On Mon, Apr 11, 2011 at 03:49:43PM -0700, Holmes,David A wrote:
"Way too many players ..." means that the telecom marketplace is good for the consumer, with competition keeping prices low. Many network users feel that prices are still way too high, particularly for high speed circuits and dark fiber, areas in which Level 3 and Global Crossing have specialized.
Cute theory, but unfortunately this has no basis in reality. Users can "feel" any way they'd like, but the truth is that the current market prices for wholesale IP transit, in which Level 3 and Global Crossing specialize, are far below cost and are impossible for any carrier to sustain long term. I'm not saying that either L3 or GX runs a completely optimal network (infact I'd say that GX may well be a case study in failure to do so :P), but a simple analysis of the costs of routers, colo, power, crossconnects, optical gear, etc, makes it abundantly clear that the current "rush to the bottom" pricing cannot possibly be supported even under optimal conditions and ignoring other overhead. The situation isn't significantly different for high-speed longhaul capacity, the revenue these these circuits generate at current market prices is barely offsetting their capex on the optical gear at this point. Anyone who told you that there is a cash cow in this particular market is woefully mistaken, any serious money to be had is coming from enterprise customers who can only be reached via unique metro assets. I have no doubt that there will be some modest reduction in competition following the acquisition, but I honestly don't think it is anything to get too worried about. Unlike L3's previous acquisitions (such as Wiltel, Telcove, Looking Glass, etc), it isn't really possible for them to "disappear" the assets from the market following the purchase. GX's longhaul fiber footprint is mostly still owned and operated by Qwest, they were never a big player in IRU dark sales to begin with, and they don't have much in the way of metro fiber assets to speak of. The two companies also not really in any danger of being able to stop the current tide of market transit prices, since this are being driven by many other companies. And L3 has already learned what happens to their market share when they try to alter market pricing by themselves, which is what led to their current Comcast debacle in the first place. The best case scenario that I see here is L3 being able to provide some technical leadership to significantly reduce GX's overhead, and hopefully fix some of their other problem areas too. But personally I'm not convinced that L3 is the technical or market force they used to be, and thus I question whether they'll be able to get it right themselves. Remember, it taks a LOT of work for a big telco to put all the pieces in place correctly, and any mistakes on their part will open the door for smaller carriers to show off the advantages of being nimble. If there is any significant reduction in competition that comes to either carrier, it will do exactly that. Infact, I encourage them to try, it will probably be good for my business. :) -- Richard A Steenbergen <ras@e-gerbil.net> http://www.e-gerbil.net/ras GPG Key ID: 0xF8B12CBC (7535 7F59 8204 ED1F CC1C 53AF 4C41 5ECA F8B1 2CBC)