Wireless Winning Out, As Verizon Sells Hawaiian Landlines

Verizon Communications' sale of its landline operations in Hawaii for $1.65 billion to the Carlyle Group is the look of things to come, as Verizon and the other remaining former Regional Bell Operating Companies (RBOCs) are expected to accelerate the unloading of some of landlines to fund investment in wireless and fiber.

"This reflects the intense competition," said Kevin Mitchell, of Infonetics Research, in an interview Monday. "The RBOCs are seeing a loss in the number of fixed-access lines every quarter." Mitchell noted that Verizon is keeping its Hawaiian wireless operations, which is considered to be growing.

Verizon said the transaction with Carlyle involves about 707,000 wirelines and some additional related services. Each line is valued at about $2300.

In a statement, Carlyle managing director William Kennard said: "We will offer new services to our customers, including expanded broadband, and we expect to add many new jobs after the acquisition." With Kennard, a former FCC chairman at the helm, Carlyle has been rapidly adding telecommunications investments to its portfolio.

Verizon has been selling some of its existing landline operations--particularly in rural regions--as it focuses on developing more advanced technology in its remaining divisions. Its Verizon Wireless unit is building out a nationwide high-speed wireless network, called BroadbandAccess, and last week it began deploying its fiber-to-the-premises (FTTP) technology. FTTP connects fiber-optical lines directly to subscribers' homes, replacing copper-wire links.Mitchell, who is directing analyst of telecommunications at Infonetics, said the RBOCs may not be making money--or much money--in landlines, as competition from wireless and cable intensifies. The RBOCs are unloading more of their rural lines to conglomerates that specialize in such operations.

Verizon has been negotiating for months to sell off more than 2.5 million landlines in upstate New York. While the RBOCs have a tremendous advantage over their long-distance competitors because they have the landline assets, those assets are gradually declining in value. Several months ago, individual lines were selling for about $3,000 per line, while their price today is heading towards $2,000 per line.

Another RBOC, SBC Communications, has been negotiating to sell landlines in Texas and Michigan. The negotiations are in abeyance because SBC has had to deal with a strike by its Communications Workers of America employees in recent days. SBC, too, has been raising capital to fund its Cingular Wireless operation. Cingular--60 percent owned by SBC and 40 percent by BellSouth--needs some $30 billion to fund its recent acquisition of AT&T Wireless.

SBC has said it has enough resources to fund the AT&T Wireless acquisition without resorting to the sale of landlines. "The numerous companies and private capital groups interested in acquiring rural access lines believe that they may be more valuable to them than to SBC," the firm said last month. "This belief is based in part on the regulatory constraints imposed on SBC that are often not imposed on smaller carriers."