Why is Forbearance a Good Thing?
July 25, 2008
Let’s have a fantasy for a short minute…
Assume that the FCC, Lobbyists and Congress actual took an Economics 101 course. By granting forbearance, in the short term, wholesale prices will and should go up thus generating higher profits. As higher profits are generated, new capital will flow into the market for a share of this new found profit opportunity. New entrants, having the wisdom of the past 12 years, would rationalize their entry in raising the bar of performance.
Translated: new entrants will build new strategic facilities and offer optical connectivity that would elevate the United States on a globally competitive basis … considering our poor rankings. A byproduct of this is that the consumer is more connected globally, without limits, and may innovate as he or she may wish. Generating more true facility based competition in the long run will lower the price per bit to the consumer.
What forbearance does is stifle pent-up demand. When the FCC maintains/limits competition to legacy copper facilities where do they think we are going? This supply protectionist desire by the FCC to stimulate “demand” has not demonstrated anything appreciable in the world theater of global competitiveness on the part of the United States. The same FCC that denies forbearance is the same FCC that said cable company infrastructure is closed to competitors and new fiber deployments by ILECs are closed to others. It’s the same FCC that is trying to figure out how much a pole attachment should cost depending upon what application that a physical cable may be carrying!!!
Declaring a victory for a denial of forbearance, in my opinion, is stifling to our economy and global competitiveness. We need more true facilities based competitors not less. The FCC is not encouraging new entrants; they have handed the ILECs one sweet deal, and the CLECs in plausible denial clap/applaud as the FCC continues to stifle new infrastructure investment while the ILECs and cable companies build out optically.
Now the average whiner will say: “But if we don’t have access to their copper …”
Here is the reality: anyone and everyone relying on Ma Bell for type 2 circuits are in the same boat … you all pass on the costs and a small margin to the customer. If the ILEC raises wholesale prices, everyone will pass them along as well, assuming you are a rational competitor. Plus, if type 2 access was of such strategic importance, I am befuddled by the lack of wireless last mile access that can emulate the limitations of copper or exceed it. There is true technology choice available to all competitors for copper equivalent data rates by wireless access.
The proverbial horse left the barn 12 years ago. What needs to be done is quite simple. The FCC should sunset wholesale regulations in a declining manner over the next five years, At the end of five years, the wholesale market would be driven by market-based facility competition and priced accordingly.
One would think that after 17 years, if you have not figured out how not to rely on Ma Bell, you never will.
Remember: the softest pillow is a clear conscience.
Forbearance is Good for America
July 22, 2008
Here I go again being unpopular.
The most recent forbearance petition denial of Qwest by the FCC is not a step forward in the interests of the consumer or our nation. It is a step backwards.
The Communications Act of 1996 was allegedly designed to foster competition in the interest of consumers of telecommunication services. The Communications Act of 1996 was not designed to benefit competitors. It has been 12 long years and what do we have? A bunch of competitors of Ma Bell that still want to hang off of her teat. It’s been 12 years … when will competitors figure out how not to rely on Ma Bell? Are these same competitors going to lobby Congress for perhaps another 12 years? That would make it a quarter of a century of government protection on a class of competitors that want to hold this country back because they don’t get it (and neither does Wall Street).
If the FCC truly wants consumer advantage, it would get out of the way and stop providing this form of corporate protectionism. After all, isn’t 12 years a long time to figure things out? We sent a man to the moon in less time.
I believe in open market competition. Markets will sort themselves out. Artificially regulating wholesale prices hinders growth, it does not encourage growth or investment.
Next time we’ll talk about why forbearance has a positive impact for the United States globally.
More Wall Street Folly
July 17, 2008
Another related sector that Wall Street has issued “sell” advice to is telecom equipment providers. Once again, this is attributed to the “macro economic” factors affecting the telecom service providers. This is hogwash, and here’s why: There may be softness in the near term because the kit telecom service providers install today has greater advanced capabilities compared to gear just a few years ago. We can readily add capacity without adding new chassis. We have the ability to issue 10 gig to 40 gig backbones while we wait as aggregation access demand fills those pipes. So the technology is better, capacity larger thus the lack of building inventories of kit.
Lastly, my final pet peeve is with Wall Street banking firms that gave away loans to unqualified unsecured creditors which is estimated at over $1 trillion dollars further to default. You are the same Wall Street firms that deny fixed asset lending to telecoms because of the risk. Yes, that fiber optic infrastructure sure has no value to be lent against it. Can you tell me what fixed assets you really had tied to your paper? The answer is another $1 trillion of nothing.
My message to Wall Street is to recognize telecom is a buying opportunity, and you need to build back your overall credibility with us. You are in a $1 trillion bad loan situation as the result of your “Do as I say, not as I do” culture of arrogance. The more fixed assets a telecom company has, the better it is as an investment. (I equate Ma Bell dependency renting with sub-prime mortgages). And in the future, try lending to telecom companies with high performing fixed assets that are scarce in supply — at least you will have more than just paper to bank upon.
It has been estimated to bring fiber optic infrastructure to every home and business in America it would be a $125 billion undertaking. That’s about 8% of what Wall Street banks will be writing down (getting bailed out by us taxpayers) for their loan “expertise.”
The hypocrisy, just like telecom CEOs and CFOs that went bankrupt during our bubble, the Wall Street CEOs and CFOs will just become economic “victims” like their telecom brethren … and virtually no one will go to jail.
Remember: the softest pillow is a clear conscience.
Wall Street Hypocrisy
July 14, 2008
Now, there is no way in hell that I am as sophisticated as the bankers and analysts on Wall Street. But in my simple way of looking at things, I believe Wall Street needs to attend to their own knitting first.
Recent pronouncements out of various Wall Street firms have stressed concerns over the “macro environment” having a negative affect on telecom services. In doing so they have issued ‘holds” or “sell’ on certain public companies in telecom services. They should be issuing “sells” on themselves.
Let’s discuss the “macro environment” in terms of telecom service companies. Telecom services companies are not in the sub-prime mortgage business; we do not build houses, and we don’t manufacture automobiles. Wall Street — you helped graciously creating the telecom bubble earlier this decade … the current “macro environment” today and deflating bubbles you again created has nothing to do with telecoms.
Outside of our bubble you inflated years ago with your “advice”, historically and statistically telecoms are not affected by economic downturns. Today, this fact is more relevant than ever. Customers don’t stop talking in a recession - they talk more. They don’t stop accessing the Internet; they access it more due to the cost of gasoline. And, they will watch even more video for entertainment or communications.
Contrary to Wall Street experts, telecom stocks are a screaming buy right now. You can play the short term Wall Street FUD factor of “macro economic concerns” on asset light companies that rent from Ma Bell, or you can buy and hold for the long term those telecom companies anchored in their own local fiber optic infrastructure. The latter, of course, has greater staying power as the Internet and transport demand continues to grow by 100% and 50% annually respectively (eventually rendering copper facility based services obsolete).
More to come on the hypocrisy of Wall Street…
History has a way of “repeating” itself …
July 8, 2008
So much material out there, so little time to knock some commonsense and reality into the mix.
Last night at home, while reading a few technical articles on bend sensitive single mode fiber various points were made about the applicability to Passive Optical Network or PON fiber based distribution architectures. Outside of I need to get a life after work, I am amazed how simple solutions are available but we complicate the living hell out of things.
There is no basic argument that GPON and GEPON are capable of delivering Giagabits (that’s Gigabit with an “s”) synchronously. Moreover, the need for racks, power and structured cabling goes down by factors while reliability in comparison to copper, or fiber/coax increases by factors. Sparing you the drudgery of the technical arguments, a core thesis of how to implement, measure and maintain different service level agreements over a PON path became a sticking point. (Did I forget to say copper access is not a long term business model).
In my reading, this SLA management question within PON’s developed into a whole new generations of chips that the authors believe would need to be developed to manage SLA’s over a 10 gig PON, 40 gig PON, 100 gig PON… you get the picture. The problem that is being wrestled with is managing “light” spectrum based upon SLA’s.
The problem I had with designing new chips, is the parochial view that the problem belies the that the SLA quandary limitation exists based upon a single fiber or fiber pair for multiple SLA’s.
Well, here is my news flash. What is stopping anyone from dedicating fiber pairs to different SLA needs today as opposed to waiting for the “god” chip for a single fiber strand or fiber pair. Actually nothing … unless you don’t own any local fiber or can’t get access to any local fiber. Who can afford to wait?
This same logic applied to the great long haul land grab of the 1990’s which drove DWDM boxes through the roof. DWDM was designed for long haul since you have very little add/drop splice points in a long haul network thus distance and efficiency counted for those that could only garner a fiber IRU or fiber lease. But as the long distance industry contracted (collapsed) the DWDM companies decided to sell DWDM as a solution looking for a problem and since long distance was dead, they took the square box and sold it to fit in the metropolitan network hole in search of fixing something that alternatives were readily available. DWDM gets real expensive in metropolitam deployments, the laser tolerances are extremely tight, signal regeneration costly, and the loss budgets excell due to the magnitude of splicing that occurs as one goes from long haul to metropolitan backbone and finally last mile access. Typically the question is how many PhD’s per mile does it take to maintain DWDM tolerances in the metro?
What’s my point, multiple fiber pairs gives you multiple options, flexibility and opportunity to differentatite. Banking on tightly spaced nano-window lasers, expensive repeaters and db loss tolerance of dispersion, can be more costly that what multiple fiber pair alternatives provide.
I get a kick out carriers that overbuilt certain routes in a market by “joint building” with other carriers on the same route when the use DWDM. Here they have gobs of fiber power and they take the most expensive way to light it. Now, it wasn’t to smart to have joint built, but some bean counter in the telecom bubble days probably thought they were “saving” money.
Bottom line … do your homework. Don’t wait for the next chip … get innovative. When someone is trying to sell you a NASA solution when you can do quite well with an abacus … take the time to look at real demand and technology evolution.
The next god box or god chip is always touted on our telecom media websites or magazines… like we are missing out on something …
We have waited over 25 years for convergence to become quasi reality … what more do we need to know about the real rate of technical, ubiquitous change … it is slow in coming.
Focus on staying in business first, the rest will follow.
And remember: the softest pillow is a clear conscience.
Rusin Ramblings
July 3, 2008
I ponder things and observe, sometimes things become imponderable.
Reading an analysts report today on your friends and mine the ILECs This particular report constantly reiterated a slow down due to the “decline of voice lines.” I am not only good looking but how the hell do you rationalize this as a bad thing? After all, isn’t this an outcome of competition? Convergence? IP applications? THIS IS NOT A BAD THING!!! What are analysts keep forgetting is that voice line loss is also the result of CONVERGENCE/VOIP. VOIP is not a “line” product, it is a “port” product. Gazillions of VOIP calls can emanate from a port. Start measuring ports!!! Why do analyst hold to Fred Flintstone measures in the age of the space shuttle! Lines don’t matter anymore - bandwidth does. Why is this over attention on the slimmest of bandwidth use application “voice” as a line element important? It is not, it’s virtually white noise. Voice does not show up on the killer app radar … it is not a bandwidth facilitator. That is why we often here that eventually voice is free … and it will be.
Another problem I am having with analysts recently. Don’t they understand that telecom companies are NOT in the sub prime mortgage business, the manufacture of automobiles and pumping up the next bubble of the great oil bubble collapse. I can only speak for my company — but the bandwidth demand doors have blown wide open. You can’t provision it or build it fast enough. 50 Mbs is quickly becoming table stakes. Contrary to the analysts, and due to their “macro economic views” painting everything one color red - telecom stocks are a bargain right now. There is an imbalance of growing demand and available fiber optic infrastructure (metro/access).
Another trend analyst don’t see that we experience. Ordering fiber cable for new construction … delivery lead times are elongating. This tells me that the warehouse supplies of the bubble era have been absorbed and factory capacity is at its limits. Hate to say it … fiber cable shortage! However, this shortage is not like we had at the end of the last century. If you recall, the “Wall Street” analysts forecasts of unprecedented demand for bandwidth (based upon IPO fee’s as we later learned) and hoarding fiber cable was a result at crazy prices. (sounds like oil ..) Fiber manufacturers over built factories and capacity in fear of being down graded by Wall Street analysts. When the bubble burst fiber manufacturers shut down factories and learned a very valuable lesson. Also, the bubble and subsequent “telecom nuclear winter” separated the pretenders from the experienced very quickly. So, demand growth today is not speculative, it is real and there are less irrational telecom companies remaining — there are still a few that want to buck an oligopoly situation. Fiber lead times elongating is a good thing and measure.
Lastly, for all you network neutrality nuts out there and “telecom is a commodity” psycho’s … take a lesson from the airline industry. As they near financial collapse the airline industry has figured out to charge more for baggage as all passengers are not equal when it comes to the baggage payload! Imagine that paying for how much capacity you use!
Another lesson, Airlines serving major cities are commodity … still too many carriers. Where are the profitable routes? Those markets/routes which are not served by lots of competitors. Airlines charge higher prices on the less competitive routes and are raising prices on these routes as I speak. Lesson for telecoms: don’t give your sales force a broad based, one size fits all price schedule — give them a market specific and unique route pricing schedule. Airlines produce the majority of revenues on top tier routes. They earn their cash flow in the undeserved markets and routes. Modern day telecoms success is knowing what routes your competition is on and not on — even in major markets. Price accordingly — stop being sales lazy. Time to get in love with margin growth, not just revenue growth even though the analysts think otherwise.
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