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.
Excitement in BTOP Land
August 13, 2009
As we approach the August 14th deadline for the first round of proposal submissions under the Federal Governments $7.2 billion Broadband Technology Opportunity Program (BTOP), excitement fills the air. It’s almost like the feeling that Chris Matthews of MSNBC had – a tingling running up your leg. With $1.6 billion to be allocated during Round 1, the submissions should make for some interesting reading.
I have found a few more oddities in the process that I’d like to share with commonsense America.
Before I start, have you noticed something that has been going on over the past 4-6 weeks? It is very pertinent to the BTOP process and how a proposal may be challenged after submission by an incumbent wire line or wireless carrier–or any carrier for that matter–anonymously, of course, and without due process.
There has been a flurry of press releases from all major wire lines–wireless and cable companies claiming to offer service speeds on an advertised basis in excess of 10, 20 or 50 megabits in some cases, some as high as 100 megabits. All sorts of new high-speed advertised services!
Keep the above in mind …..
According to the BTOP folks, a proposal receives points on 5 parts of a submission form. Each part gets 20 points, so the highest points a submission may receive is 100 points.
In one of the sections, based upon the USA’s definition of broadband of 768 kilobits, an initiator of a proposal has to go through all sorts of census data machinations and mapping in defining areas of a proposal that qualify as being unserved or under-served. Respectively, no service is un-served and under-served below the broadband service definition of 768 kilobits per second. It is plausible that a proposal may be eliminated at this stage by not meeting these criteria by supportable quantifiable analysis, though in a different section of scoring, if your proposal offers megabits or gigabits of broadband you can get extra points.
Think about this for a second. The two points contradict each other.
That said, a proposal may also be challenged for elimination – get this – if the advertised broadband speed by a provider in an area is greater than 3 megabits per second. Thus, all the recent announced advertised speeds greater than 3 megabits are dripping all over the place.
Think about it – not an installed speed of 3 megabits with 90% coverage, but an advertised speed greater than 3 megabits. Advertised! It gets better.
If a proposal gets rejected because some carrier did a press release and updated a tariff to a new advertised speed above 3 megabits the proposal submitted gets called into question of the quantifiable analysis of unserved and underserved per the rules, assuming you get a hearing on the matter; and guess where the burden of proof falls? Yes, on the company that submitted the proposal and quantified census research must prove that the advertised speeds are not available, limited, etc. Now, can someone out there in blog land please tell me where you are going to find such information? Think about this for a second – you are guilty of a quantifiable census analysis according to the BTOP rules as required if someone advertises a speed greater than 3 megabits across a region wire line or wireless. The burden should be exactly the opposite – a carrier or Cable Company advertised certain rates of speed greater than 3 megabits per second, especially the last 4-6 weeks, should prove the penetration rates on a map by actual sales via their billing records.
It gets better.
In the BTOP rules, with the definition of Broadband at 768 kilobits, there has been a sector excluded from consideration because they not only deliver at least 3 megabits of service but they can serve 100% of America today. Satellite companies as an industry group and platform are excluded from BTOP as a viable measurement for unserved and underserved. Why? Because the satellite broadcast companies by the Federal Governments own definition of broadband makes America 100% served at 3 megabits or above … how convenient. They not only advertise it today, they are doing it today. Why the discrimination against this sector? I can’t tell you why and I am surprised satellite carriers are sitting by idly.
The straight talk here is simple: it’s about politics, the beltway disconnect with reality and protecting the interests of campaign contributions even though America is woefully behind in broadband access and speeds overall. I filed my opinion at the start of the process calling for a minimum standard of 100 megabits as the definition of broadband with a goal of 1 gigabit within a decade with the global economy as a backdrop. According to “advertised” announcements recently, my 100 megabit broadband definition suggestion seems plausible and achievable.
BTOP Nuggets
July 21, 2009
My dear friends and fellow taxpayers,
You won’t believe what I am about to tell you. Make sure you are sitting down. It’s about the Beltway again.
Remember all that stimulus money (aka tax dollars/future debt) President Obama is sprinkling across America? Well, $7.2 billion of it is dedicated to the Broadband Technology Opportunity Program (BTOP) with a primary emphasis on making low interest loans and grants available for broadband infrastructure.
Two Federal organizations have processes to distribute the funds. The traditional Department of Agriculture RUS administration serving rural communities (loans) and under the Department of Commerce the NTIA is serving in a matching grant capacity issuance of funds.
Here comes the UNBELIEVABLE part – two nuggets just for you.
The first nugget, the NTIA is responsible for awarding $4.2 billion in funds. That’s “b” as in billion. The NTIA is seeking unpaid but “expert” volunteers to assess grant applications and score them. Just think about this for one second.
If I were a nasty ass ILEC or Cable Company, I would have every “expert” on my payroll apply to volunteer. I would ask every retiree with a pension interest to volunteer. I would have every law firm or consulting firm I have ever done business with encourage to have their experts apply to volunteer. If I were the CWA, I would get expert members or retirees with pension interests to apply as volunteers.
Talk about conflicts of interest…who you may know over what your application says; potential of fraud, competitive bias, potential of grant fixing, the overall integrity of the process and lack of plain old commonsense. This is amazing!!!!
There are no other “volunteers” in any other area of the $700+ billion stimulus funds being distributed. This is ripe for corruption, schemes, collusion – you name it.
The second nugget, after any entity submits a proposal, the proposal will be posted for public review/comment. This is called “transparency”. Within the process of a public review, there is an ability to question a proposal on its merits by a third party. A proposal may be declined based upon what this third party states or alleges. By the way, if you submit a proposal and are challenged by a third party; you have no due process rights if this happens. The NTIA will not even disclose to you who questioned what or what they alleged. If this isn’t Communism, what is it?
If I were a nasty ass ILEC or Cable Company–any municipality proposing anything–I would be submitting a challenge. If I were a nasty ass ILEC, Cable Company, Wireless Carrier, ISP or CLEC (and for pure self-serving competitive reasons) and saw a proposal that gives me competitive heartburn, I would be submitting a challenge. One would think any and all “challenges” would be transparent and open for public scrutiny as well.
I thought we recently elected transparency.
Pretty nuts, huh!!
Jacko
July 2, 2009
Dateline: June 25, 2009.
Headline: Michael Jackson is Dead
Dateline: June 25, 2009
Headline: The Web Collapses Under The Weight Of Michael Jackson’s Death
Wake up America … if something really big happens (Think Crazy Man with nukes in North Korea), you can’t count on the web.
The government infrastructure programs and future Policy need to require minimum bandwidth delivery of 100 megabits – the proof is in the pudding. I think it should not only be a global economic imperative for the US of A competitiveness for REAL broadband over fiber but also in the interests of Public Safety and National Security.
Fiber access … plain and simple.
Something big happens (Think Crazy man with nukes in Iran), only the rural folks will have connectivity as major centers crash.
Head in the Clouds
April 8, 2009
The trade press of the Telecom industry never ceases to amaze me. When it comes to Telecom reality–most of the time–the trade press is way ahead of the curve.
I keep stumbling across articles on new technologies that will transport data at 400 gigabit speeds. Just last night, I read how IBM has some new chip that can process data at a rate of 10 peta-flops. At least no one is making a claim that such speeds will carry over copper or wireless…yet!
With Google behind the scenes pushing on our Government, I am also seeing more and more ink on Cloud Computing, aka Software as a Service (SaaS). In a nutshell, it’s about moving applications from the desktop and your local server up into Google-land or some functional equivalent. Translated: an attack on Microsoft. (Note: I really enjoy watching rich companies fight).
As I have stated on this blog, and will inevitably state again, nothing happens in Telecom in the United States at a rate most analysts, market research houses, Congress, or trade press predicts. Cloud Computing will be no different. Cloud Computing is still a twinkle in Google’s eye.
But, as I sit here in my metropolitan fiber bigot world, I once again ask a simple question, (whether it’s peta-flops on your server or massive parallel Cloud Computing farm, the data still has to get from Point A to Point B–quickly and reliably): Why are we so relentless in placing the cart before the horse? (The horse in this case is reliable optical connectivity.)
I am not worrying about quick and reliable anymore. After all, input to the Federal NTIA broadband funding initiative has some carriers defining broadband at 1.5 megabits as perfectly acceptable. How long would it take a machine pumping at 10 peta-flops to upload to or interface with a Cloud Computing farm at 1.5 megabits per second? I refuse to do the math.
Here’s my point, America needs optical broadband connectivity. The entire country with a very few exceptions is under-served.
Reliability? That’s a low price, non-dimensional commodity–until something does not work. Sort of like electricity, or natural gas or fuel oil…have you ever wondered when some say bandwidth is as important to America as electricity but it should be plentiful and cheap? Have we ever had electric rates go down? The more electricity you consume, the more you pay? Sorry I digressed.
My point on reliability– and the same goes for Cloud Computing…what does it cost you if the Cloud is down or you can’t connect? Take out a calculator, assume your ”Cloud” goes down for 24 hours…What’s your cost? I would love to hear from you.
I am not picking on Google, but not too long ago, GMail went down for 24 hours. Those of you relying upon GMail–how was the experience? I would love to hear from you as well.
Reliability and optical bandwidth speeds–America’s ignored step-children
Charts is Charts…
April 6, 2009
I ran across some interesting charts that provide some perspective on who throttles real (optical) broadband in the United States and show the concentration of revenue and market power.
I encourage carriers applying for NTIA or RUS funds to submit a definition of “broadband” to the NTIA of service no less than 100 megabits. The vast majority of America is under-served at this definition rate. You have until April 13th to file–the NTIA has a nice on-line form: http://www.ntia.doc.gov/broadbandgrants/form.cfm
Take a look at the charts–if we want “broadband” defined as 1.5 megabits, these charts will not look better, but much, much worse. At 1.5 megabits, you are telling the government that there is no bandwidth demand and you are perfectly complacent the way things are. Do not let the ILECs or short term complacency throttle your existence. Maybe you are relying, or dying, on type 2 circuits. The answer is not to tell the government that 1.5 megabits–or even 50 megabits-will suffice.
Open access and non-discriminatory interconnection are terms (strings attached) that the ILECs do not like in this funding. Same for the term “innovative,” which has yet to be defined. They are worried these terms will require them to open up their capacity and fiber cables, which is something they fought hard to win in the courts. They are not about to risk opening up their optical broadband position for a lousy $7.2 billion, given they spent $30 billion on capex in the last 12 months, on local fiber optic infrastructure and wide band wireless infrastructure.
I am a free market guy. Get a clear definition of broadband to equate to no less than 100 megabits and watch private-public partnerships flourish. The key is setting a broadband standard to advocate and reach for–not what the ILEC allows us to do. My opinion: with anything less than 100 megabits, we will be having this same discussion three years from now.
More of my opinion: advocating anything less than 100 megabits is not sending the right message to the Beltway on broadband and Telecom policy in general.
Plus–ask yourself: what’s good for America? 1.5 megabits or 100 megabits? We all know the technology exists, wire line and wireless, to meet a 100 megabit hurtle.
It is alleged that the Obama Administration is “tech savvy.” I don’t consider 1.5 megabits tech savvy, do you? Will they? You need to tell them!
Rusin’s Lobotomy, Part 4
March 27, 2009
Just a few facts to support my logic:
- Fujitsu just announced an LTE wireless platform capable of delivering 120 megabits per second. It can go as high as 300 megabits at 20Mhz.
- Ericsson just announced a VDSL2 platform that boasts 500 megabits over twisted copper pairs using a vectorized noise cancelling technology.
- Charter Communications is delivering 60 megabits per second over DOCSIS 3.0 technology.
- Ethernet-over-copper a favorite of XO Communications delivering between 5 megabits up to 88 megabits per second.
- WiMax platforms delivering 180 megabits today, with greater expansion as the 700MHz licenses come on board for deployment
- An interesting satellite, WiMax and wi-fi model from CTC (St. Louis) and AlphaStar International to deliver 4G bandwidth speeds by low cost radios to anywhere in rural America. The satellites are a holdover from the Reagan Star Wars initiatives which are in place for back haul today.
Based upon the definitions above–and the hard facts–over 90% of America is under-served unless you have FIOS, DOCSIS 3.0 or an independent carrier fiber pipe serving a location. Once again, we are not under-served if we feel good about measuring bandwidth at 200 kilobits, dial-up, T1 speeds or slightly higher. Throwing money at anything less than 50 megabits (I prefer 100 megabits) is a waste of tax payer capital and not good for America, in my humble opinion.
Where do you stand? What do you believe when it comes to Broadband and bandwidth?
What’s good for America?
Rusin’s Lobotomy, Part 2
March 23, 2009
Here I go applying common sense again…yet another step closer to the lobotomy I talked about last week.
My brain tells me we can not give definition to the terms “un-served” or “under-served” until there is a definition of Broadband. Turn up the electricity–but isn’t it logical that you can’t define un-served and under-served until there is a quantifiable definition or goal of Broadband in my crazy way of thinking? Shouldn’t that definition come from: “What’s good for America?” first?
If you agree with me, I’d like to know, as it might cause me to cancel the lobotomy.
Presently, our feel-good definition of Broadband, as established under the great Chairman Martin’s FCC regime, is any connection with a speed greater than 200 kilobits per second. This definition gave Congress and the FCC feel-good statistics of those being served by Broadband penetration across the United States in excess of 80%. If this is the case, why the debate? Why the funding? Why have the Bell companies been pouring tens of billions of dollars into “closed network” local fiber optic deployments?
Now, let me really cloud things up by getting back to “What’s good for America?”…
Depending upon whose numbers you look at, in the global reality of broadband, deployment, and penetration rate – America is, like, 17th on the list. #1 and #2 world ranking Japan and South Korea average about 100 megabits to consumers and businesses. South Korea recently announced an initiative of having a
minimum standard of 1 gigabit in 5 years! Just south of one of the few remaining Communist bastions–North Korea is heading in with a goal to have 1 gigabit of bandwidth service.
So, what’s good for America? 2.5 megabits? 1.5 megabits? How low do we want our standards?
In my opinion, the minimum definition for Broadband should be at least 50 megabits– if not 100 megabits.
On Wednesday, I will explain why…
Question Coaching for Harry Homemaker, Enterprise CIOs, and Financiers
February 6, 2009
To sum up the last week and a half of network infrastructure discussion, I’d like to speak directly to Harry Homemaker, Enterprise CIOs and Financiers:
The next time telecom infrastructure comes up, just ask a few questions:
1. If the network is an IRU, who owns it?
2. If the network is an IRU, how many strands are left in the sheath? Will you, Mr. Carrier, be able to get to them if need be? Can you prove it? Can you post a bond?
3. If the network gets cut, who fixes it? Where are you in the queue?
4. What is your fiber count in the local network? When will you exhaust your fiber count due to add/drops, splices and db loss budgets? Do you have extra fiber strand when this occurs? Is your local metropolitan fiber point-to-point, or a ring?
5. When you say you are in hundreds of markets, does this mean you pass through it with a long haul network, or IRU? Or do you actually have an appreciable metropolitan footprint outside of the carrier hotel you pass through in each market?
6. Is your network open or closed to competition? If it’s closed, why? Competition is good isn’t it? What are my options?
7. How diverse is your network route? Can you show me your route compared to other carriers or options? I would not want all my traffic running on the same fiber sheath from multiple IRU’d or resale “carriers” thinking that it’s diverse, would I? We need at least two physically different carriers, don’t we?
8. How many buildings or residents do you pass, per route mile, that are within 1,000 feet of all your fiber routes? Metropolitan routes?
9. How many fiber route miles do you own, or is it an IRU? Are they oceanic? Long haul/ regional long haul? Metropolitan back bone? Access? Please break this out-a pie chart would be nice.
10. Do you consider a town, hamlet, or village a “market”? Isn’t wireless more appropriate in these settings with terrestrial fiber backhaul?
And one last comment for America: All carriers “infrastructure” are not created equal, caveat emptor. Do your homework.
Unless you have a fiber pipe in your building or home already, the next time the subject of telecom infrastructure comes up, make sure your politician understands what and where real telecom infrastructure is and where it is needed.
All communications infrastructure is local. That’s the focus.
Gomer Pyle: Part Deux
December 15, 2008
Page A18 of the December 11th issue of the Wall Street Journal, The headline read: “Political Favors at the FCC.” Sub heading: “Kevin Martin orders up another rigged spectrum auction.”
Surprise, surprise, surprise … yet another game of Beltway insiders and money-people playing do as I say, not as I do. We have a two tier society in America. The top tier is for the greedy Real Smart Guys (RSGs) and politicians with perceived power and money and the second tier, for us common folk. It is rare a top tier villain goes to prison, but us second tier folks, don’t jaywalk or you will end up in jail.
The Readers Digest version of the story is that FCC Chairman Martin (R) and the venture capital RSG John Doerr of Silicon Valley fame Kleiner Perkins, worked back channels to place terms on the spectrum auction whereby the spectrum in an auction would not be attractive to dominant carriers. The article mentions under the “conditions” placed on the spectrum at auction it would sell for $50 million. However, economists estimate the value to the federal government coffers of $3 billion without said conditions.
Kleiner started a company to pursue this spectrum auction called M2Z. As the articles states:
“M2Z and Mr. Doerr are essentially asking taxpayers to subsidize their attempt to start a new telephone company. Mr. Doerr will have profited from what amounts to a government subsidy via a rigged auction. And if the start-up fails, don’t be surprised if M2Z attempts to sell licenses that it has acquired for a song and reap a windfall.”
For those that want to point political fingers, I suggest you read the article. Both parties are just as guilty as they are in our credit crisis. And, by the way, a company called Frontline also funded by Kleiner Perkins and headed up by former FCC Chairman Reed Hundt(D) failed in a similar scheme this past January.
Now for my soapbox. There will be no outrage over this. There will be no criminal charges. Why? This is top tier money play of influence and power at the expense of the second tier of our society. This is about greed. It’s not about fairness, transparency and equal opportunity. It’s a classic “non-nod, wink-wink inside the corrupt beltway” event.
My advice to CLECs: stop lobbying Congress and the FCC — they don’t give a rat’s ass about what is best for America. Sure they will meet with you and your highly paid lawyers to act interested, but unless you are driving party politics by stature and cash, you are nothing. By the way, what may be good for America may also not be good for CLECs, for the record. But in my naïveté, I actually fantasize that our elected officials and their appointees like Chairman Martin can be objective and not deal in dishonest dealings or dollars.
My fellow CLECs, spend your beltway dollars on infrastructure to gain your independence from ILEC infrastructure (UNE’s, Special Access) and the FCC.
What do you have to say about it? Let Dave know. Email the Straight Shooter or add your comments below.
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