Raul Martynek on Telecom Exchange East 2014 in NYC
We attended the Telecom Exchange 2014 show in NYC on Thursday. The event was original called the “Telx CBX” and grew into one of the largest and best-attended telecom/Internet/datacenter event in the New York Metro area for many years. Telx stopped hosting the event after their sale to GI Partners. Fortunately, Jaymie Scotto & Associates has continued to run it under the banner of “The Telecom Exchange”.
The event has lost some of its luster, most likely attributable to the increased consolidation across the entire sector and operators hosting their own events. However, it is still a pretty good way to get a pulse on the telecom/Internet ecosystem in NYC and surrounding areas.
Level 3 – Time Warner Cable Merger
The main buzz at the show was around the recent announcement of the Level 3-Time Warner Telecom merger. I personally know quite a few folks at both firms and in a word, everyone is “nervous”. The $7.3B deal makes a huge amount of industrial logic by integrating the network assets, products and customers of the largest independent long haul provider with the largest independent metro fiber provider.
Both companies are focused on wholesale and enterprise solutions via on-net fiber and the combined TW/L3 should be better positioned to compete with the behemoths of AT&T, VZN, Comcast-Time Warner Cable and CenturyLink.
This deal is yet another event in the continuing consolidation of the telecom sector in the US, with another recent example being the AT&T-Direct TV deal.
Level 3 has 10,200 employees globally with about 7,000 in North America and TW Telecom has 3,400 employees. Level 3 has communicated to Wall Street that the transaction will support $200M in operating synergies. Translation: about 2,000 jobs at a fully loaded cost of 100,000 per employee. That’s a lot of people.
The other big story was the news of the Supreme Court decision on Aereo. Aereo founded in 2012, developed a novel technology to capture over the air broadcast signals and stream them to subscribers over the Internet. The big broadcast companies in the US cried foul as they claimed copyright infringement. Aereo’s response was that their technology did not violate intellectual property rights as they were simply “renting” individual dime sized antennas to users, and US law allows individual users to receive over the air broadcast signals without payment.
The Supreme Court did not agree with Aereo and in a 6-3 ruling sided with the Broadcasters saying that:
“Aereo’s behind-the-scenes technological differences do not distinguish Aereo’s system from cable systems, which do publicly perform.”
In other words, even if you can figure out a clever technological method to capture signals and provide content, ‘Content Is King’ and is protected. This likely means the end of the company as their business model was premised on not paying broadcasters for content.
At the event I met a few firms that had been supplying bandwidth and connectivity to Aereo who are understandably very worried. There are sure to be some knock-on effects in the sector as this plays out.
Now the good news.
Despite the consolidation in the sector and defeat of Aereo, there were also plenty of signs of new shoots growing in the telecom and Internet space. I met several new fiber companies, started only in the last few years or so like Hudson River Fiber, Cross River Fiber and FirstLight Fiber. I also spoke with a supplier of fiber components who informed me that their business was booming in the US as the need for bandwidth is driving all sorts of industry players to invest in fiber (Google, Incumbents, regional, MSO, etc). That’s good news for users as fiber ultimately has the lowest cost per incremental bit compared to other delivery technologies. It seems as if as the consolidation at the top of the pyramid continues, it creates new opportunities in niche areas further down the chain.
Raul Martynek, CEO Net Access