Utelcos occupy strong market niche despite down economy

By Dana Bacciocco, Associate Editor

While most economists agree that the overall U.S. economy is near bottom, the utility sector remains fairly stable; consequently, diversification spells risk according to Beth Griffiths, director of research at the United Telecom Council (UTC). Furthermore, the telecom sector is at a low, although some companies are beginning to emerge as potentially strong future leaders. In this environment, however, utelcos occupy a unique and successful niche.

According to Griffiths, utelcos’ financial positions are strong, and they continue to operate at status quo or even grow in some cases. “By definition, utelcos are backed by utility or energy companies. As investors, these companies represent stability and strength in financial markets.

“Fifty-seven of the 71 IOU-based utelcos in the U.S. are structured as wholly owned subsidiaries of utility or energy companies, which enables them to avoid virtually all exposure to public financial markets,” said Griffiths.

Despite apparent market strength, utilities are carefully revisiting their telecom subsidiaries because of internal pressure coupled with many analysts’ negative opinions of telecoms. Utelcos are scrutinizing their growth and revenue goals in order to prove their worth. While they may prove worthy, the number of utelcos is not growing, according to Griffiths, since diversification into telecom is no longer a strategic sure thing.

Tactically, however, utelcos are changing their approach toward more buying than building to improve speed to market and reduce costs to provision. “Now, though, with the cost of network capacity falling precipitously (particularly in long haul markets) and the large amount of capacity available, utelcos are tending to move toward purchasing or leasing existing assets rather than building new ones in the same corridors,” said Griffiths.

In light of reduced numbers of wholesale customers, utelcos are looking to sell more to existing customers in order to maintain revenue streams.

Continuing technological advances and the large amount of available fiber assets is opening the market for new products and services to be viable and cost effective for buyers and providers of services, according to Griffiths.

Utelcos will also explore bundling telecom and electrical services customers using the electric infrastructure, courtesy of advanced technology.

Finally, the demise of individual telecom companies results in abundance of talent in the marketplace, fitting nicely with recently acquired assets.

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