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Minyan Mailbag: Direction of Telco


...there seems to be two strategies...

Minyan Mark,

With Verizon's (VZ) significant push and investment in technology to deliver more and more content - note their deal with CBS to deliver programming over Verizon lines - what do you see as the potential for a merger or acquisition between say Verizon and Yahoo! (YHOO) or Viacom (VIA)? Seems a Viacom/Verizon relationship makes a lot of sense.

Just a thought.

Prof. Wassong

Prof. Wassong

We had lunch with Leo Hindrey on Monday. Related to your question, he said, which we believe, the biggest mistake Roberts (Comcast (CMCSA)) has made was not pursuing Disney (DIS) more aggressively (to buy). At the time (less so now) the C-level executives at the cable/telcos did not get the need to own content. I think the telcos need to own content just as much as they need to build out these new delivery networks. This isn't 'Field Of Dreams,' just because you build it doesn't mean they are going to come. Until telcos get decent subscriber volume they will have to pay dearly for content. If they own it, not only would they get advertising-based revenues from other networks, but it'd also be cheaper for them to provide it.

I don't think YHOO is a good content acquisition. It seems like they have backed away from producing content. They are just a portal in the end. Viacom is definitely an interesting asset, especially with CBS spun-off. The stock doesn't act like anyone is looking to buy it. Redstone would probably be a tough person to convince to sell.

Minyan Mark

Minyan Mark,

Thanks. I completely agree with your assessment and until I spent more time looking at Verizon, I had all but written the telcos off. I still do. I think what is explicit is that Verizon is redefining itself as a content delivery company, not a telecommunications company. Both Comcast, Cablevision (CVC) and Verizon are moving as fast as possible to a fertile middle ground. If Verizon can convert its sub base from copper to fiber in the course of the next five years and/or Comcast can convert home users to VoIP and Cable Modems, that's the race to watch. Personally, I think Verizon sees the writing on the wall. I think they see the fact that if they do not move in this direction, they are going to fade away.

With all of the above in mind, there seems to be two strategies - squeeze blood from the strong and look for short term gains or invest in the future and pick a horse.

Prof. Wassong
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