Fitch Report: VoIP Competition Will Negatively Impact Revenue of U.S. Local Exchange Carriers
CHICAGO--(BUSINESS WIRE)--May 10, 2004--The deployment of Voice-over-Internet protocol technologies (VoIP) by U.S. telecom competitors will materially erode local exchange revenues over the next decade, according to a study by Fitch Ratings.
Fitch estimates that VoIP will represent approximately 10 million lines by 2008, resulting in a projected annual revenue loss of more than $7 billion for the local exchange carrier industry. Using 2003 as a base year and analyzing key data and trends for the industry, Fitch believes VoIP erosion could lead to a local exchange-based EBITDA reduction of 7% by 2008. VoIP offers a more flexible and cheaper alternative for voice calls than the switch technologies utilized by the local carriers.
'VoIP is a powerful and cost-effective technology for competitors to lure customers from the local exchange carriers,' said Michael L. Weaver, Managing Director, Corporate Finance, Fitch Ratings. 'In the long-term, it will come down to which companies are best positioned to deal with this competitive threat, and who isn't.'
In addition to significant deployment cost efficiencies, local exchange competitors also have the opportunity to take advantage of the 'lightly' regulated Internet, according to the report. At the present time, VoIP services are not subjected to the same interconnection charges as existing local exchange services. Therefore, VoIP threatens the subsidies the local exchange carriers receive for reimbursement of their network infrastructure investment, required to service all local exchange customers.
Although the projected revenue decline from VoIP is significant, Fitch also believes that other major regulatory and industry developments in the short and long-term could provide some balance to offset the financial impact from VoIP-based competition. This includes developing changes regarding the pricing of UNE-P, an improving economic environment and increased carrier focus on growth opportunities such as wireless and enterprise customer services. While these growth opportunities may be of lower margin then traditional local exchange services, the top-line growth potential is important. Furthermore, local carriers are not barred from developing their own VoIP offerings.
The report, 'The Potential VoIP Effect on the Local Exchange Carrier Industry,' is available on the Fitch Ratings web site at 'www.fitchratings.com'.
Contacts
Fitch Ratings
Michael Weaver, +1-312-368-3156
John Culver, +1-312-368-3216, Chicago
Brian Bertsch, +1-212-908-0549, New York, Media Relations
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