So here we are in Oz. A gentleman by the name of Tom Tauke from Verizon is all over the news with the proclamation that the Wicked “Network Neutrality” Witch is dead, and that the Verizon and Google proposal on net neutrality “…would allow President Obama to meet a promise he made on the campaign trail.”  He adds, “It fulfills the president’s campaign promise of non-discrimination and transparency on the Internet.”

I have so many directions to go with this one, I’m not even sure where to start.  (Don’t worry Jules–I’ll get to you my little pretty…just hang on–)

First thing:  Since when are publicly traded companies (and their share owners) in the business of making campaign promise dreams come true?  Also, are Verizon and Google share owners 100% aligned on supporting a campaign promise of any politician?

On campaign promises:  There isn’t a politician that promises the sun, moon and stars when they are running for office. Lots of promises get made. I am not a member of any political party so I won’t pick on all the promises Candidate Obama made during the campaign but I will leave it at this–the blaming-George-W. days are over.

On this new Verizon-Google (VG) network neutrality proposal:  I have not read it, but I can tell you we don’t need it. Okay I lied…I peaked at it.  It’s a vein attempt at volume level pricing. But the facts are, and Congress–listen carefully here, the issue with “access” is at the peering points, not with the “pipe owners.”  Peering point providers are an oligopoly and points-of-traffic flow, balance and control are managed by the oligopoly. This is where Jules should be looking as VG protects their distributed computing architectures and billions in sunken costs with their proposal versus the big pink elephant in the room,  Internet peering points.  Jules, bring a draft law to President Obama around peering points for submission to Congress.  You may want to hurry up–the flying monkeys are leaving the Castle.

But I really wonder if Jules can do something even if he wanted to do anything. Why, you may ask?

As we all know, we have this thing which lately has been ignored. It’s called the Constitution of the United States of America. I think it has been around for a while.  It’s that document with the big signature from that guy that is in the insurance business, John Hancock. (You can tell by now the quality of my public education!)

Anyhow, when Johnny H. and his friends signed this Constitution they came up with this stupid idea that only Congress can enact laws of the land and that the Executive branch, once signed into Law at the Kremlin White House, is responsible for various departments (aka bureaucrats) to administer the rule of law.  My BFF Jules has gone down several paths recently in making up new laws (such as the now defunct option 3) acting as a one person, one vote, Congress himself.  Jules–I am pleased you have backed off this.  It would have gotten ugly again for the FCC and, dare I say, eventually another loss against the ILECs in a court of law.  Sort of like that Comcast thing a while back.  Jules–I hope you consider me a friend in advising you earlier not to pursue option 3.

All this said, how is the VG network neutrality “proposal” going to make it into “law?”  After all, I make proposals all the time in this blog and no one makes them into law.   I think I have had some pretty good ideas, albeit not politically correct or expedient. But then again, I am not on the campaign trail writing checks with my mouth that my @$$ can’t cash. Some of our politicians should start a business with nothing–like I did.  One quickly learns, by way of your investors, about writing checks with your mouth that.

So far, and to President Obama’s credit, he has pretty much neutered Congress like a stray cat caught by the ASPCA. Congress can hiss all they want, but pro-creating…not so fast anymore.

You see, they have these people in the Executive Branch called Czars.   In my opinion, these Czars are nothing more than replication in the Executive branch of committees (and the like) that make up Congress. The big thing our man from Chicago has done a thorough job on is shifting the power from Congress to the Czars.  And, from a political point of view, it is brilliant.

You see, power inside the beltway is all about who spends the money (or debt). Keep in mind–it is taxpayer money from us worker bees which they seem to forget inside the beltway.  Maybe a few bee stings are coming this November.

Anyhow, the Congress has been used to approve all sorts of spending bills “campaign promises,” and get this–the Czars in the Executive Branch choose how, and to whom, to spend it.  Something tells me Johnny H. and the Boys back then were sort of trying to get away from things like Kings, Monarchs, Czars and the like.  Call me crazy.  In my short life span, I always thought all appropriations were clearly made through Congress and that only Congress could pass laws. That public education I received sure didn’t teach me a lot about history.

What is going to be interesting to watch is how VG is going to attempt to get their “proposal” in place without Congress.  I think Jules is a pretty smart guy and has the lay of the land.  It is clearly not a Czar issue or an Executive Order issue.  Watching how VG (especially the V) finesse this going forward is going to be fascinating.  It’s also interesting how, a few months back, the G was anti-ILEC on net neutrality, but recently had a change of heart.  Sorta like changing Frankenstein’s heart.  A used heart, but a replacement never the less. (This epiphany in change of heart came about once G figured out what they thought G wanted in network neutrality would hurt their search business.  I wrote a previous blog about this–I think G is in some anti-trust situation over in Europe for monopolizing equal access, open access “search.”)

I can’t see anyway but through Congress on this one.  And I am sure after the November mid-term elections that, come January, 2011 Congress will be chomping at the bit to keep another campaign promise by President Obama. I just feel it in my bone marrow.

Speaking of promises:  Hey G–how is that big one town or City fiber-to-the-home contest coming along?  No winner announced yet?  Or, are you playing off of FIOS now as positioning to go to Congress with some data in support of your proposal? Meanwhile, you played a bunch of people for fools using them to say to Congress “look at the outpouring for bandwidth we received?”

Come to think about it, I may have written a blog about this as well.  I think I used the term “useful idiots” for the applicants.

If today is the first time you have run across this blog, welcome.  No, you are not dreaming–it is, in fact, WYSIWYG.  And I do walk on water as well.  I’m happy to show you–just come up to Rochester, NY in February to see.

Now it’s time to go home.  Everyone, close your eyes, click your heals three times and then say “There is no place like home…there is no place like home…there is no place like home…”

Don’t get me wrong–once upon a time, I was Mr. “The Glass is 2/3 Full.” But a co-worker of mine, “Randy” was one of the most cynical persons I have ever known. We have known each other close to 30 years now and I have grown to value cynicism from my mentor.

I once heard George Will (he writes newspaper columns on politics and is on a Sunday political talk show) say (and I’m paraphrasing here): It’s good to be cynical. Because 80% of the time you are right and the other 20% of the time you are delighted with the results.

Today, it’s about Google and Europe.

Over the years I have learned to watch the “smart people” trying to outsmart one another. In some instances, the “smart person,” in a matter of time, self-destructs…you know–from being so smart and all. And sometimes the smart people outsmart themselves into failure. I think we call them the elitists.

Rewind to a few blogs back when I exalted the ignorance of Google in the United States pushing for network neutrality. I addressed why their smart idea of supporting net neutrality was not really a smart idea for Google. In and of itself, net neutrality is just the first war in a Federal government administration that wants to regulate (take over) everything in order to control and determine what is good for everyone. I even theorized that net neutrality was less of an issue than “search neutrality.”

Google was so deep into bed with FCC Chairman, Jules, on this issue a year ago, that I was worried about the possibility they might have a baby. (Come to think about it, the third rail – oh, I mean, the “third option”–perhaps is the illegitimately conceived child of the two?) Paternity tests anyone?

I believe I wrote about it a month or two ago–Google did a 180 turn on net neutrality and does not see a need for the levels of regulation it once thought. Having the market work things out relative to net neutrality was in the interests of Motherhood, Apple Pie and Chevrolet (the latter owned by our government). Wow, was I shocked seeing Google wrapping themselves in the American Flag and shouting like Mel Gibson in Braveheart … “Freedom!”

The China flag thing did not work out so well for Google, but if things keep trending the way they are in this country, Google just might have to dust off that Chinese Flag!

As you know, I am a pseudo-intellectual by my own admission (no one else’s admission, of course) and self-proclaimed fiber bigot. I stopped reading the Wall Street Journal and have embraced the more extensive capacity and challenge of the Financial Times (known as the “FT” for us intellectuals.) I’m global, sophisticated and have a penchant and thirst to learn even more about the superior economies and programs of countries outside of the United States that President Obama has embraced so graciously on your behalf. Not on my behalf, because I am an intellectual. You could not possibly understand what I and President Obama can extrapolate on such matters …

In reading the FT recently, you are not going to believe the pickle Google is in over in Europe. It’s like I am psychic or something!

The European commission out of Brussels (love their sprouts) has made allegations and an informal anti-trust inquiry over the bias of “Google Search.” At odds with the Commission, like Google’s argument before the 180 flip on net neutrality, is whether or not Google gives preferential treatment in search results to its own services! Imagine the “Don’t be evil” people doing such a thing!

Meanwhile, in Germany the governments “cartel office” is urging our friends inside the Beltway to investigate complaints made in Germany by various newspaper and magazine publishers to scrutinize Google USA. I figure if somehow there is tax money in it, our Federal government will pursue the allegations.

Has the horse left the barn on Google?

As Frank Pasquale, a professor at Seton Hall law school frames things: “After regulating the ’pipes’ of the internet with net neutrality, we need to look at the next part of the bottleneck, and that means search.”

Big Brother anyone?

I have no conclusion to offer you. This will be something to watch. But I do leave you with one thought: Did the smart people at Google outsmart themselves by getting involved in the net neutrality issue in the first place?

As I recently wrote in my “Third Rail” blog on the Julius’ “Third Option” for net neutrality – Jules will get hammered in the Courts or cut a deal behind closed doors with the big cable and Bell companies to save face on net neutrality with Ma Bell et al coming out on top.

You heard it here first…

PS: Jules, what is with the behind-closed-doors negotiations with the Bells and Cable Companies? Didn’t you say something about leading a transparent FCC?

So what do I read? A letter dated July 21st to the FCC; Re: In the Matter of Special Access for Price Cap Local Exchange Carriers WC Docket no. 05-25.

The following is an excerpt by image from the letter:

Any idea what the data rate of a DS1 is? At full duplex it’s 1.54 Mbps.

Any idea what the data rate of a DS 3 is? At full duplex it is 44.736 Mbps.

You don’t have to be a telecom genius to realize we are living in a gigabit world with table stakes starting at 100 Mbps. Within 5-years, perhaps 10 gigabits!  Silicon chip manufacturers have already announced 100 gigabit chips?

Jimmy–as much as I like your assets, what the hell are you doing? As I have pondered in my past blogs, you should want what America needs: the death of copper-based transport such as DS1 and DS3.  Continuing the insanity only puts more cash into the ILECs pockets? Step up, Level 3–take on “legacy special access” with your own superior offerings!  Asking for more FCC legacy porridge is not a good idea in my opinion  You have a great opportunity to squander away–don’t do it!

In the FCC letter second paragraph–I am not a lawyer (nor would I ever become one given my moral bearings), but why are you telling the FCC that the ILECs have some monopolistic hold on you?   First, with your assets, you should be keeping the ILEC CEO’s awake at night. Secondly, my friend,Chairman Julius of the FCC–what’s he going to do?   Nothing.  He has no enforcement capabilities.  Commercial contracts were decided years ago.

(Jim, between me and you, I think Jules has stopped reading my blog – he was coming along well for awhile, but then he fell off the wagon and onto this “third option” jargon that will be ruled dead by a court within a year or two.) Jules, come back to this blog–just follow the light…keep walking towards the light…

If what you say is true in paragraph 2 above, I would get over to the Department of Commerce and/or the Department of Justice. We allegedly have laws against monopolistic or market leverage dominance. What you should be looking for, if what you say is true, is facility separation placing special access and last mile components of the ILEC’s networks into a separate highly regulated entity where traditional regulatory rates-of-return apply. The ILECs could simply spin the separated assets out to shareholders as a separate company. I would think this would be a good thing for anyone that owns serious metropolitan fiber infrastructure. Imagine offering a 100 Mbps megabits to an enterprise at a regulated DS3 rate of 45 Mbps–you would have a competitive advantage and the fiber infrastructure asset-light CLECs living off of legacy special access and copper loops would beat a path to your door.

As you take away more of the special access and last mile highly regulated copper business, the costs get worse for the ILEC spin-off–not better. Of course, this assumes no one goes nuts competing on price but delivering more bang for the bandwidth buck. And think about this, eventually the highly regulated spun-out legacy company will ask the FCC for permission to build last mile fiber or die! And, like in the United Kingdom, it should be granted–but remain highly regulated, equal access, open access to all and with no volume contract designs.

I like the recent Level 3 focus on penetrating local metropolitan markets.  It’s leverage. But I think asking for more legacy ILEC product rights is not the correct strategy.  You should want what America needs: fiber optic access.

Assuming the mid-term elections are going to bring “change” to the Beltway, perhaps a window of opportunity is opening!

Go ahead, make some noise at the DOJ, Commerce and Congress.  Make it an early 2012 election issue. If I know lawyers like I know lawyers (and with which Congress is loaded) and if the 2010 elections becomes upsetting to both parties as I believe, you just might want to consider leading an effort to–once and for all–addressing America’s commercial/consumer dietary need for fiber in a compromise legislation breaking up Ma Bell further while declaring a bipartisan victory for all in America!   If Jim or maybe even Julius, were to lead this, either could end up on a box of Wheaties!  The first non-sports super heroes!

Let’s forget the fat kid fight for a fiber diet against fast food chains which is going on inside the beltway today.  Jim–you and Jules can lead the way!  Think about it!

To those that are new, read some of my past postings and you’ll see my Pro-America stance when it comes to making any decisions relative to US Telecommunications networks or Telecommunications Policy.

By my own admission, I am a fiber bigot and favor less–not more–regulation from the government in matters that concern telecommunications. I am not a “do as I say, not as I do” type of person.

Today, just for fun, I want to profile a company after reading a recent letter filed with the FCC by this company.

Can you guess who this company is?

• Owns over 54,000 intercity fiber route miles

• Owns over 27,000 metropolitan fiber route miles

• Has over 8,000 buildings “on-net”

• Has a presence in over 125 metropolitan markets.

• Over 100,000 enterprise “near net” buildings are less than 500 feet from their metropolitan fiber backbone (That’s about, on average a $5,000 lateral build per Enterprise

• Services over 300 Fortune 500 Companies

• Services thousands of mid-market enterprises

• Services 13 of the top 16 US-based cable companies

• Services 19 of the top 20 telecom carriers

• Services 5 of the top 5 wireless carriers – that’s close to 100% of the market in America.

• Services more than 35 Federal Agencies

• 90% of their business generates from the United States, 10% from Europe

Have you guessed?

Is it TW Telecom? Cogent? AboveNet? Global Crossing? Or, Level 3?

Answer: Level 3

Pretty impressive, you have to admit.  Especially 100,000 enterprises less than 500 feet from their back bone. Imagine 1000 feet? 1500 feet? At least at AFS, we have found stronger margins and double digit growth in Enterprise, more loyalty and less churn.

Now, the rub with Level 3 has always been their debt load.  But give credit where it is due–they manage their debt load well and creatively. Actually, the next big chunk of coming-due debt of significant relevance is $2.9 billion in 2014. If history is any indicator of past performance, this too shall be refinanced by the time it is due. So all you “Level 3 is going to get crushed by their debt” experts, I say more than likely not, just managed out into the future.

As I have written before, call CEO Jim Crowe whatever you want–mad genius, expert financier or just plain lucky–but Jim was smart enough to load up with debt on Day 1 of Level 3 launch which helped Level 3 avoid what 1200+ telecom companies did not avoid over the past ten years:  Bankruptcy.

That aside, personally, in my opinion, I like to refer to Jim as the “Bus Driver.”  This is the result of a few years back when Level 3 threw Sunit, their CFO, under the proverbial bus when integration after a wild M&A spree was not coming together quite well. I never liked this move given Sunit had saved Level 3’s butt on more than one occasion working his financial magic. In addition, I think after throwing him under the bus, it soon proved hard and difficult to find, hire and retain a new CFO given what had happened to Sunit even though there were well over 1200 CFO’s probably looking for work!

One would think, with that with the profile above, this company should be a crazy growth engine, even if focused upon the basic data, transport and IP. Their asset position is compelling and for all intent and purpose, the networks are sunken costs and we should be experiencing explosive growth and in my opinion, some fine whining from CLECs being crushed by Level 3.

Check in on Thursday for Part 2 of Dave’s “Stop the Dancing” post…

Those of you that read my highly intellectual and insightful writings will know that, on a number of occasions, I have encouraged the Federal government–and particularly the FCC–to let the market figure things out for themselves.  Eventually market equilibrium will be achieved.  Moreover, I have recommended on several occasions that the FCC  focus on Internet peering pretty much as an oligopoly.  And even I, your humble blogger of unknown distinction, have encouraged government peering points for public access over private peering points as a check and balance against the market.  We need less regulation.

My position has been that net neutrality is a Red Herring.  It’s peering that requires a closer look and see.

The AT&T announcement to me was not a surprise.  Tiered pricing is nothing more than a tool of capitalism used to manage demand when it exceeds supply.  In simple terms, AT&T is saying those that want to eat a lot should pay a lot.  However, there are folks out there (the net neutrality crowd) that believe that Customer A, who buys 12 oranges, and Customer B, who buys 2 oranges, should both have equal access to the oranges and pay the same, regardless of the quantity consumed.  If this were a real life situation, sub-markets in oranges would evolve for those that can get access or have other, perhaps criminal, ideas relative to using the net.

I don’t care if you sell cars, salty food snacks or telecom services–all are subject to business cycles, changes in technology (disruption) and Real Smart Guys (RSGs) investing in bad management, a bad idea and/or poor execution.

Microsoft is still in therapy over the advent of Google, a market driven event.

It’s not a striking imbalance between supply and demand today, as no one is yelling at us to deliver a gigabit to the towers.  The pundits must accept that moving along the demand curve from a supply perspective is capital intensive, takes time to deploy and that the more regulation two-step dancing that a carrier has to perform sucks capital away from deployment.  In addition, markets become attractive as they demonstrate profits.  If tiered data pricing results in greater profits, that will incent new entrants into the market seeking a share of those profits.

This is called creating competition and jobs.

As competition evolves, the supply imbalance will be addressed through evolution and arbitrage as it has for generations in telecom since Judge Green’s decision to break up the classic AT&T into RBOCs back in 1983.  This evolution will ultimately result in flat rate pricing as efficiencies are gained.  Voice cell phones are a perfect example…Vonage and Magic Jack as well.  Those competitors running with the bulls during this evolution phase will have hopefully learned from the past–you can’t stay in business if you price lower than your costs.  For the weak or stupid, they go bankrupt or get consolidated as distressed.  The cycle continues…

It will take some years to fully scale 4G, LTE or WiMax for efficiencies and inter-connectivity.  More regulations will not help this deployment.  Regulations that are certain and predictable will attract new entrants and new private capital, which creates jobs.  Today, all we have is uncertainty.

However, the fundamental issue, as I see it, is not around the Wizard-of-Oz-like network neutrality crowd–it’s about
the people behind the curtain.  And that is called peering, peering access and costs if you don’t peer directly and buy from a member of the peering oligopoly.

Any of my readers or the FCC can say I am full of bunk, but they need to consider something in the wireless world that is much different than the  wire line world (which requires physical facility peering.)  And that is–wireless has the ability through technology that exists today, to bypass government intrusion by way of proxy servers/networks or an invisible subnet akin to social networking.  It may not be secure, it may be more dangerous–but it can go undetected from the tax man…and in the end, we all know that is all the government is interested in–more money to spend.

As I said earlier, it is a function of time and normal discourse of business, whereby flat rate data plans will become the norm.  My opinion:  the vast majority of hype around the “imbalance” is purely the result of hundreds–if not thousands–of free downloadable “apps” to cell phones or other portable devices that are not only creating this spike in near term demand, but have also created an entire new world for virus and data security hackers.

Bottom line: leave the capitalist tools to manage demand alone.  Government should focus on clarity and certainty of regulation, take a look at the peering oligopoly and let mother market nature take its course.

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 …

A Tele-orgasm is the tingling sensation that Chris Matthews gets when he encounters a fiber bigot, such as myself, discussing copper loop removal from a building or residence.  Yes, the Tele-orgasm is the equivalent of Chris Matthews in awe of anything President Obama utters – that same identical tingling.

At the Goldman Sachs investor conference this week, Ivan “The Terrible FIOS” Seidenberg, CEO of Verizon pretty much stated that copper is just about dead as far as Verizon is concerned.  These comments were aimed at the shrinking loss of lines that analysts like to measure.  Joined by Randall “FTTP” Stephenson, CEO of AT&T and Ed “Wireless-less” Mueller, CEO of Qwest, all concurred that someday the landline loss would stop shrinking.

As aptly reported by conference attendee Saul Hansell of the New York Times, “In other words, that snipping sound you hear around copper phone lines is just going to get louder.”

Oh, that tingling sensation I get just thinking about it!

In the same article, Seidenberg declared, “Video is going to be the core product in the fixed-line business and the focus will move from selling bundles of video and landline to video and cell phones.”  He added: “Once I shed myself of the burden of chasing the inflection point in access lines and say ‘I don’t care about that anymore,’ I am actually liberated.”  Let’s here it for liberty and freedom – I am having a vision, perhaps Ivan can be caste in a remake of “Braveheart” as William Wallace – the Telecom version!

Since I have written about this before, let me translate this for Wall Street:  Measuring legacy copper lines is of declining value, possibly of no value at all.  It is not an indicator of anything anymore.  Ivan, Randy and Ed won’t say it, but I have before and will again — you need to measure ports installed and bandwidth deployed.  Mr. Wall Street – any idea how many simultaneous VOIP calls you can run over one port of Gigabit Ethernet?  You count that “port” today as a line… Think about it.  You really don’t know how much net line loss is going on with VOIP as a substitute for copper TDM lines, do you?

And I do know for a fact that many of you on Wall Street do read this blog but never comment.  That’s called voyeurism.

The other secret I’ll let out of the bag, though my buddy Ivan insinuated it, is this: They are not the telephone company anymore.  Wall Street-–you need to accept this and figure out what to measure accordingly.  The big “service push” that is evolving is data.  And I don’t mean data in the sense of point A to point B.

What I am talking about is the effort by my three new friends trying to figure out how to sell one data plan to customers that covers all their needs — fixed and mobile.  People don’t want to pay for separate, multiple data plans – a single “portable” data plan is of significant value to the customer.  Data – anytime, anyplace, on-demand regardless of access device is powerful.  The single point IP addressable data plan is the new Holy Grail in telecom.  A personal data plan or a shared corporate data plan —- but one data plan period – wire line (fiber) or wireless (LTE/4G/Wimax) is coming our way. So stop it with the copper line loss shenanigans.

However, before we get to data utopia, that copper needs to get snipped … and there goes that tingling sensation – another Tele-orgasm.

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.

The big media buzz of Verizon selling select rural wire line (copper) facilities to Frontier Communications over 14 states for $5.6 billion in Frontier stock is the latest indicator that a consolidation cycle is starting and credit markets thawing.  Though this deal won’t see Free Cash Flow positive for Frontier Communications for two years, it is the right strategic move for both companies.  For an RLEC transaction, the EBITDA multiple is very good.

Verizon is focusing on the higher growth population centers and gains from the divestment of rural facilities that no longer accommodate Verizon.  This also lessens any argument that Verizon is a menacing monopoly by way of this divestment.

Frontier Communications benefits from scale as they specialize in more rural areas to the extent they gain more proficiencies by integration.  Frontier Communications does not serve the most rural of rural locations, so don’t expect any effort to deliver broadband to the barn, Green Acres or Petticoat Junction.  It’s a great consolidating play for Frontier Communications, especially using stock as a currency, leaving the ability to lever debt off of EBITDA flows as a viable option/hedge.

Why is it back to the future for me?  Well, way back in the early 1990’s, I was the first President of Frontier Communications well before the Communications Act of 1996.  Once again, I will find myself holding Frontier stock as a result of this transaction since I hold Verizon stock.  I am more confident this time that my stock quality will sustain itself, as the last time I held Frontier stock, the bandits from Global Crossing bought Frontier Communications, and in very short order destroyed shareowner value, the wealth and pensions of thousands of people.  And no one went to prison.

I would like to share with you, my gracious readers, a funny story as an aside to this transaction (at least for me).  If you go back to the 1990’s, the really big thing back then was long distance carriers.  Hundreds, if not thousands of them existed.  In the mid-1990’s, a consolidating cycle amongst these carriers had commenced as there was an over supply of carriers (capacity) that drove long distance prices so low, that you either merged for cost synergy or went bankrupt.

During this time of long distance consolidation, I participated in the Frontier Corporation M&A meetings discussing various targets or strategies.  My invite was eventually lost in the mail.

If you have read the blog for sometime now, you know I don’t buy into the lemming model of business (move as a group to mitigate risk in the eyes of Wall Street…after all, if everyone is doing the same thing, it must be the right/safe thing to be doing.  And, Wall Street, of course, being the fee-based vultures they are, happily endorses such paradigms.) Myself, I prefer contrarian moves and innovation.

Back to the M&A meetings:  My first meeting, I went and listened.  After all I was the new guy from “outside” the phone company and I wanted to take in the ambience.  The second meeting, I raised my hand and made a suggestion.  That suggestion was not to focus on buying into the over-supply of long haul carriers which drove prices into the ground, but instead to focus on acquiring local operating companies that already own infrastructure who are a gateway to the multitudes of long distance operators. My simple mind theory on this approach was that once prices go down, they usually don’t go up – integration synergies will keep the price wars going as things consolidate.  I was told: “Dave that’s an interesting idea.” And the discussion continued on acquiring long haul carrier interests.

The third meeting I attended, I listened attentively again.  Once again, I suggested a contrarian focus on acquiring local operators, this time my logic was that it had been my experience that those whom are closest to the customer have a better relationship and competitive advantage over those that are more distant – like in long distance.  I was told: “Dave–that’s an interesting idea.” And the discussion continued on acquiring long haul carrier interests.

The fourth meeting…well there was no fourth meeting for me.  Somehow my name fell off the e-mail invitation list.  Several months later, Frontier merged (acquired) a major long distance carrier.

Today, as we know, long distance is near free with services such a Vonage, VOIP, Skype and MagicJack rapidly driving all-you-can-eat long distance services at flat rates across the globe.  Flat rate all-distance is not far behind.

Since waking up with Back to the Future, my biggest worry now is waking up in Ground Hog Day – just like the movie.  There is nothing brewing, but the Ground Hog irony of this adventure would be if Frontier Communications were ever to acquire American Fiber Systems because of our local presence, unique fiber assets, lucrative ARPU’s and our focus on being closest to the customer!

Talk about crazy!

I think we should look at un-served as regions without fiber facilities at all who rely on Directv, Echostar, Wildblue and the likes for service and under-served as regions with fiber assets run by the rural telecom monopolies.  The satellite dream has come a long way since the days of teledisc with Terrastar, ICO Global, MSV etc. deploying assets and spending billions in such an incestuous  financial manor knowing that they will go belly up before they can attain customers and a revenue stream so they can buy each others assets for pennies on the dollar that they may one day soon end up to be useful.   I agree that we, in the fiber business, have a responsibility to make sure that congress stay’s ahead of the technology curve and understands that government funds should ONLY be deployed to build out infrastructure to support a minimum of 50-100Mbps.  I like the idea of a National CTO or will it just be one more bureaucrat?

The MSO’s are so deeply rooted in the FCC that it makes it difficult to allow for competition when the origin and delivery of content is drastically shifting off their networks  and technologies from Fujitsu and Ericson must scare the hell out of them.   Hulu, YouTube, Mega Video, Nextflix and so many others are delivering content to viewers and taking away eye balls and advertising dollars by IPTV viewers on their own networks.   So what do the MSO’s do?  Rate limit your broadband and charge extra for transfer.  Makes me sick!!   They certainly have an interest to lobby against competition in the IP broadband space in their markets when improving their own broadband services inherently hurts the cable TV business more and more.    I say deliver 120 or 300 Mbps on an LTE wireless platform or bring me 500Mbps on a copper pair!   Everyone needs fiber.  I am going to love delivering that kind of traffic for those carriers to the exchanges on my fiber network and the traffic just grows and grows.

How many of our tax dollars have been wasted by building a two lane highway when the population demand required six lanes?   How do we get the message out? 2Mbps is not enough… I sometimes have 4 TV’s at the same time running internet movies or TV shows while me , my wife and the kids are checking email on lap tops all on the broadband internet connection.    Luckily, I have FIOS but what about most of America?  Rural Telecoms suck, Satellite spectrums won’t cut it and more competition is needed everywhere.

Todd

Dear Todd:

Thanks for posting.

What we have in America is primarily a broadband duopoly that is setting the pace, rate and change of “high-speed” access.  This was comfortably done through the Communications Act of 1996.  The biggest problem I had with the Act back then was not setting a sunset provision on the UNE components of the legislation.  So many type 2 pseudo competitors were created–mostly paper tigers.  Many went bankrupt.

What I mean by a sunset provision is simple clarity.  Clarity is what financial investors like to have, but seldom get from the government.

In my world, I would have regulated UNE-x and Special Access for 5-years to jump start competition.  After 5 years, I would have lifted regulations whereby the Bells can price-to market but are not allowed to deny last mile service or access. After 10 years, I would let the Bells do whatever they wanted to do with their copper.  This would have caused participants to behave differently and knowing that in 5-years the rental game is an open market game, there would have been more rational investment into fiber optic infrastructure.  We are living with the byproduct today of not having such provisions resulting in carriers recently telling the FCC that 1.5 megabits is broadband because the vast amount of CLECs are stuck on ILEC type 2 kit.

I was just reading in the Wall Street Journal today, that by February 2010 the FCC will shape a new broadband policy.  It will be interesting to watch as an all Democrat controlled administration tares into the duopoly while recognizing that they need to get something passed before the 2010 mid-term elections.  My suspicions, given the economy, spending and exposition of the deficits that the Republicans will probably gain control of the Senate as a result of the 2010 elections.

I tried working with the FCC once…once.  That was enough for me.  Reality, commonsense, experience and basic teleconomics do not enter the vortex known as the inside the Beltway.

Facilities competition — it does not happen over night and is extremely capital intensive.  That is the reality – monopoly franchises that had decades to dig in will not be displaced over night.  It has been 13 years since CA 1996…we have fallen behind in the world.

Maybe this time the FCC will call me.

I tried working with the FCC once … once.

Dave