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

31 Pages Posted: 18 Feb 2004

See all articles by Thomas Randolph Beard

Thomas Randolph Beard

Auburn University - Department of Economics

Christopher C. Klein

Middle Tennessee State University - Department of Economics and Finance

Date Written: November 2002

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

Suggested Citation

Beard, Thomas Randolph and Klein, Christopher C., Bell Companies as Profitable Wholesale Firms: The Financial Implications of Une-P (November 2002). Phoenix Center Policy Paper No. 17. Available at SSRN: https://ssrn.com/abstract=503406 or http://dx.doi.org/10.2139/ssrn.503406

Thomas Randolph Beard (Contact Author)

Auburn University - Department of Economics ( email )

415 W. Magnolia
Auburn, AL 36849-5242
United States

Christopher C. Klein

Middle Tennessee State University - Department of Economics and Finance ( email )

Murfreesboro, TN 37132
United States

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