I’m Not Picking On Anyone…But…
November 12, 2009
I typically try to listen in to the quarterly calls of publicly traded carriers just to benchmark AFS and see what underlying trends are being identified. Since I was on a secret mission last week, I missed a few calls. When I miss the calls I get a copy of the call transcript, read it, and mark it up for internal distribution to our leadership team at AFS.
I missed the call last week.
Before I go further on an observation I made, let me tell you what we believe in at AFS: The Golden Rule. Business is business, and applying The Golden Rule suffices in most situations if all parties are objective. In addition, in competing for business, we don’t deal in dishonest dollars or unethical conduct. Winning business at any cost requiring an employee to trade off their moral beliefs, ethics or soul to gain a deal is business we would rather not have. Questionable conduct takes two parties–the buyer and the seller.
I want non-carriers reading this to also pay close attention to this blog and ask themselves, “how would I respond in this situation?”
To start, I want to quote exactly from the transcript for accuracy:
“Analyst: Just a question on the pricing environment, if you could give us a sense of how we’re positioned today in the NetCentric base specifically? Some of the [inaudible] some more aggressive pricing there as well as some updates this quarter in terms of benefits that we’re seeing from some of the content players in the market. The secondly, if you could just delve in to the lowest price guarantee a little bit more for us? I wanted to understand the mechanics of this and in particularly trying to get a sense of the extent to which you have some flexibility there to reject some of these lower prices on the basis of non-comparable networks and how that’s determined? That would be very helpful. Thanks so much.
Carrier: The NetCentric market is one in which we and other providers are selling a commodity based service. We offer the greatest amount of connectivity and capacity operating on a network on a non-oversubscribed and non-blocked basis. We have a standard pricing policy that prices services anywhere from $4 to $10 per megabyte depending on contract term and length. Occasionally we do offer special promotional programs either on a given period of time or in a given geographic region. We remain the lowest cost provider. We believe that our price at $6.33 for our install base is at about 50% of where the market is. In addition to that, our average new sale in the quarter at $4.82 we believe is less than 50% of the average price in the market. We have seen situations a couple of times in this most recent quarter where we have offered lower prices in response to discounts from others. We have a policy where if a customer shows us an invoice from another tier-1 network operator, some other network operator that is offering global connectivity, we will beat that price and we did that a couple of times in the quarter. We’ve actually seen a decline in the rate in which we’ve had to offer those very aggressive prices. If in fact, a customer provides us a price and it is not documented we will push back on them and request that they provide us documentation under a non-disclosure agreement because we have no intention of being in the business of negotiating against ourselves. Then finally, we are looking for networks that can provide the service so it really comes down to the locations in which the service is requested and the scope of the network. But, we remain the lowest cost provider and in fact, we have seen less competition as we’ve seen the number of companies that we actively compete with continue to decline.”
Here is what I can tell you about AFS: we quote a customer and we will use sales tools to accommodate the prospective customer on a price conversation. We can offer longer terms to lower a price, declining scale pricing, forward pricing or a larger NRR payment or combination thereof. We do not however, tell a customer to show us the written quote from a competitor under the guise of an “NDA.”. If we had any, and I mean any, sales person conduct such behavior, they would be fired immediately. It is my opinion that you compete on your merits, value, differentiation and network reliability strength and not act as a used car dealer.
Conversely, a prospective customer is just as guilty of such behavior for turning over what any common sense
person would consider proprietary information disclosed in good faith by a competitor to a competitor while giving a perception you are running a purchase decision/process allegedly on an equal playing field. Turning over such confidential information tilts the perceived level playing field unless the customer doing this is willing to turn over the Carrier response in return and continue to play the game of “pricing” chicken.
We have, on many occasions, given a prospective customer all sorts of pricing configurations. At a certain point, our sales people will say “no” and walk away. You would be surprised how many prospective customers come back months later when the competitive price was a bait and switch, the carrier never delivered on time and/or the network reliability of the connection was garbage. It is okay to say “no” to price shoppers. One would think with a massive network, that price alone is not your only value point or point of differentiation.
In my opinion, I find the conduct and policy in the above transcript unethical and not necessary.
No one needs dishonest business or a dishonest customer. No customer needs a dishonest carrier. What both parties need is a relationship not a transaction solely based on price.
Surprisingly enough, no analyst called Carrier out on such a practice during the call. I guess the almighty dollar trumps any ability to question such conduct by Wall Street analysts … why am I not surprised?
On the service proposition, what we are dealing with here is what is often referred to as a “commodity.” Calling IP services, in my opinion a “commodity” is a misnomer. Quite frankly, it’s a “commodity” based on price until it breaks or does not work. Last I knew, network reliability has yet to become a commodity. You get what you pay for in deregulated communications – and don’t forget this fact.
In summary, if this is how the game is played by some, I suggest competing carriers insert language on each and every quote that by a prospective customer accepting this quote certain confidentiality and disclosure rights are created and as such a violation may be subject to damages inclusive of consequential damages.
I just found the disclosure in the transcript telling and interesting.
I am not picking on this particular Carrier–I am sure a few others play the same game. To make it a matter of fact, in an upcoming blog I will share with you a multi-year process AFS just went through after discovering bid-rigging by a major carrier which was processed through the Department of Justice. Yes, a gazillion dollar carrier, in this case, caused AFS to lose a bid only to be flushed out in rigging the bid in compliance with the customer. More on this in a future blog.
In another future blog, I will share with you how the “consultant” game is played to rig the deal also and how in the case involving AFS, the gazillion dollar carrier ended up burnt in the end. Though we ended up with one of our largest customers churning, we came out on top. If you believe in karma, you will enjoy the blog.
I am not naive, but America has to start showing something else to the world about who we are beyond greed at any cost …
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.
Speed Matters
August 27, 2009
The Communications Workers of America (CWA) have just released a study called “Speed Matters” – I couldn’t agree more that speed matters, but I also disagree with the namby-pamby view of what the CWA believes broadband speed should be. The website for more information is www.speedmatters.org.
Before I go on to explain why the CWA recommending that an acceptable broadband speed is 10 megabits downstream and 1 megabit upstream is not in their long term best interests. But before I go there … a trip down memory lane.
While President of Frontier Communications back in the 1990’s, I had the opportunity to interface with Local CWA 1170 – “Up the Rebel!” Anyhow, for the most part, I had good dealings with these folks. On occasion, I would spend a day with one of the techs in the service van’s going around fixing customers problems. I always thought those moving office van jobs were the best in the company. You showed up early, received your assignments, and management was now in your rear view mirror.
Customers always enjoyed when you showed up because you were there to solve a problem or initiate a service. These grassroots services people were invaluable to the company, they knew where the proverbial bear would crap in the woods and were street warriors, of sorts. The biggest gripe the van nomads had was with arbitrary job assignments by management – which I happened to agree with the CWA. A van nomad would get his or her assignments for a day and by going down the list they could tell you out of six jobs, two will take all day – if anyone new, they would. But, management measured on how many jobs got done without considering complexity as many calls were repeat situations.
A lot of repeat situations were the result of not being allowed to do the job right in the first place in order to meet measures. So, you completed your 6 jobs, but you know at least two will be showing up again in a day or two — no one was measuring repeats outside of the nomads in the vans. The groans in the garages at 6:30 am when certain addresses would pop up … again and again.
This is a family blog, but some of the stories I could tell you that the van nomads experience are varied and wide — ranging from a topless women greeting a tech at the door to allowing hookers during February cold spells in Rochester to warm up for a while in the van (sorry, no hanky panky), to discovering service fraud by cross wiring blocks to the President (yours truly), riding shot gun with a super soaker pulling up on another working nomad crew and letting them have it on a hot summers day.
Anyhow, as I said I had a good relationship with the CWA and in leading the first local market competitive carrier in the United States back in 1994, the CWA was a great conduit for being competitive. Bob Flavin, President of 1170 back then would call me occasionally and whisper sweet nothings in my ear over the phone on certain competitor’s activities or a forthcoming pissed-off customer. Many times I was able to counter or diffuse certain situations as a result.
Bob and I didn’t need a contract to know what was in the best interest of the company and its customers – we trusted each other.
Back to the speed question. If you look at the release of information, here are the top and bottom rankings by state in America:
Fastest Internet Connections
Delaware (9.9 mbps)
Rhode Island (9.8 mbps)
New Jersey (8.9 mbps)
Massachusetts (8.6 mbps)
New York (8.4 mbps)
Slowest Internet Connections
Mississippi (3.7 mbps)
South Carolina (3.6 mbps)
Arkansas (3.1 mbps)
Idaho (2.6 mbps)
Alaska (2.3 mbps)
No offense to Delaware or Rhode Island, but Ted Turner owns land bigger than your states. I am surprised you don’t have higher speeds than this!
As I have advocated in previous posts that it would be in the interests of all Americans and the CWA to have a minimum threshold of 100 megabits now and 1 gigabit services to 80% of America within a decade. My opinion, any grants or loans from the government should be predicated on achieving these parameters plus reliability standards. When you combine speeds like this with reliability standards, the most cost effective platform is fiber optics. The 20% outside the 80% is mostly rural-rural – USF-like funded satellite, 4G or WiMax capabilities for access is my proposed solution. Let’s face it folks, 50 megabits to rural-rural areas can be a good goal, a fair goal – dial-up or no service is unacceptable. Global competitiveness requires we do not fall behind further by serving the lowest common denominator such as rural-rural (i.e., FTTB — Fiber-To-The-Barn) just like what has been done in our public school systems but everywhere.
Though this is my view and world statistics supports me, I have yet to get invited to the White House for lunch to discuss my opinions on 100 megabits or the dumbing down of our public education system to serve the lowest common denominator of student.
The telephone companies are on the way to becoming “integrated telemedia” (copyright Dave Rusin) companies with one huge advantage at the moment – an in place network infrastructure wire line and wireless. However, to achieve long term cost advantage, the CWA should push for fiber connectivity while avoiding copper creep bandwidth limits to enable others to succeed. Its pure arbitrage and a fools bet in my opinion, to milk the copper under today’s regulatory environment. If you can’t get forbearance on the copper, either sell the copper to an unsuspecting third party or rip it out and replace it with fiber as soon as possible. Think about it, if some CLECs whine inside the beltway for copper access, see how fast they will line up to buy the frame and copper loops from the ILEC and its regulatory conditions – I think the hypocrisy will show itself. Let the CLEC own the facility and the van rolls … . If you don’t believe me, go ask an RLEC … I am sure they would rather pay regulated rates for copper facility use to a CLEC that thinks it’s a great money maker… van rolls are even more costly in rural areas.
Assuming Japan, South Korea, Australia, Tasmania, those crazy Portuguese and others stand still with bandwidth rates they are delivering today, at our current rate it would take America 15 years to catch-up – assuming they stand still!
I encourage the CWA to lobby for 100 megabits and reliability first, and then the dialogue on how to incent investments private and/or public can begin in earnest. In the interim, encourage ILEC management to offer up copper loops for out right sale to CLECs fighting forbearance – just sell them as is where is and subject to regulations – hell, the ILEC can be a CLECs customer on those loops since the business model is so lucrative per the CLECs. Meanwhile, the CWA can get busy installing last mile fiber access and advancing America.
Up the Rebel!
Could this happen in America?
April 1, 2009
I just finished reading a hullabaloo from down under–Australia, of course–and I have never been so upset and startled.
Thank God we live in America, home of the free and brave, where stuff like this just doesn’t happen.
The Australian Competition and Consumer Commission (ACCC) has taken legal action against Telstra, the Australian equivalent of Ma Bell, a.ka. the ILEC. Allegedly, Telstra has not been playing well with others:
- Telstra has been accused of “misleading and deceptive conduct” by posting incorrect notices for competitors on their wholesale web pages. (Unheard of in America!)
- Competitors of Telstra claim that Telstra can’t be trusted to operate a national broadband network, and there is a need for structural separation to stop the “monopolistic” behavior. (OFCOM in the UK forced British Telecom into structural separation – don’t the Aussie and Brit accents sound remarkably close?)
- Telstra’s competitors have been complaining for years (yes, years) that Telstra has delayed roll outs of competitive networks by hindering access to telephone exchanges. Telstra claims they have no room for competitor’s equipment. (Imagine that … no room at the Inn … Telstra, take a play from America – it’s called “virtual collocation.” Sure it’s a rip-off for competitors, but our regulators bought it. Alternatively, as a bargaining chip, develop a process that takes 6 months for a competitor to gain wire center entry to collocate, and once they are in, make sure they must interconnect with Telstra directly for a “fee” before they can cross-connect with another carrier in the same location three feet away – built-in cash flow!!!)
- The ACCC has also accused Telstra of not providing access to copper wire for competitors in seven key exchanges. (Telstra – are you dumb or what? You have copper which is probably 100 years old, has been paid for five times over by rate payers, copper by physics is incapable (unreliable) of competing with fiber optics and 700 MHz WiMax and you are not leasing this stuff out? Think about it, your competition is funding you for inferior, unreliable access assets, whereby you can take the cash and invest it where the competitors don’t want to – last mile fiber optics. And think about this, every time there is a problem on that copper, your competitor gets the black eye from the customer, not you! Brilliant. Simply brilliant).
Boy, we should be grateful ever since the Communications Act of 1996, some 13-years later, we don’t have these problems! God Bless America!
Dear Government: It’s Time To Use The Battering Ram On The RLEC Drawbridges.
February 12, 2009
It is not an industry secret that the small RLECs are little cash machines, whereby local Kings and Queens have created fiefdoms off of your government dole for years. I think it would be a pleasant surprise within rural settings if these networks were opened to others. I submit that the Rural Local Exchange Carriers, or RLECs, should be required to open their networks to competitors
Technology has solved a lot of problems over the past 100 years, despite what the lobbyists are telling you and your representatives. The 700Mhz spectrum alone makes all the rural sense in the world to deploy within a RLECs footprint for all services–competitively
I favor funding rural regional fiber connectivity, but not the local last-mile RLECs. Get fiber to these rural locations. Competition will follow, especially via wireless
For a moment, however, please allow me to get back on my soapbox and suggest that before issuing funds, you, the government, need to recognize the difference between a carrier that leases circuits, and one who bought an IRU–whereby they do not own physical fiber optic network or route miles of fiber sheaths. We need to be cautious that an IRU, or asset-light wielding carrier, does not get funds to overbuild on top of an existing open access provider per my definition of open access in my initial letter to you, the government—which, by the way, I have not yet received a response–.
Dear Government: Invest with Those Who Have Proven They Will Use The Money Wisely
February 10, 2009
Now is not the time for an inexperienced start-up to be funded by you, the government. Nor is it the time for a construction firm to take a flier with free money, even though the Congressman may be related to the owner
Instead, it’s important to fund small and existing owners of fiber optic infrastructure
As we have learned from the past, the inexperienced can get irrational in thought, in network design and in fiber cable placement. The players that operate fiber optic networks today–especially those who have not gone bankrupt–know how to deploy and place the fiber, which would give the government more bang for the buck. Any carrier under $500 mm in revenues should not be eligible for funds. You, the government, should desire to create a locust of fiber infrastructure deployments, not just large carriers cherry picking. Robust, local deployments will drive local job creation faster and more efficiently than major carriers hiring a national construction project management firm at an add-on cost of 30% to deploy the same fiber
You, the government, should prioritize the funds to established companies deploying fiber optic infrastructure. Logic says the fiber must be installed before knowledge-jobs can be created around more high-tech boxes and software applications. Once gear and software applications can be attached to installed fiber, then more jobs get created. Until then, it makes no sense to push technology or enhanced services
Will you, the Government, listen…or will you put our tax dollars in the cart before the horse?
Time, Money, and Program Managers as Dumb as a Bag of Rocks
January 16, 2009
History just keeps repeating itself…
I just finished reading an article titled: “Upgrade or else” by Ed Gubbins at TelephonyOnline.com. The sum and substance of the article are alleged practices by the ILECs to force customers to upgrade from certain services through altering speed, “shoddy service” or, believe it or not, late delivery.
How can they get away with this? It is really simple – there is a concentration of market power and wealth – that allows this to occur. Three “modes” of platform technologies – cable, wire line, and wireless – do not bring choice and robust competition. The Telephony Online article just touches the surface of what I have called “non-price behaviors” by ILECs since 1996. These behaviors are not unknown to the FCC or Public Service Commissions, and by and large, remain ignored as “soft complaints.”
When you are a non-ILEC and don’t have a 100+ year head-start along with protection as a monopoly, non-price behaviors of the ILEC are used to delay or destroy competition by sucking up two finite resources any viable competitor has — time and cash. I allege it is purposely done.
Let me share with you two real life examples of how the game is played by the ILEC to stymie, delay and burn-up the cash and time of alternative competitive business models. Once again, I have changed the names to protect the innocent and the idiots.
Example 1: Leasing ILEC duct.
Upon written request, the ILEC must–by law–make available for lease any excess duct to competitors at tariff published rates. Sounds simple. Sounds fair. Doesn’t it? Here is the game: you fill out the paperwork for a duct search, say, on Maple Street. You may have to pay a fee to apply – as high as $700.00 which is an off-tariff charge. The typical ILEC, after 100 years in business, has very limited CAD-related records on where there ducts are or their availability…so they claim. Once you fill out the form, the ILEC has 90 days to get back to you about the availability.
Yes, they get back to you on day 89.
On that day, depending upon the opinion of the ILEC, they will inform you that they “believe” the duct is available, but you will need to pay an off-tariff charge for the ILEC union worker to go out and conduct a physical search. Can you say 90 more days? If you agree to another three months, and agree to pay even more cash, you may be charged anywhere between $75 – $300 per manhole for the ILEC union worker to look and document what they should have been doing for the past 100 years.
At the end of the physical search, the ILEC may have just discovered, based on their interpretation, that they have no duct available. However, they may know a duct is available on a street one block over but fail to tell you unless you fill out the form and start again. There’s another 180 days and more cash lost. Also, an ILEC trick is to say that the duct is in use – they place a fiber cable in the duct that is not being used but report it as “occupied.”
Next time you see me in person, remind me to tell you how AFS beat the ILEC at this game.
What does it cost per mile to trench or bore if the ILEC ducts are “occupied” — $100,000 to $300,00 per mile depending upon all sorts of factors plus the time.
Nice.
Example 2: Wholesale service bonding and renting.
Several competitors went before a Public Service Commission (PSC) to complain about the lack of responsivness the ILEC has offered in wholesale matters such as provisioning, on-time delivery and–believe it or not–service reliability. The PSC listened and called a hearing. At the hearing, a senior executive of the ILEC proposed a “solution” to the “perceived problem” of lack of urgency and accountability as alleged.
It was then proposed that the ILEC would dedicate a Program Manager directly to each wholesale customer as their single point of contact, providing accountability to the wholesale buyer and the ILEC. The PSC applauded, tears flowed and singing broke out across the heavens.
Right.
In reality what happened was that each wholesale customer did, in fact, get a full time, dedicated Program Manager as promised. The ILEC chose the nicest people one could find but they turned out to be as dumb as a bag of rocks and couldn’t get anything done if they tried. This non-price behavior just added another layer of delay, cost and time loss.
These two examples are reason enough why AFS stopped spending money on fancy lawyers to lobby the FCC or Congress a long time ago. Instead, we put our cash to work on an immunization program from the regulators and the ILECs – we own and operate our own unique metro fiber rings and the laterals into the buildings we serve. We are not big advocates of ILEC Type 2 and all the price and non-price behaviors that accompany it.
If anyone reading this has similar experiences, please chime in. Our regulators are in the pockets of the largesse.
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