Common Sense Approach to Broadband Policy
October 30, 2009
I have been speaking about this across the fruited plain since 1993 and via this blog … I am too small to be heard, not big enough to pay (waste) money on lobbyists at the scale an ILEC or Cable Company can to deliver common sense approaches to Broadband policy.
This soothes my wounds to a certain extent. Congress needs to understand that bandwidth is the new oil of the 21st Century and you can’t let a few Sheiks lock up the supply.
Dave
Source: http://www.app-rising.com/2009/10/congress_needs_to_understand_t.html:
Posted by Jeff Daily, October 19, 2009 11:09 AM
Congress Needs To Understand The Basics Of Broadband
Last week in a meeting with a highly respected colleague of mine in DC, I experienced one of the most eye-opening and disappointing moments of my time in the world of broadband policy.
The conversation revolved around my argument that if we keep trying to patch the holes in FCC regulations with band-aids that we’ll never be able to realize truly effective reform. If we want real change we need to reframe the FCC’s mission for the 21st century, namely to focus on the availability, affordability, adoption, and openness of bandwidth.
What stopped me in my tracks is that while he agreed with the ideas in theory, the reason he couldn’t get behind adopting these new principles was that he simply didn’t believe that Congress understood the concept of bandwidth enough to fully comprehend the benefits of this converged approach.
Now, it’s no surprise that Congress doesn’t know as much about broadband and the Internet as we’d like. And for the most part I don’t blame them. What people don’t realize is that Congressional staffs have limited manpower, and therefore everyone pulls triple duty and beyond.
Because of this, very rarely do you meet a staffer who’s sole focus is on understanding the intricacies of broadband technology and policy.
I’ve met many staffers charged with handling telecom for their Representative or Senator that were thrust into the position with little to no prior knowledge of or experience with broadband-related issues. Layer on top of that the fact that they’ve got a ton of other areas they’re working on, and I don’t see how we can expect them to understand all the ins and outs of our intricately esoteric world at the nexus of technology, business, policy, and philosophy thoroughly enough so that they can craft policies that help rather than hinder it.
Quite frankly, it seems like an impossible task.
Yet at the same time, I can’t see how we can consider limiting the scope of our ambitions because of our assumptions about what Congress has the capacity to understand.
The other thing I’ve learned about those Congressional staffers is that they’re very bright, extremely hard working, and dedicated to trying their best to understand as much as they can.
I refuse to believe they can’t understand something as basic as bandwidth. In fact, I’d say that if they still don’t get it, then that’s more our fault than theirs as we obviously haven’t been doing a good enough job explaining it. And as a result of our failure, our policy ambitions are suffering, being limited by unnecessary ignorance.
I’m not trying to suggest that we should expect Congress to understand everything that’s going on under the Internet’s hood. Instead that they must have some understanding of the basics, of terms like bandwidth, of how in broad terms the Internet came to be. Otherwise, how can we expect them to be capable of creating broadband policy that goes beyond bumper sticker slogans?
Sure, it’s easy to say, “Internet for all!” and “The Internet should be open!” But where the rubber of good intentions meets the road of making policy, we can’t afford to have policymakers that don’t know where they’re supposed to be going or how they’re supposed to get there.
And perhaps even worse: we can’t afford to scale back the policies our country needs to move forward because of an assumption that Congress can’t or won’t understand the issues at stake.
I think Congress is ready to listen. But the onus is on us to reach out to them and figure out how to talk about these complex issues in terms that they and the public at large can understand.
Because I fear that without an understanding of the basics of broadband, that Congress will never be able to create the kinds of forward-thinking broadband policies that our country needs to make the rapid forward progress required to remain a leader in the global digital economy.
Video and Politics in America
October 28, 2009
Since we are in the metropolitan fiber business, I want to share with my readers something I sent out internally to our employees for consideration. Video is driving bandwidth demand – no doubt about it.
To AFS Employees:
I don’t care what side of the healthcare debate anyone is on — but take a look at this.
Video is going to change politics in America … the sound byte is dead and full context can be accessed…. anytime, from any place. The other kicker – recordings are going to become more prevalent without the speaker knowing. I saw a pen advertised than can sit in your pocket or on your desk and record conversations for up to 8 hours … I also saw a color video pen as well with 2 hours of recording due to memory size.
All I can say is: mean what you say and say what you mean.
Big Brother is not far way ….and Big Brother can be anyone at any time as technology evolves…
http://www.youtube.com/watch_popup?v=G44NCvNDLfc
Houlihan Lokey’s Media & Telecom Group
October 24, 2009
I was an invited speaker to the recent Houlihan Lokey’s Media & Telecom Group Conference at the Waldorf Astoria in New York City.
For the most part, with the exception of two of my charts, I behaved myself. But, that’s not the real story coming out of this conference.
Houlihan Lokey did something very different from most banking firms that host these events for the financial community. They invited a number of privately-owned Telecom and media companies to present their businesses, strategies and outlook. Similar banking events often only invite publicly traded companies, which basically tell you what you already know by reading their quarterly reports and filings under Sarbanes-Oxley. The “big guys” mentality
exist at those events even though, in the grand scheme of things, some of the “big guys” are still a pimple in comparison to an ILEC .
I think the eye opener at this conference was for the Private Equity firms attending. They were able to receive information on companies that, quite frankly, outperform a number of public companies by significant margins and benchmarks. Albeit smaller companies, but the fact of the matter is, give these same small firms the capital to expand, and they will take many public firms to the cleaners. Most PE firms, however, wrestle with believing, “I can only invest hundreds of millions of dollars.” in my opinion, investments should always made on the management team. It’s like the old saying at the race track – always bet on the jockey. You can always add money, so why let someone get drunk on up-front cash regardless of business model or razzle-dazzle PowerPoint charts and projections?
Too often CEO’s with too much cash go on ego trips with that cash burning a vicious hole in their pocket. Becoming a celebrity CEO and using someone else’s money is disingenuous at a minimum! Our last round of Celebrity CEO’s and
CFO’s using other peoples money resulted in the telecom meltdown circa 2001-2003 … let’s not have short memories. Fund responsible management – not a story of conquering lust!
Many presenters leading the private companies have in fact previously held executive positions at multi-billion dollar firms, I amongst them. One reason I started AFS was the waste of capital and human resources at large companies I often witnessed that could perform much better if utilized appropriately or should have less people as they underutilize their intellectual capabilities either by operating procedure limitations or cultures of control. The human resource maximization mindset was well illustrated by the low churn rates of customers the private firms disclosed. Focus on customers is paramount over focus on each other internally was a key repeating theme.
A lunch time panel of various financial firms indicated that things are changing and they see consolidation relative to metro fiber firms picking up as the bid and ask gaps have closed, however, the bid and ask gaps have increased amongst media companies for various risks more related to the evolution of the Internet and uncertainty than anything else. The favor of metro fiber is the real accelerating growth of organic bandwidth, the need of optic connectivity to enable everything else and the “platform” fiber provides growth and flexibility by owning such a platform.
From a metro fiber platform, you can remain a horizontal provider of services or vertically integrate services — when the markets make sense to do so. A local fiber platform gives an operator this advantage over the risk of an application provider which is asset-light.
I would be remiss by not saying that I did get to see and say hello to many of my PE friends that have been looking to get into the metro fiber space “platform” for at least the past four years. Once again, I believe the performance by the private firm’s disclosed at this conference must make for some interesting PE introspective relative to existing portfolio companies, quality of management and execution focus.
In addition, at the conference, the recent announcement of Comcast purchasing a Chicago CLEC has caught the attention of many. The scuttlebutt at the conference was the multiple of EBITDA was well north of 10x and to expect more cable companies looking at the “small metro Telecom guys” who are fast, focused and thrifty as future consolidation occurs.
Why cable companies?
As rumor had it at the show, Comcast not only bought the CLEC “business” to go deeper into metro and establish a solid beachhead for business customers but to obtain people that know how to compete in local telecom … kudos to Comcast for thinking diversely, differently, realistically and non-insular.
I suggest, if given the opportunity and if Houlihan Lokey repeats the private company invites at their next Telecom & Media Conference, it could be well worth your while and eye-opening to attend.
I was hesitant to participate when invited, I am glad I did.
Next Generation Connectivity
October 22, 2009
This link will take you to a 232 page report on Broadband titled, Next Generation Connectivity:
A review of broadband Internet transitions and policy from around the world. It is published by The Berkman Center for Internet & Society at Haarvarrd University. (Yes, Buffy dear, I purposely spelled Harvard as “Haarvarrd” for contextual affect.)
Click here to go to the report.
My conclusion: In America, it’s all about having policy, objectives and economic incentives to deliver fiber optic connectivity to 90% of homes and businesses with remote areas being served by subsidized satellite capabilities that already exist within 10 years. This approach will stop spending good money after bad, keeping copper loops alive. And, of course, broadband mobility should be left to the free markets to sort out with the least amount of government “help.”
If you have the fiber optic infrastructure, mobility backhaul for 4G services is a slam dunk. You need the fiber infrastructure first; otherwise you end up putting the cart before the horse.
A Little Refresher
October 20, 2009
For those of you that follow my ranting of irreverence read on …
For those of you that think I am a crack pot and clueless about what really is going on read on …
For you conspiracy theorists read on …
For my Fiber Bigot friends read on …
This is a refresher posting. First, I need you to go back and read a past post: http://www.telecomstraightshooter.com/2009/04/
Then, read below an excerpt from a speech recently given by FCC chairman Julius Genachowski. Connect your own dots.
“Spectrum is the oxygen of our mobile networks. While the short-term outlook for 4G spectrum availability is adequate, the longer-term picture is very different. In fact, I believe that that the biggest threat to the future of mobile in America is the looming spectrum crisis… The less spectrum available for mobile broadband, the more service will cost and the longer it will take to make 4G ubiquitous. And that doesn’t serve our national needs. In our broadband record, carriers are telling us that they need anywhere from 40MHz to 150MHz — each — to bring the benefits of broadband to American consumers.
As this audience knows, it takes years to reallocate spectrum and put it to use. And there are no easy pickings on the spectrum chart. But we have no choice. We must identify spectrum that can best be reinvested in mobile broadband.
That is something that we have to work on together, across industries, and in partnership with all stakeholders.
Unleashing spectrum for mobile broadband is the first part of our plan.”
If I were a betting man, I bet that if we could fingerprint this speech, Google fingerprints would be found … just a hunch.
Again???
October 15, 2009
It’s popped its ugly head up again. The buzz: Network Neutrality.
It’s not about what you think or read. It’s about money. I will write more about this subject as it evolves.
At this point, here is what I can tell you for certain: Net Neutrality will create barriers of entry to competition. Lack of Net Neutrality will disallow barriers of entry to competition. Oh, I am not talking about Telecom competition – other competition.
Google is one of the big advocates (culprits) behind Net Neutrality and pretty much is in the Obama Administration’s back-pocket. Go check political financial contributions made by Google, Google employees, advisory Boards, and records of who visits whom at the White House…
Here is the bottom line: if a user of the network actually has to pay for what they use, the perception of certain web sites that sell things, search listings or advertisements being free to access diminishes. Users will now start using the Internet with efficiency in mind, since now they understand that they are paying the freight for something they always though was free to access.
For example, if you have a usage budget, you might think once or twice about clicking on that pop-up ad or that Google ranked listing … not good news to those not paying their weight today for usage.
Google et al consume a disproportionate amount of network capacity that all other users are paying for. In short, Google et al do not want to pay for what they actually use – they want the little people to subsidize their use. It is in their financial interest and business model to avoid usage based charging such that they can further distribute servers in the network which allows faster throughput while burgeoning new competitors to Google et al would face this barrier to compete. Pay for what you use actually provides capital to network providers to expand infrastructure. Network neutrality does not.
Google et al can resolve this problem simply by revenue sharing with carriers … something I don’t see them considering right away.
There will be a compromise in all of this … I’ll let you know what I think it is as the issue and money behind it evolves.
Carried Away…
October 13, 2009
I just responded to a post on the Internet Evolution blog. The topic is Australia Telecoms and the Australian government having things backwards. Here’s what I posted …
–Dave
“Whenever you have politicians and lobbyists – whom for the vast majority are lawyers – involved in regulations and legislation, you get nothing but a cluster %$#%!
Outside of the “too big to fail” companies and their lobbyists; regulators or politicians rarely give attention too or the commonsense of the “too small to listen to” companies. This is what makes things ass-backwards.
The Communications Act of 1996 as an example is a failure and I am still waiting for a solution that is obvious to me.
The Communications Act of 1996 in theory was created to facilitate local competition in telecoms. The general idea was to have the ILECs “rent” pieces and parts of their legacy networks to new “small” competitors in order to build a customer base and cash flows. These new companies were called CLECs, BLECs, DLECs, etc. Good in theory, but bad legislation. Since Congress only listened to the lobbyists and the ‘Too Big to Fail” companies we ended up with a telecom meltdown 2001-2003. Why did it happen?
The meltdown was not the result of private sector capital investment — there were billions of dollars invested. No government money was needed – what was needed was commonsense – something you rarely find inside the beltway.
What we had was a massive, irrational exuberance and land grab resulting in the overbuilding of fiber optic capacity in the top 12 cities in the United States. Common business plan themes: mass populations are concentrated there and low hanging fruit aka an easy buck, a fast buck to be made. Critical note, contrary to what was being printed by the media at the time — there was no nation wide fiber glut – the fiber glut was in these big cities because of the irrational expenditure of capital against a demand that didn’t exist (though Jack Grubman said so) where said demand exists now and is growing at predictable, consistent rates.
The rest of America was virtually ignored by the fiber Barons all with the same idea, all in the same place — capture 12% market share, for example, in Chicago and you breakeven! The problem was 50 new entrants with lots of capital to spend wily nilly all seeking a 12% share – that’s like 6000% market share for each to breakeven before you figured in the incumbents – ILEC, cable company and back then long distance companies.
Thus the telecom meltdown.
How could this all have been avoided? Simply by understanding human behavior within the context of deregulating a market. Our politicians and lobbyists do not think in this manner as long as campaign contributions and the pork keeps coming from the “Too Big to Fail” companies.
What the Communications Act of 1996 did not have was a sunset provision on renting pieces and parts from the incumbent carriers to new competitors. My opinion, if you had a 7-year sunset provision in the Act whereby the ILEC must continue to make UNE-P, UNE-L, Copper Loops, Special Access, etc available after 7 but they are no longer required to be price regulated. Moreover, after an additional seven years, if an ILEC chooses, they are no longer required to sell UNE-P, UNE-L, Copper Loops, Special Access, etc. to anyone if they choose not to do so.
So new competitors get up to 14-years to figure things out before a free market takes over.
Imagine up to fourteen-years of rational exuberance, capital deployment efficiencies and thoughtful execution.
Translated: a sunset provision would have rationalized the expenditure of private capital sector funds knowing that as a new competitor your rental costs go up after seven years and after an additional seven years, your rented network can go away. This would shape human behavior differently — from Wall Street, to entrepreneurs to PE firms and VC’s. I believe a more efficient and rational deployment of fiber broadband facilities would have resulted and in later years followed by natural consolidation of new competitors to achieve scale and optimizing capital deployed in a high fixed cost business. This is called Economics 101.
The 2001-2003 telecom meltdown is water over the dam. This is why we are seeing government now sticking their nose where it should not belong — funding with public money, entities or entities with management that went bankrupt before with dismal track records, definitions of broadband that do not match reality and or a politically-enabled request for funds based upon an arbitrary, non-measurable process between the Federal and State governments to award said funding. I can only imagine under the ARRA BTOP/BIP programs as states rank projects for the Federal government to consider, that State requested funded proposals will receive their highest recommendations and top ranking. After all, most states are “shovel ready”, have exceptional optical telecom network management experience, a proven record in deploying broadband infrastructure, very efficient with capital and can execute the infrastructure within 2-years under statute!
I say, go back and amend CA 1996 — put in some sunset provisions and let the private capital markets figure things out. Private capital is not flowing into telecom infrastructure for further broadband deployments because capital sources were burned in the meltdown and in general, uncertainty in regulations still exist and now direct government participation assures us private capital to further wait and see. By the way, those in the private sector that choose not to invest into “broadband infrastructure” today because we were “burned” in the meltdown are not innocent victims. Lack of due diligence, greed and lacking local telecom expertise was your demise – ignoring successful operating companies who navigated these waters who you deny financing to today because of your past indiscretions is an interesting way to look at not putting your capital to work.
Pretty much globally, we now have governments sticking there cash where they have no core competency. I don’t believe this will help matters as political interests will trump what is really required.
I am just one person where common sense can sometimes keep me awake at night.”
Churning…Churning…Churning Inside the Beltway…
October 8, 2009
Today it is short and sweet.
As much as I dislike going political, let’s use industry terms…
We need to “churn” out our elected officials inside the Beltway – all of them. Forget tenure and your self-serving interests because your representative has been there for years.
Korea is going 1 gigabyte by 2012 … I have written about this before. What is in the water inside that Beltway?
Wake-up America!
http://joongangdaily.joins.com/article/view.asp?aid=2900490
Billion Dollar Baby, Part 3: Full Disclosure
October 6, 2009
Last week, I wrote about my Billion Dollar Dream.
Now, if you have a billion dollars and are interested, you should know I am not your typical CEO.
I am not focused on how much I can stuff into my pockets and how fast. Hell, if more CEO’s were honest with their employees, CEO’s would understand (and communicate!) that they need their human resources more than their human resources need them! In reality, CEO’s really have little power over employees.
Full Disclosure: I don’t build businesses by sacrificing the long term for the short term. I am always within spitting distance when it comes to base compensation with all employees – I sort of like that “we are in this thing together” culture. Same thing with stock compensation – I would rather have a lot of people who can get rich than just me or a handful of VPs. Stock options – spitting distance again.
Full Disclosure: Building a great business motivates me. Watching employees take on responsibility and make good decisions is exciting. It’s fun to create an environment of unconditional trust–one that is wrapped around work that people enjoy, with the “value-delivery message” of reliability…one that customers and employees, if taken care of properly and with priority, will benefit shareowners handsomely. The shareowner supplies money – the rest is up to customers and employees executing upon trust and shared-knowledge.
Full Disclosure: Regarding my management style–I do have a different method than most. Amongst the management team, if there remains alignment difference in strategy, culture or execution–if, after reasonable debate and having agreed upon a direction of execution…after a reasonable amount of time–I will make adjustments to insure focus and alignment. I have done this effectively over the years. I fire people. I don’t fire the employees–after all, they are getting direction from someone. I will fire Executives. This has proven to work effectively. For me, cutting the head off a problem is the fastest way to get alignment. If a rogue leader says one thing in a staff meeting and does another thing outside the meeting, getting rid of him/her is what works. I have patience. I am not Attila the Hun. But when we agree on a direction, we must 100% agree upon executing to the plan. We will adjust the plan when needed but going rogue and creating an “us and them” environment … zero tolerance.
Full Disclosure: On “deal” making, aka M&A, at one time…I have been told by a Real Smart Guy (RSG) that I am not a “deal maker.” Translated: I am not out to just screw other people.I do not have the “I am slicker than you” mentality. As I often have said, “the softest pillow is a clear conscience”. We have done three acquisitions or “deals” at AFS–all highly accretive, all profitable within 60-90 days post close. I have lost or walked away from a lot of “deals.” Deals? M&A is about knowing what to buy, when to buy, how to buy, and the risk of success long before you set an offer price/terms.
It is not a spreadsheet exercise. The cornerstones of any “deal” are the people/culture that comes with a “deal” which will determine long term value. Most “deals” the real value is locked inside the heads of your new employees – not my brilliance or the brilliance of a RSG deal maker. Statistics have shown, most M&A deals fail … sure, we only did three–but my team is batting 1000.
The value of a “deal” can go beyond the lemming mentality of common multiples – M&A is often two edged. The worst “deal makers” are those that have money burning a hole in their pocket … no time to select and pay for the finest of wine with aging ability. Buy a case of Ripple, layoff the factory and issue a press release … gun and run … forgetting there is the going “value” and future value. No two deals are alike, though an Investment Banker will rely on common data of multiples as long as there is an outcome with an accompanying fee! If you know your industry, your customers, your competition, your team – you know value goes beyond the multiples of EBITDA spreadsheet jockey analysis.
So, if you have a billion dollars, please contact me. I am not going to change. Personal responsibility and accountability has been driven into me since I was a kid. I don’t follow the herd, I just like to pick off the choice Bison based upon what arrows I have in my quiver. And as an added bonus, I don’t lie or word parse to investors, debt holders, Board Directors, employees or customers. You can’t really be a team – investors, debt holders, Board Directors, employees, customers – if the CEO bends the truth. Some on the darker side of business may view this attribute as a weakness. I happen to like not having to keep track of what lies or parsing I have told someone – it makes execution and achieving results easier. Plus it makes that pillow much softer when I go to bed at night also.
Boy that Telecom Alley reunion was fun.
Anyone else out there with a billion dollars and a dream?
Billion Dollar Baby, Part 2
October 1, 2009
Last week, I wrote about Telecom Alley, located in Rochester, New York, during the years surrounding the Communications Act of 1996.
So what happened?
I’ll spare you the long story… In short, Ron Bittner (Chairman & CEO of Frontier who architected this phase in the company’s 100+ years of existence) was diagnosed suddenly with a brain tumor. He passed away a few short months later.
What happened then? Two words: Global Crossing. The new CEO sold out and Bittner’s Board sold out to a story of explosive global growth, fueled by the likes of Jack Grubman, assorted Investment Bankers and financial greed. Those around Ron sold their soul for a fast buck.
I knew Ron. I can tell you today with great certainty, if Ron Bittner had not become sick, Global Crossing would never have gotten their fly-by-night paws on Frontier. Period.
“Leadership over greed” was the lesson I learned from Ron–a lesson that taught me how to build a sustainable, valuable business. Thousands of Rochester Telephone/Frontier Communications employees lost nearly everything when Global Crossing filed the largest bankruptcy in Telecom history, and it still amazes me that no one went to prison.
Karma sill lives, though…
But, back to the billion dollars.
If you are a PE firm, Hedge Fund, or if you know a PE guy that is really interested in modern day Telecom (and not a free seminar about telecom), I had this crazy thought after this reunion of sorts. Based on the talent in the room during the recent “Telecom reunion”, I could assemble one kick-ass data/IP company–one with people who understand the local communications business, drink the same water (not Kool-Aid either) and are culturally on the same page.
Your basic no-bullshit company.
Here is the deal:
We do a billion dollar equity deal.
We buy a few companies that have and like the culture I described above.
We integrate them… Remember–Frontier–we knew how to integrate companies.
We focus on data/IP only to keep things simple and reliable. (Note: don’t just think data/IP in a limited sense – other complementary things to acquire which create value and unfair competitive advantage is part of the strategy).
We do this accretive M&A, integration for the next 2-3 years as a private company and demonstrate organic growth.
After 2-3 years with a balance sheet dripping cash, we go on an acquisition spree of fiber assets, tower assets and “secret” assets part deux. Like the meltdown of 2001-2003, in my opinion, we are heading to another window of opportunity but not necessarily in a Wall Street driven meltdown sense. There will be very good opportunities in 2-3 years to get out the shopping cart and start buying companies that screwed up big time with BTOP and BIP infrastructure money.
I have been in this business going on 30-something years. Call me psychic or psycho – but history will repeat itself!
After we go shopping and do some more integration work, all around data/IP; then and only then do we do an IPO. We will be so relevant that our holdings, delivery systems and reliability will be the equivalent of peak oil.
Sound good? Stay tuned for the next post: “Billion Dollar Baby, Part 3: Full Disclosure.”
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