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How firms grow in 'zero sum' recessions

"Does Google want to be Verizon?"

    by Joseph N. DiStefano
    Published 
For US banks post-2008, dirt-cheap money hasn't been enough to attract more borrowers. Blame a legacy of deep hock from the 2000s debt bubble, "a lack of confidence" in future demand, and belatedly strict bank regulators; the result is that, for lenders, "most new business has been achieved at the expense of other" competitors, "rather than through higher economic activity," writes Philadelphia-based Janney Capital Markets analyst Rick Weiss.
That's also what WSFS ceo Mark Turner told us last week: His bank, the second-largest local lender still based in the Philadelphia Federal Reserve district, boosted business loans at a 20% annual rate last quarter, but that was thanks to the disappearance of rival Wilmington Trust Co. (now part of M&T Bank) and other local lenders, not because of any economic recovery in the Brandywine Valley and adjacent markets.

Elsewhere, among Comcast Xfinity, Verizon FiOS, DirecTV and other pay TV providers, after two years of flat or declining total US subscribers, signing up viewers is "more than ever, a zero-sum game," where "subscriber gains for one player means losses for another," and desperate discounts have threatened high profit margins, writes Craig Moffett, senior analyst at Bernstein Research in New York.  
It's not that the economy is dead. It's that, for everyone gaining customers, someone else is losing. For everyone hiring, almost, someone is laying off. Plenty of activity; not much growth.
A few industries are still expanding. Take smartphones: 3 in 10 Americans will own iPhones, Androids or other pocket Internet/video by 2015, up from less than 2 in 10 today, predicts Kevin Smithen of Macquarie (USA), in a report to clients. All that growth means "substantial upgrades" in transmission systems. He's urging investors to buy AT&T and Verizon - because smartphones are "still in the early stages" and past telecom investors too often "sold out" of "winners.... like Amazon, Priceline, Netflix and Salesforce.com." Though there were plenty others that weren't sold quickly enough.

So what do we make of Google's purchase of Motorla Mobility, with its phone and (Horsham-based) video tramsission equipment factories, which is marching toward conclusion (after Motorola announced 800 layoffs last month?_ Or of Google's reported plan to build a fast new Internet service around Kansas City?
"Does Google want to be Verizon?" asks Bernstein analyst Carlos Kirjner in a report to clients today. Imagine: Google will augment its sleek engineers with "customer service reps, repair crews and dispatch centers," trucks and maintenance, a la Comcast, Kirjner notes. "Welcome to the infrastructure business, Google!"
Or not exactly, he concludes: The Missouri project is an "experiment/research and development activity" whose goal isn't to kill pay TV purveyors like Comcast (a customer of Motorola's Horsham equipment plant) but rather to show that faster broadband is possible (which is in Google's interest because that will allow more advertising, its main business). KC is also "a laboratory for Google to learn about technology and consumer behavior," and "an opportunity" for Google to figure out "the economics of deploying and running infrastructure," Kijner concludes.
Google wants to speed the move to smartphones and grab a bigger piece of the resulting action; it's likely to do that in partnership with today's dominant telecoms, not replace them.
    JN
    Joseph N. DiStefano