Toto, I don’t think we are in Kansas anymore …
August 25, 2010
That famous line from the Wizard of Oz. You know, the man behind the curtain…
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…”
Net Neutrality Euro
August 10, 2010
Over the past few years of this blog, you may have noticed just a slight splash of sarcasm or cynicism in my remarks.
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?
Touching the Third Rail (Part 1)
July 20, 2010
Years ago, I worked in the New York City area. People from the tri-state area understand what the term “third rail” means. The third rail is an electrified rail that runs the subway system. Often, when something goes bad, someone may say: “He or she touched the third rail.” Touching the third rail is not a good thing.
I read lots of articles, reports, analyst’s reviews, technical briefs and congressional filings. Yes, I know, I need to get a hobby.
I usually like to digest things before commenting such that there is level of objectivity and credibility in my observations. Some times, things I read give me indigestion and that’s when the real sarcasm appears. My itch today has to do with this “Third Way” proposal that my buddy FCC Chairman, Julius Genachowski, is pursuing relative to re-regulating broadband from an information service to a fully regulated service. As I continue to read, I am becoming more and more suspicious that Chairman Julius has stopped reading my blog.
The FCC is about to become a Yoga pretzel all tied up in knots in this scheme to regulate the transport aspects of broadband. Transport being limited to wire line, not wireless, though I assert to you that wireless is an oligopoly being dominated by a handful of bi-modal competition rules from previous Chairman Martin.
So who is going to be the Yoga instructor on this one for the FCC? Well, it’s not going to be Richard Simmons. In the end, it will be the ILECs at the Federal Court level once again telling the FCC you regulate to the laws created by Congress. Chairman Jules – just listen to me now and save the tax payers millions in legal fees.
Actually, the “Third Way” for neutrality is a façade. It’s like a slight of hand trick. The issue being advertised has to do with remnants of network neutrality (Comcast v. FCC) where Comcast was the Yoga instructor of choice. Just like Chairman Martin, the FCC was told you are not Congress; you must follow the law as set by Congress.
The ‘Third Way” is an attempt to regulate the Internet and previously lightly-regulated information services such as VOIP and applications. The guise of the proposal is to regulate transport on an unbundled basis – an area that needs less regulation and more incentive for infrastructure builds. But the whining copper loop and special access (aka Type 2) CLEC crowd who have played arbitrage since the Communications Act of 1996 (over 14 years ago), are still pursuing that ILEC teat instead of investing into their own facilities or the facilities offered by non-ILECs.
Over the past 14-years, the Communications Act has increased competition and has lowered market prices. Lower prices are not a good thing for any operator unless their costs drop at a rate faster than price. Thus, every time the CLEC whiners start whining, it is because their love of arbitrage and margins are getting squeezed by lowering market prices while being dependent upon the ILEC teat for infrastructure at regulated fixed costs. So the cry for the “Third Option” is to get even lower cost prices from the ILECs who are investing heavily in more cost efficient platforms called fiber optics.
It’s no secret that 1.5 megabits just doesn’t float too many boats anymore–even Harry Homeowners boat. So with an organic increase in demand for bandwidth far exceeding 1.5 megabits, an emphasis is being placed on regulating unbundled transport prices to further the 14-year arbitrage game.
So, that’s the slight of hand so far.
Tune in on Friday to read the remainder of Dave’s rant–
Tiered Pricing
June 22, 2010
All hell broke loose a few weeks back when AT&T announced tiered pricing on data plans for the iPhone. Not being one with knee-jerk reactions, I waited a while for the dust to settle before giving my opinion. Plus–I don’t have to compete with the hysterical noise in the media and other blogs.
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.
BT Last Mile
June 8, 2010
Oh, the excitement and promise!
Here’s the latest buzz this week–the headline reads: “BT will have to share last mile fiber with competitors.”
I’ll bet you a few American CLEC CEO’s who rent last mile copper (aka Type 2) from Ma Bell had a Chris Matthews-like leg tingling moment reading this headline …
I have written about this subject before in the UK and, like everything else–the devil is in the details …
What UK regulators are proposing is “virtual unbundling.” Translated, “virtual unbundling” is the equivalent of a UNE-P in American terms … and we all know how well that worked out. There are no plans on the horizon for physical access to BT’s last mile fibre (I wrote fiber like “fibre” – because that’s what they do in Europe and since America is trying to become more like Europe, I thought I would endear myself).
Anywho, it’s not law in the UK yet. But, if you understand the constructs under UK regulator OfTel with FTTH – where H means “Hut” in the UK, BT is pretty much granted a dominant franchise for backbone traffic. Translated for the Chris Matthews-like CLEC CEO’s: BT is in a great position to control price, tiers, terms and volume.
So how will things play out? In my opinion, BT will have a lower cost advantage by owning the fibre, an install advantage and content advantage. You can’t have access to virtual fibre until the fibre is installed … who will be selling their services first to the target customer before the physical fibre is installed?
That’s correct – BT!
So from my perch here in upstate New York (but with extensive International business experience in my past) I see the “virtual opportunity” as one of a competitor of BT being limited to price competition only. And, just like in America, if your largest competitor controls your operating costs and as market prices compress due to “virtual” competition – what is it that you end up with?
You end up with thin and declining margins which, over time, results in consolidation of the weak rental carriers and in some instances bankruptcy. BT has its cake and gets to eat it as well … I love the fibre business.
I look at the regulatory model in the UK with this “virtual last mile” apparatus and can only think, as BT prices virtual access by the amount of bandwidth required–perhaps by tiers–the cries for network neutrality will be heard throughout the United Kingdom. BT should not be required to price virtual bandwidth on a cost-plus basis but on the value it delivers. And, in my opinion, any hogs using gobs of it should pay for its consumption.
I don’t believe a little old British lady who takes her daily tea at 3pm and uses minimal bandwidth for e-mail should have to subsidize some “gamer” with a Freon-cooled computing gaming computer that sucks gobs of real time bandwidth to play games. (I purposely used “Freon” to drive the environmentalists crazy)
Thoughts?
The Penta Bundle
June 1, 2010
Reading about bundles in Telecom is interesting. The theory is that the more you bundle into a “value price” services package for a customer, the more difficult it is for the customer to leave. Therefore, value services packages reduce churn…that is until you have bundled package price competition and then that theory goes out the window.
In a prior life, I was the President of Frontier Communications and we opened up our markets to competition years before CA 1996. I was a bundler before bundling was even a gleam in the ILECs eye! Bundling is not for everyone! It’s better suited for segments, where an experience and knowledge curve and user interface cross.
I have been waiting and waiting for the ultimate bundle move and it has yet to happen. It is a first-mover advantage play in Telecom and makes a customer real sticky.
Today, the “quad play” that is most often heard of (and marketed poorly) consists of TV/Video, internet access (though I am tempted to go off on a tirade about fiber v. copper), wireless voice and wire line voice … aka the “quad play”.
Today, I want to introduce what has been missing – the “penta play.” I am at a loss to see why this is not being done, advertised and promoted in a package, but not surprised given Telco’s are still learning about data.
When will a carrier, serving consumers and the smallest of businesses, offer remote data storage and back-up in their packages? It amazes me that companies like Carbonite are cleaning up in the consumer segment with this single offer and there isn’t a carrier in sight.
And from experience, the data storage aspect works and works really well in getting sticky customers.
Before Frontier, I was the CEO of a subsidiary of Eastman Kodak Company that was involved in digital imaging. Applications ranged from International Olympic Credentials & Security to international voter registration digital solutions and behind-the-scenes work for the United States government. This was during Kodak’s digital denial period when they thought film was going to go on forever. Being in one of a few digital businesses at Kodak at the time, let’s just say we were not necessarily considered a part of the family.
During my tenure at Kodak, a CEO transition occurred, and in the 150 year history of Eastman Kodak an outside CEO was appointed – a digital man – George M. C. Fisher from Motorola … “Mr. Digital”. I have some great Kodak adventures, but I’ll save those for the book I’m going to write someday.
Anyhow, George and I would occasionally e-mail each other about the ongoing of the business and digital networks, etc. So, we were pretty much on the same frequency where film was headed.
That said, Kodak had been struggling with a web service they were offering – the name escapes me today – but the idea was to store your pictures from a Kodak Digital Camera or a Photo CD, whereby in digital form they could be shared with others along with a host of other printing applications. Believe me–this was long before 10 megapixel cameras, and it was a great idea. The problem with adoption was a few things, one which included price.
So, I asked a question – given that data storage costs were falling like a rock (circa 1992) and would continue to do so ($100 for a terabyte today for a consumer PC-back up disk) I suggested that Kodak gives away the first X amount of gigabytes for free to lock in the consumer since the photo was moving from the shoe box to the network. My theory was once you have their memories in digital form, it’s too difficult for the average Harry Homeowner to churn. At the time, once X gigabytes were consumed, then you could charge per gig or whatever after that. Low and behold it worked.
Today, storage is so cheap, that the Kodak service is free and it’s the peripheral applications and partnerships that drive revenues.
So I ask, quite simply – the penta play – when is a carrier going to step up and be a fast follower to Carbonite and add remote storage and back-up for consumers and small business?
Kodak was to digital imaging denial as traditional legacy Telco’s are to data today … do not fail to embrace data!
Next Generation Connectivity
October 22, 2009
This link will take you to a 232 page report on Broadband titled, Next Generation Connectivity:
A review of broadband Internet transitions and policy from around the world. It is published by The Berkman Center for Internet & Society at Haarvarrd University. (Yes, Buffy dear, I purposely spelled Harvard as “Haarvarrd” for contextual affect.)
Click here to go to the report.
My conclusion: In America, it’s all about having policy, objectives and economic incentives to deliver fiber optic connectivity to 90% of homes and businesses with remote areas being served by subsidized satellite capabilities that already exist within 10 years. This approach will stop spending good money after bad, keeping copper loops alive. And, of course, broadband mobility should be left to the free markets to sort out with the least amount of government “help.”
If you have the fiber optic infrastructure, mobility backhaul for 4G services is a slam dunk. You need the fiber infrastructure first; otherwise you end up putting the cart before the horse.
Back to the Future
May 15, 2009
It’s Back to the Future for me – just like the movie.
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!
Head in the Clouds
April 8, 2009
The trade press of the Telecom industry never ceases to amaze me. When it comes to Telecom reality–most of the time–the trade press is way ahead of the curve.
I keep stumbling across articles on new technologies that will transport data at 400 gigabit speeds. Just last night, I read how IBM has some new chip that can process data at a rate of 10 peta-flops. At least no one is making a claim that such speeds will carry over copper or wireless…yet!
With Google behind the scenes pushing on our Government, I am also seeing more and more ink on Cloud Computing, aka Software as a Service (SaaS). In a nutshell, it’s about moving applications from the desktop and your local server up into Google-land or some functional equivalent. Translated: an attack on Microsoft. (Note: I really enjoy watching rich companies fight).
As I have stated on this blog, and will inevitably state again, nothing happens in Telecom in the United States at a rate most analysts, market research houses, Congress, or trade press predicts. Cloud Computing will be no different. Cloud Computing is still a twinkle in Google’s eye.
But, as I sit here in my metropolitan fiber bigot world, I once again ask a simple question, (whether it’s peta-flops on your server or massive parallel Cloud Computing farm, the data still has to get from Point A to Point B–quickly and reliably): Why are we so relentless in placing the cart before the horse? (The horse in this case is reliable optical connectivity.)
I am not worrying about quick and reliable anymore. After all, input to the Federal NTIA broadband funding initiative has some carriers defining broadband at 1.5 megabits as perfectly acceptable. How long would it take a machine pumping at 10 peta-flops to upload to or interface with a Cloud Computing farm at 1.5 megabits per second? I refuse to do the math.
Here’s my point, America needs optical broadband connectivity. The entire country with a very few exceptions is under-served.
Reliability? That’s a low price, non-dimensional commodity–until something does not work. Sort of like electricity, or natural gas or fuel oil…have you ever wondered when some say bandwidth is as important to America as electricity but it should be plentiful and cheap? Have we ever had electric rates go down? The more electricity you consume, the more you pay? Sorry I digressed.
My point on reliability– and the same goes for Cloud Computing…what does it cost you if the Cloud is down or you can’t connect? Take out a calculator, assume your ”Cloud” goes down for 24 hours…What’s your cost? I would love to hear from you.
I am not picking on Google, but not too long ago, GMail went down for 24 hours. Those of you relying upon GMail–how was the experience? I would love to hear from you as well.
Reliability and optical bandwidth speeds–America’s ignored step-children
Why I’m Bullish on Qwest
April 3, 2009
The media is abuzz about Qwest Communications.
The buzz: Qwest would like to sell off its long haul business–analysts say it will fetch $2 billion to $3 billion. They say it’s to retire some forthcoming 2010 and 2011 debt.
Now–I am not surprised, given the vast majority of analysts have never operated a company and enjoy the pleasures of spreadsheet surfing as a form of art–that retiring debt is the conclusion. The short term antics of analysts are still alive and well! And, if I ran Qwest, I would tell the analysts no different. After all, you don’t get rewarded for thinking long term.
May I digress for a moment? A memory just popped into my head… Years ago, an Investment Banker (aka Real Smart Guy on Wall Street) left his lofty perch as a Banker in pursuit of even greater riches and became the CEO of a small CLEC. After all, he reasoned, after years of being a Banker, how hard can it be?
As Paul Harvey would say: “And now…the rest of the story…”
Over dinner one evening, our ex-Banker friend told me that he should have never left Banking, this (being a CEO) is “too much like work, Banking was easy.”
Back to Qwest… I like to think about things and observe. And one thing my years of Telecom experience have taught me about ILECs, is they usually don’t do something on a proactive basis, like divest network assets unless they are forced to by the Government or are in dire financial straights. Qwest is not under Government orders, nor are they in hard financial straights. You have to give the ILEC credit–they are not dumb people. Case in point, Verizon Communications unloading their Maine, Vermont and New Hampshire wire line network assets to Fairpoint Communications recently. It has not been an easy path for Fairpoint. Some analysts in hindsight are now questioning a number of things…except, of course, their past analysis of the deal.
I give Qwest credit, my logic beyond “debt retirement” is as follows:
1. Qwest International was the first to build out an independent nationwide long haul fiber network back in the mid 1990’s. The infrastructure is long in the tooth, the fiber is not “this generation fiber.”
2. Long distance calling as a usage product is marginal at best and is going to succumb to “free VOIP” if you buy our data plan. Texting has already surpassed TDM voice in usage…and twitter is just starting…in Academia, this shift would be called the end of a life cycle.
3. Qwest International IRU’d fiber over the years to other carriers. Built-in options exist for capacity. Long haul wholesale is a tough pony to ride.
4. Qwest is not in the wireless business. Wireless is driving backhaul. There is no distinct competitive advantage for Qwest to become a virtual wireless operator. As IP evolves and the Federal Government gets open network access and devices–not being in the cellular business won’t matter much–local market network presence will.
5. Every day I read about yet another box provider stating 10 gig, 40 gig and 400 gig capabilities for long haul networks. We always must remember the cheapest and easiest network to light have always been the long haul networks. Local networks are far more costly, complex and knowledge intense than long haul.
6. Service and application value-add originates and terminates locally – that is the future. Long haul networks running at 400 gig are pure commodity–cheaper than salt. The telephone has been around for over 100 years…I have yet to witness a call originate or terminate on a long haul network. This is why Google is working real hard inside the Beltway on policy and as a friend of President Obama.
So, as I look at Qwest and their footprint, I believe they want to stay in the game and will focus on services inside and outside their territory. I imagine they see the same data that I see where margins and profits are better for carriers where rational competition exists and less bravado overbuilding has been done. I believe they see a future where margin growth is valued over revenue growth given our financial markets are not likely to return to their old practices of lending any time soon–I am not talking about a near term credit thaw. I believe our financial institutions will be regulated as such, that margin and profit growth will become the key lending criteria–no longer the big revenue “too big to fail” financings of the past.
I also believe Qwest sees the importance of local fiber access and presence–even if you end up as a nationwide wholesaler of local bandwidth.
I believe with cheaper capital forthcoming, and the retiring some debt, Qwest will become a near term consolidator of Telecommunications infrastructure. I see a focus not so much on the top tier markets, but in viewing an opportunity to become a major national player below the top 12 cities in the United States. Today, on a network basis, below the top 12 cities, it is a highly fragmented market with a donut hole between the ILECs and the smaller players.
All due respect to the larger CLECs with a billion or two in revenue, but–in the scheme of things–we are all tiny. I have had countless inquiries from all sorts of Private Equity firms claiming they see a large opportunity in consolidating below the top twelve markets, yet no PE firm has shown the moxy to lead it…yet.
Qwest and the right PE firm – could be an entirely different story. A newly reconstituted Qwest can provide the right platform, existing scale and PE comfort to become a national “Zone 2” carrier and enabler which is missing in America.
I’m more bullish on Qwest than just retiring some debt…we’ll see …
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