Bell Companies as Profitable Wholesale Firms: The Financial Implications of Une-P

Abstract

Recent reports by financial analysts on the financial consequences of UNE-P sales for Bell Operating Companies have drawn additional attention to long-standing complaints by the BOCs that such sales are confiscatory and amount to "subsidized competition." This Policy Paper subjects the conclusions of these financial studies to careful scrutiny, and finds that they are largely without merit. Errors in both the calculation of unbundled element revenues, and in the wholesale costs of providing unbundled elements, are identified. Using actual payments by a representative CLEC and publicly available ARMIS expense data, we obtain realistic revenue and current cost figures usable for EBITDA type financial analyses. Our analysis suggests that positive EBITDA margins are the rule. Even the inclusion of depreciation and amortization does not materially alter this conclusion, as EBIT margins are also found to be positive for each BOC. In addition, because these analysts' reports are intended exclusively to provide investment advice, they are not useful for evaluating the social impacts of required element sales and, therefore, should not provide the basis for public policy decision-making.

Keywords: Telecommunications, Competition, Unbundling

JEL Classification: K23, L10, L50, L96, O33, 038