rmore, the recently upgraded cable modem standards (DOCSIS 2.0) add signifi- cantly to the capabilities of broadband cable. These companies are now offering what has come to be known as the quadruple play-voice, video, data, and wireless-all packaged as a single, converged, and very lucrative bundle. Downloaded from Digital Engineering Library @ McGraw-Hill (www.digitalengineeringlibrary.com) Copyright © 2004 The McGraw-Hill Companies. All rights reserved. Any use is subject to the Terms of Use as given at the website. Telecom Market Segments Chapter 8 The fact is that the ILECs are under siege on multiple fronts. One of the critical questions that now comes up routinely in strategy discus- sions is this: Should the big three (Verizon, SBC, and Bellsouth) stop spending so much on capital outlay to build out their own networks and instead start spending their cash on the acquisition of preexisting assets? Companies like WorldCom, Cingular, Nextel, and Sprint PCS are, by many measures, undervalued at the moment; and because the ILECs have a recurring revenue stream, they have relatively easy access to cap- ital compared to some of their competitors. One of the biggest challenges they face is that they have very high fixed costs and very low variable costs-which makes it difficult for them to make major adjustments in their cost base without drastic changes (like huge headcount reductions). The danger is that as they begin to lose access lines to competitors-suc as cable MSOs, wireless providers, and CLECs-at what point do they lose critical mass and begin to collapse under the weight of their own infrastructure? Furthermore, as ARPU levels decline without a closely tied reduction in costs, the hole gets deeper. Consider that between 1998 and 2002 alone Bellsouth, Verizon, and SBC spent $140 billion in CAPEX on their networks, a move that yielded less than one percent revenue growth. In 2003 they made combined prof- its of $20 billion on a collective market value of $240 billion. Clearly they want these numbers to i