Bet 13

Duration 5 years (02002-02007)

“By 2007, the U.S. Government will intervene to prevent at least one of the Incumbent Local Exchange Carriers (ILECs)/Regional Bell Operating Companines (RBOCs) (e.g. Verizon, SBC, Bell South, and EXCEPTING Qwest) from filing for Chapter 11 bankruptcy protection.”

Andy Chapman


Chapman's Argument

The ILECs survival depends upon the de facto monopolization of consumer and, especially, business markets. Their capital structure insures that, as true broadband networks are developed by cable and/or wireless alternative carriers which can provide business grade services to currently captive, high margin producing small and medium sized enterprises, even modest market share losses in this sector alone will cause them to lose creditworthiness and, thus, access to debt capital. Outright default on existing debt plus the forced suspension of dividend payments as the negative effects of leverage begins to manifest themselves will wipe out equity value and force a bankruptcy filing(s). This, of course, presumes dinosaur like inability to adapt to a changing environment which, if not already, will certainly become self-evident.

Given the current mistaken obsession with telephone companies as key players in delivering broadband services and supporting future economic growth, and given the ILECs penchant for competition by means of lobbying governments, the political reaction to this turn of events will make the Penn Central bankruptcy look like a tea party in comparison. I further predict that, as a result, a telephone industry equivalent of Amtrak (let's call it Amphone) will be created to offload all of the currently cross subsidized consumer phone business onto the backs of taxpayers who will spend billions underwriting universal service for mostly undeserving consumers who could pay for market based services instead (and mostly will) while the ILECs fade into oblivion as wholesale "freight forwarders" of marginal importance.

Chapman was challenged to a bet!

Andy Chapman is negotiating the terms of a bet about this prediction. It will soon be added to Bets on the Record.