200305279th Response Report.pdf

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UTILITIES COrir1iSSION
May 13, 2003
Via Airborne Express PART OF 9th PRO RESPONSE
Mr. Weldon B. Stutzman
Deputy Attorney General
Idaho Public Utilities Commission
PO Box 83720
Boise, Idaho 83720-0074
Re: Case No. OWE-O2-25 - Ninth InterrogatorvlProduction Request of the
Commission Staff to Owest Corporation: Request for Production No. 38
Dear Mr. Stutzman
Enclosed please find a copy of Wireline Services research report.
Should you have any questions, please do not hesitate to call me at [phone].
Very truly
cc: Mary S. Hobson
New Opportunities , New Challenges
An Industry Primer with.Original Insights
INDUSTRY ANALYSIS. This report is intended to provide our perspective on, and
predictions for, the $350 billion u.S. telecommunications market. Throughout
we include detailed market segment data and forecasts. We use this framework to
identify the companies we believe are best-positioned to take advantage of secular
growth opportunities. We then layer on a valuation analysis to reach ourinvestment conclusions.
ASIDE FROM ISOLATED OPPORTUNITIES, MARKET WEIGHT THE GROUP.
believe the sector is "catalyst neutral" although there are positives for the
regional bell operating companies (interLATA long distance entry, the potential
for wireless IPOs and regulatory relief), there are also significant risks (increasing
local competition, potentially dilutive wireless acquisitions, slowing wireless and
data growth, declines in access lines and secondary lines, wireless substitution
potential dilution from large transactions). Similarly, there are positive catalysts
for the inter-exchange carriers (consolidation , price stabilization) offset by risks
(high economic sensitivity, RBOC long distance entry, wireless substitution
slowing data growth).
MUSICAL CHAIRS. Rather than foster an environment in which all competitors
have an equal chance of succeeding, we believe the Telecommunications Act has
set the u.S. market on a course of consolidation (of companies, assets, and
infrastructure) whereby dominance of markets will become more prevalent.
Investors have begun to absorb the reality that the RBOCs have the upper hand in
the emerging competitive environment and are poised to capture an increasing
portion of the $100 billion interLA T A telecom market. Indeed, this year, we
believe investors will begin evaluating the ultimate winners in the budding battlefor enterprise customers; of the seven major players in the u.S.
telecommunications market, some may be left without a seat when the game of
telecom musical chairs ends.
Robert Fagin
[phone]
rfagin(g)bear.com
www.bearstearns.com MARCH 2002
Table of Contents Page
Executive Summary """"""'..................................,......................................................................................................
Valuation """""""""""""""""""""""""""""""""""""...........................................................................................
Regulatory Issues ........................................................................................................................................................
The Local and Long Distance Wireline Voice Markets............................................................................................. 46
The Private Line and Data Market.............................................................................................................................. 70
Wireless................................................................. .................................................................. .................................... 92
Directory and Publishing................................. ............. .................................... ...................... .................................. 110
Capital Spending """""""""""""""""""""""""""""""""""""""'"...................................................................... 112
Appendices ................................................................................................................................................................ 115
Appendix A: Units of Bandwidth and Data Management ............................................................................
...
116
Appendix B: Bandwidth Technologies and Data Rates ...................................................................................117
Telecommunications Glossary.................................................................................................... .............................. 119
All pricing in this report is as of the market close on March 21 2002, unless otherwise indicated.
Bear Stearns Wireline Services Team wireline _services (gJ bear .com
Robert Fagin 212-272-4321 rfag in
(g)
bear. com
Grace Y. Lee
Mike McCormack, CFA
Bernadette H. Morris
Steven L. Randall
Jeffrey A. Rutledge
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