A. Broken Trust

1

Cost

Inexorable rising cost of service & inscrutable error prone bills

2

Stagnation

Promise of service innovations, in particular, broadband never delivered

3

Lawlessness

Failure to comply with Telecom Act of 1996 & preyed on wholesale customers

4

Lawlessness

Failure to comply with antitrust laws

5

Lawlessness

Exagerated assets claimed as a part of the rate base

6

Lawlessness

Under report profits to state PSC’s

7

Lawlessness

Failure to comply with pro-competitive provisions of merger conditions

8

Greed

Outragous compensation of CEO’s that artificially inflated profits to boost bonuses

9

Block innovation

Block competition fighting innovation (e.g. numbering and VoIP access fees)

10

Lost ratepayer $

Billions moved from regulated to unregulated businesses failed to produce a return

B. Collapsing Revenues (AND Fixed Expenses)

1

Wireline Replacement

Cell phones replacing wireline usage and access lines

2

IXC Competition

MCI Neighborhood flat rate service

3

CLEC Competition

Surviving competitors still taking market share

4

DLEC

Surviving competitors still taking market share

5

Broadband

DSL, Wireless ISP’s, and Cable replace second lines for dialup

6

Municipal and Cable Telecom

Cities turning to ownership of telecom infrastructure or cable co's to bypass Bells

7

Internet Comm Apps

Email, instant messaging, Internet fax

8

Wi-Fi

Alternative access technology receiving enormous investment and attention

9

Voice over Packet

Voice as simple broadband application

10

March of technology

Internet centric technologies advancing rapidly – processors, open source, etc

C. Growing Liabilities

1

SEC complaint

FCC audits unable to verify assets – 20% of claimed assets not found

2

Antitrust enforcement

Consumer complaints against $500 billion in over charges.

3

Antitrust enforcement

Competitor complaints against $500 billion in lost value

4

Funding pensions

Bells treated pension returns as profits. Now they have to pay it back.

5

Flawed billing system

Audits of customer bills show high rate of errors

6

Cost of capital

Ratings downgrades raise cost of capital and raise issue of default

7

GAO investigation

General accounting office report questions FCC oversight of Bells

8

IRS complaints

Bellco’s wrote off copper assets but failed to deploy promised fiber

9

Fragile network

September 11, 2001 demonstrated vulnerability of Bell network

10

Consumer awareness

Consumers increasingly aware of bypass options

D. No where to hide

1

Alienated customers

Inscrutible bills and rising prices means customers eager for alternative

2

Alienated employees

Strikes possible. Salary reductions not possible. Moral low.

3

Alienated retirees

265,000 enemies due to shrinking and threatened benefits

4

Alienated regulators

Misleading and heavy handed tactics leaves states more agressive

5

Regulatory Flex Act

Litigation likely if FCC grants relief that threatens small ISP’s

6

LD, DSL, cellular

New revenue sources present limited upside opportunity

7

Asset sales hurt revenue

Sale of assets, in particular, rural access lines reduce revenue

8

Expenses already cut

20 years of cost cutting does not leave many alternatives

9

No economic growth

Larger economy not likely to help Bell companies

10

Campaign finance reform

CFR and attention to corporate fraud makes government bailout unlikely