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!!
Have a Coke and a Smile…
June 11, 2009
I ran across an interesting article while traveling recently. It has to do with service firms that operate based upon retainers or billable hours. In my world, I affectionately refer to such arrangements as the Vortex*.
What I read is not new to us smaller firms…but a giant company has taken the lead to compensate service suppliers based on results instead of retainers and billable hours.
The Coca-Cola Company has implemented a “value-based” compensation system for their advertisers that handle over 400 brands. Coke is no longer just paying for hours “worked”–Coke will pay for results achieved. Imagine that!
Let me digress for a moment…the reason I put “worked” in quotations is based upon experiences we have had with law firms. In one particular situation, given the time frame of certain events compared to the bill we received from one particular regulatory Law Firm, I ran some numbers. Based on there submission, every attorney in this firm would have to have worked on our project well over 60 hours each … let’s just say once we shared the math (read: logic) with them, the bill dropped by 60%. I am sure this was a remote incident, an “error”, a “miscommunication”… After all, lawyers are sworn Officers of the Court and of the highest integrity and ethics.
Back on point – Coca-Cola. Under the new “value-based” model, Coke will cover agencies’ actual costs, plus a bonus up to 30%. The bonus depends on a set of metrics which include sales and market share results. Procter & Gamble has also moved to value-based compensation over hourly fees with a focus on profits results. Coke and P&G believe this is the direction service-based businesses are heading.
This trend is also starting to show up in accounting, consulting and law firms – driven by clients.
Hey, God knows there are more than enough lawyers, accountants and consultants out there – just find the firms willing to work based upon results. We (AFS) have done this in several instances. You just need to have the capacity to say “no” to the legacy hourly billing model. The general idea to me is that service firms do not sell time, they sell ideas, and should be compensated for being the best for having those ideas tied to results. Your business should not be some type of economic, creative or legal experiment where you take all the risk.
We are in a results based world economy.
I wonder if Government Motors will seek value-based contracts going forward … somehow, I doubt it.
Imagine if elected officials were only paid upon results – like GDP growth, currency value, global market share, Return on Tax Dollar spent (i.e. Social Services, Healthcare, Social security), crime data, etc. … I am getting crazy now!
If you have any thoughts on this or experiences – please feel free to comment.
*Vortex: When 2 or more competing lawyers on billable hour compensation argue over insignificant points in a contract, deal, litigation matter, etc. The more they argue with each other, the more billable hours they create for themselves –the billable circulating Vortex just gets bigger and bigger. A Vortex is a continuous circle that just sucks your cash into it with no end in sight.
Stay out of the Vortex!
Whistle While You Work
May 26, 2009
Inside and outside Telecommunications, opportunity abounds!
Much to my surprise and delight, amidst the “stimulus recovery”, money floating around vis-à-vis the American Recovery and Reinvestment Act of 2009 (ARRA), our government has taken action to combat potential fraud!
Without sounding like a Sham-wow commercial, but if you are around or near any of this money, you could be a big winner. All you have to do is pucker up your lips and … whistle. (You thought I was going to say kiss some ass didn’t you?)
The Feds have issued, as a rule, broader (better) definitions of what constitutes fraud by those using stimulus funds. More importantly, especially if you are in the employ of a firm using said stimulus funds, even greater personal protections are afforded to the employee if you decide to blow that whistle.
Now, I’m not saying there are dishonest operators in America. I pretty much maintain that the ethics and integrity of most businesses and institutions are as good, if not better, than those found inside the Beltway. With over $700 billion in stimulus floating around, I am sure a few shekels may be “innocently” misplaced or used inappropriately. Mistakes happen, if you will…sort of like Presidential appointees or Congressional officials mistakenly not paying income taxes.
These new rules come from the Federal Acquisition Regulation (“FAR”) Counsel as the Enhanced Whistleblower Protections (FAR Case 2009-012). Just a few highlights:
The rules apply to all “Non-Federal employers” who receive grants or contracts, stimulus funds (“employers”), including state and local governments and public or private contractors and their subcontractors.
Employers cannot fire, demote or otherwise discriminate against an employee “as a reprisal for disclosing covered information.”
“Covered information” is any one of five offenses:
- Gross Mismanagement
- Gross Waste of Covered funds
- A substantial and specific danger to public health or safety
- An abuse of authority
- Violation of law, rule or regulation
- The Whistle Blower only needs to have “reasonable belief” that some hanky-panky is going on with the funds or use of funds
The covered rights cannot be waived by condition of employment, including pre-dispute arbitration agreements; unless it’s already included in a collective bargaining agreement.
The Kicker: Employers must post notices of these procedures, rights and remedies. So keep an eye on those bulletin boards!
Now, I put on my reality hat. I can only imagine the hell anyone will go through if he or she whistles and not necessarily the hell just from the employer. I am sure our Department of Justice will be most aggressive in pursuing such fraud on a “fast track” such as they do on qui tam complaints. (Cynicism)
So what am I saying? It’s good the Government wants to abate fraud, but expect years of your time to go by before anything, if anything, substantive happens. Whistle Blowers do receive some type of reward as a percent of the alleged fraud, so if I were a Whistle Blower, I wouldn’t spend the money until you have it!
Sorry Level 3–You’re Damned if You Do…and Damned if You Don’t…(Part 2)
February 19, 2009
After explaining the response to Level 3’s recent financial reports, Dave expressed his sympathy in the previous post, “Sorry, Level 3—You’re Damned If You Do…and Damned If You Don’t…” Here’s some more on the topic:
Level 3 CEO, Jim Crowe is either lucky, psychic, or both. Way back, when Level 3 was formed, Crowe intentionally loaded up on all the possible debt he could find to fund his business plan. It was in the multiples of billions of dollars. As a result of this strategy, Level 3 never ran out of cash during the Telecom meltdown of 2001-03.
Well, the “hindsight analysts”, didn’t like this notion and highly criticized Level 3 over the years for having too high a debt load. As a result, they ended up beating the stock down pretty good to show their disdain.
Yet, it appears that having all that cash proved to be a good thing, didn’t it? Jim Crowe appeared to be right. And in their mighty logic, Wall Street then punished him for it.
Sorry Level 3–You’re Damned if you do…and damned if you don’t…
Now some of the more foolhardy have a difficult time understanding the capital expense requirements of real Telecom companies. These are the same folks who are
drinking the Kool-Aid being handed out by “light-asset” telecom companies (read: those that own little to no fiber optic infrastructure or pass off two-strand IRU’s as “fiber route miles.”)
Here’s the cold, hard truth: Level 3 is absolutely making the right call.
Their intent to cut capital spending in order to drive faster to free cash flow positive status is being done so that they can readily finance their 2010 debt obligations.
Really think about it for a minute–if you were CEO of Level 3, would you do it any differently?
If any genius out there sees a different way to play this out, I am all Obama…I mean all ears.
So, here’s the moral of this whole story: Wall Street moves as a herd of cattle or group of lemmings over a cliff (you choose). Don’t rely on Wall Street to differentiate real players from the pretenders.
Think you can handle the truth? Here it is. The value of a company will go up as all boats rise in the eyes of Wall Street.
Trading at 4x EBITDA today? Well, just run a tight ship, then sit back and patiently wait until EBITDA ratio’s are in fashion again. Then, you will suddenly be the Golden Boys of Wall Street. Brilliant!
When the herd moves, all boats rise or fall. It’s no more sophisticated than that.
I am confidant that, in our little niche, eventually the underlying organic demand for bandwidth will separate the real players from those who can’t get in the game.
But in the eyes of Wall Street, I am certain of one thing: we’ll be damned if we do and damned if we don’t…
Sorry Level 3–You’re Damned if You Do…and Damned if You Don’t…
February 17, 2009
Or: An Insider’s Guide to the Constant Bait and Switch With Wall Street.
In my past 10 years as CEO of AFS (as well as in my past lives), I have become all too familiar with the continual dance with the boys on Wall Street to obtain the best valuation for our company. It goes something like this…
We meet with The Real Smart Guys on Wall Street, who proclaim, “Well, you have a pretty good company, but it’s not worth what you think it is today. However, once you get funded your value will go up… “
Once you have your funding, you’ll hear, “Well, I guess that’s good news, but once you have gross margins above X, your value will go up…”
Hit that and you’ll hear, ”Once you have a consistent recurring revenue stream…once you are operating cash flow…once you are EBITDA positive…once your EBITDA margins out perform others…once you hit nirvana of achieiving Free Cash Flow Positive (“FCF+”) and net income positive…and so on and so on…”
It’s always the next thing that will drive value.
I bring this up because Level 3 reported results a few days ago. And The Big Wig Analysts, in their infinite wisdom, are trickling out their criticisms of Level 3.
You see, Level 3 explained that they are cutting back on capital expenditures in order to achieve a positive, sustainable free cash flow positive (“FCF+”) position. The rationale is both reasonable and fundamentally sound: by cutting their capital expenses, their cash flows will increase.
This is something our friends on Wall Street have been asking of Level 3 for years—Focus on Free Cash Flow Positive, baby.
So everyone is happy right? Wrong.
Instead, Level 3 heard catcalls from the very same folks pushing them to focus on Free Cash Flow. Here’s the gist of their criticisms: “Hey Level 3–what are doing making an effort to achieve FCF+ by cutting capital expense? This is just going to slow your top line growth and end up squandering the long term advantage you’ve reaped by always investing in capital!”
I am not making this up.
The truth is, if you are a real Telecommunications company with hard assets, it is capital that drives nice margins, market sustainability, and competitive advantage. Capital has been the growth differentiator in telecom since the beginning of time.
So what is Level 3 to do? Focus on Achieving Free Cash Flow in this economy or focus on sustaining their long term advantage by maintaining leaving Cap Ex alone?
Well according to Wall Street, both are wrong answers.
Sorry, Level 3, It appears you are Damned if you do, damned if you don’t.
I’ll have more to say on this in my next post….
Open Source Solution to Amway TEM?
December 19, 2008
I recently received an email question about the skepticism and resistance to Telecom Expense Management (TEM) services, especially software solutions. A reader wrote:
I’m writing to get your input on why TEM (Telecom Expense Management) companies seem, to me any way, to have sort of a “Multi-Level Marketing” feel to them. The reason I ask is that we are a small management consulting firm that specializes in business development, sales, marketing and profitability consulting for the A/E/C industry. We have one client with 2,500+ wireless units who we matched up with some friends, (former co-workers…many moons ago) who have their own wireless consulting company that have written their own rate plan optimization program for Sprint/Nextel. (They are former Sprint/Nextel execs.) Anyway, they saved our client $326,000 in 12 months so now we both look like heroes.
Being a big believer in networking and since part of what we do is help our clients increase profitability, we have recommended these guys to other companies in our industry but seem to get ‘pushback’ as if I was trying to get the to join Amway or something. (Apologies if you are an Amway rep)
Telecom Expense Management or TEM can mean a lot of different things to different people. Depending upon the size of an enterprise, a TEM process can range from simple spreadsheet tools to a software platform to an outsourced provider. Some stats I have seen claim that 20% of most telecom bills to enterprises have errors. Given that no billing standards exist, short of ILEC bonding, the TEM industry is highly fragmented – lots of custom software. Software is my life’s nemesis. I often get asked after 20+ years in and around telecom network software applications, why I started AFS. My answer was simple: once you install the fiber optic sheath, add the laser and shoot the OTDR — it works or it does not. No mystery bugs, crashes or patches. Believe me when I say software is hell on earth, I am talking first hand experience. I could go on about this … I am so tempted.
Anyhow, the Amway-like pushback you might be getting has more to do with the human condition than anything else. What I mean by this is any individual in an enterprise dealing with telecom expenses, especially if he or she has grown an in-house solution, will be on the defensive. The economy is slowing, and someone or something better and/or more efficient is a viable threat to a fiefdom. Perhaps there is a need to go higher – like to the CFO – if the referral has been to whoever may be threatened. The savings you cite are impressive and a good testimonial — I would ask the customer who saved this money to be proactive in assisting with the marketing.
The problem you are facing is there are a lot of scammers out there when it comes to software solutions, given the low barrier to entry. Everyone is an expert, and given the fragmented aspects of the segment, no one looks different.
My suggestion, if you want to knock the socks off the TEM world, is have your former co-workers contact the Open Source Community and make its software available as an Open Source TEM platform. Literally over night, thousands of software types will add extensions, bolt-ons, etc., in driving a technical consolidation of a fragmented industry. (Boy, did I just make some enemies).
In the long run, the need for TEM solutions will wane as flat rate services over big IP pipes take hold, thus eliminating the aspects of complex usage billing. As this happens, a device and IP address inventory system will become more important than an integrated TEM software platform. Full disclosure…I am a local fiber bigot.
Go Open Source – change the telecom world!
What are your issues and comments regarding Telecom Expense Management? Shoot Dave an email or post your thoughts below.
Opportunity Abound for XO Despite NOL’s
September 16, 2008
I recently received the following comment in response to What Frontier Means on a Resume:
The viability for PAETEC will be integrating the McLeodUSA fiber into the PAETEC environment.
I have been challenging tax assessments on this industry specifically focusing on CLEC’s and IXC’s back to 2000. Because of the NOL’s, property tax was a major part of the CLEC operating expense. A CLEC without fiber going forward will soon see the end. I am sure if the credit markets would allow and the PAETEC stock price would rise, Arunas would be after more fiber…possibly XO.
XO is next. Question is who is the buyer.
Thanks Brian.
I believe if anything reasonable were in M&A play, XO is in a better position to go on an acquisition spree. Mr. Icahn recently cleaned up their balance sheet and they are now debt light. The owners of metro fiber like an XO can benefit by adding customers and applications to their local fiber infrastructure at a reasonable valuation. The net effect of doing this is the acquired customers’ margin contribution to the fiber-based entity can increase as much as an incremental 40%.
The converse, an asset-light company buying a metro fiber based company with its customers, is a different animal altogether. The same 40% in margin increase can be had by the acquirer as it comes with the fiber platform, however, the valuation profile of such a local fiber-based company will be much higher than an asset-light company. The thinking behind such a scenario isn’t as much about the local the cost of acquiring the metro fiber business but the value of its metro fiber; it quickly becomes a valuation of “what does it cost me if I don’t have access to the metro fiber M&A play and get locked out by a competitor?” It is not an industry secret that there is a shortage of metro fiber and having to build it if you can’t buy it is a costly proposition. It costs 60% more today for the same metro fiber build than what it cost to build 5 short years ago.
In an acquisition or merger, NOL’s get fractionalized to such an extent by the IRS, they are of marginal value. Whether you agree with Mr. Icahn or not, he restructured XO in such a manner within his holdings that he can take advantage of the lion’s share of XO’s NOL’s.
Shoot me an email or add a comment below.
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