15 December 2005

Telecom Austria restructuring

In this post, I commented on Alltel's restructuring. Please note this article, in which Austria appears to be undertaking a similar restructuring. So, will the "telecom triple/quadruple play" amount to alliances among independent service providers? There are clearly advantages and disadvantages to this ...

On the plus side, it allows operational autonomy and valuation (from an investment perspective). This seems to be behind the Alltel and Telcom Austria actions. This is also what AT&T (prior to the SBC merger) did in the 1990s. On the minus side ... constructing bundled services is more difficult when the members are autonomous. Incentives to defect from the "cartel" can be strong enough to cause it to collapse. We see this with OPEC. There is, by the way, an historical precedent ... AT&T in the 1990s. After assembling all of the elements of a "triple play", they dismantled the project, arguably because they couldn't make bundling work (I have some papers somewhere ...). How easy will it be for fully independent companies to make it work, when AT&T couldn't as a holding company for these units?

There are other questions ... are bundles in the "public interest"? Are consumers better off or worse off? By what measures?

I guess I'll have to visit Tirol this winter to check it out ... ;-)

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