatel-Lucent's SDN-focused unit Nuage Networks, talks about the opportunities and challenges of breaking out of the data center into wide-area networks.
Light Reedy
Telecom Analytics Grows Up

11|14|14   |   1:15   |   (4) comments


The big data analytics debate has moved on from a year ago, with some experts suggesting it's no longer a technology challenge.
LRTV Huawei Video Resource Center
Huawei Compass

11|14|14   |   3:17   |   (1) comment


At OpenStack Summit 2014, Shuo Yang, Huawei Principal Cloud Infrastructure Architect introduced Huawei Compass, the software tool for solving customers' problems on the journey of OpenStack Cloud.
LRTV Huawei Video Resource Center
Huawei's Cloud Strategy in European Region

11|14|14   |   2:56   |   (1) comment


At OpenStack Summit 2014, Dr. Gotz, CTO of Huawei IT in European Region introduced Huawei's cloud strategy in European region.
LRTV Huawei Video Resource Center
Huawei's Contribution on OpenStack

11|14|14   |   5:58   |   (0) comments


At OpenStack Summit 2014, Dennis Gu, Huawei Chief Architect of Cloud Computing introduced the relationship between OpenStack and cloud computing, and Huawei's contribution on OpenStack.
Upcoming Live Events
December 2, 2014, New York City
December 3, 2014, New York City
December 8-10, 2014, Reykjavik, Iceland
February 12, 2015, Atlanta, GA
April 14, 2015, New York City, NY
May 6, 2015, McCormick Convention Center, Chicago, IL
May 13-14, 2015, The Westin Peachtree, Atlanta, GA
June 9-10, 2015, Chicago, IL
Infographics
Irish Telecom outlines the rise of VoIP technology, including its adoption within businesses and their perception of its quality.
Hot Topics
Bell Labs Chief Slams 'Toy' Networks
Robert Clark, 11/19/2014
$38.3M: Ain't That a Kik in the SMS
Sarah Reedy, Senior Editor, 11/20/2014
Do You Have a 2020 Vision?
Dennis Mendyk, Vice President of Research, Heavy Reading, 11/21/2014
Google, AT&T, BT Unite on Network Data Models
Carol Wilson, Editor-at-large, 11/20/2014
The New Wave of IP + Optical Integration
Ray Le Maistre, Editor-in-chief, 11/21/2014
Like Us on Facebook
Twitter Feed