For American Fiber Systems, 2008 has been another positive year of transition, one filled with personal & professional growth accomplishments to be celebrated. We were fortunate to mark the appointment of Bob Ingalls as our Chairman as we navigated an unprecedented year of continued best-of-class financial growth, the “Project Orchard” efforts and the late year economic collapse and stress of the financial credit markets.
Bob’s familiarity with our organization after serving years as a Board Director, coupled with his invaluable, professional experience enabled us to maintain our course of growth within a norm of seasoned context and balance for all parties concerned – employees, shareowners and our Board.

We are delighted in recognition of our team’s contributions to our success, including
those which focused upon making our processes more efficient in serving customers
better than our competition.  Regardless of what anyone with a spreadsheet wants you to
believe – we are in a services business, and in services businesses it is all about the
human relationships between the purchaser and purveyor of services.  The values of these
relationships are difficult to obtain as they take years of trust, performance and
consistency to endure.  One just needs to listen to one or two of our customer testimonials
on our website each day to further ground the important role each and every one of us
plays.  Each one of us has direct impact on our success.

Our good fortune is enhanced by the way we have chosen to work and communicate with
one another.   Our fortune has been less about luck and more about the empathy our
culture places with our customers and prospects provided that our customers or prospects
in return recognize the values we espouse – economic fairness, on-time delivery, on-
budget projects, reliable networks and proactive customer service.
We anticipate good things for 2009, though our country faces unprecedented economic
uncertainty.  What I do know, is that there still remains a basic need for businesses to
connect reliably and communicate.  All things data continue to grow by any and all
measures and so should we.

I am proud to have the opportunity to lead this industry jewel.  On behalf of my direct
reports and Board of Directors, I wish you the best of health and a wonderful new year.

Sincerely,
Dave

Happy holidays from all of us at AFS. We welcome your comments and questions. Post a message below or email the Straight Shooter. If you’d like, you can see more telecom videos here.

Given the credit crisis (and my theory that the current situation will weigh on telecom well into 2010), I believe we will start to see a realization by Wall Street and those that have the capacity to lend, that top-line growth by itself is meaningless without margin/profit growth. If you look at recent M&A, it was driven and debt funded around that testosterone-driven top-line growth.  We are now watching many companies struggle with integration, and some may end up in Chapter 11 as a result.  The other problem all CLECs face in the United States — none of us are “too big to fail” in terms of our federal government.  So as much as the “big” CLECs like to beat their chest in superiority over smaller CLECs — we are all basically a gnat on a rhinoceros’ ass in the scheme of a $3 trillion global telecom economy.

If I were an agent of any sort, I would focus on carriers that have competitive sustainability.   You can first start by looking at who survived the 2001-2003 telecom implosion without going Chapter 11 or Chapter 22.  These firms obviously have something going for them, and more than likely it is discipline, cost control and focus. Now, my bias under full disclosure is that I am a fiber bigot. Worse yet, I am a metro fiber bigot.  From analyst reports, PE firms with lots of cash and lenders — there is a high interest in enabling established, healthy companies with a track record of organic growth that own local fiber optic infrastructure well beyond the headlines of the global credit crisis.  PE firms looking 5-10 years down the road now realize that real broadband is over fiber and that any and all known and unknown applications will initiate or terminate over a local fiber optic network.  Some analysts are readily reporting wireless having a place, but it will not come close to the fiber optic infrastructure which is close to the customer.

I believe agents need to reassess their models to serve and transition from a volume driving activity to delivering growth margins to those companies which have great control over their network costs.  I have spoken with agents for the type of business we have – all data/IP, 20 megabit or higher enterprise customers with a minimum of $5000 MRR — and I have yet to have an agent show us a model which beats a direct sales force.  Below 20 megabits is the traditional low-end game of lowest price, drive-by selling and a costly back office/customer touch where margins are quickly eroding as basic bandwidth demand increases as copper becomes an insufficient medium. There is an abundance of price discounting channels available within this lower segment.

My opinion is that the sales agent of the future is not an agent but a partner — an integral part of the organization.  This type of partner is loyal and not waiting for the next best commission deal to come along.  This partner understands how to sell into an existing price point to hold it or grow it… not lower it.

Happy holidays from the Straight Shooter. If you’d like to email Dave, click here, or post a message below. You can also subscribe to this blog’s RSS feed.

There’s a question that keeps coming across my email lately, especially from agents. It’s asked in various forms, but the long and short of what people are wanting to know is this: “how long do you expect the regional and national CLECs to keep their heads above water?”

I have no doubts that additional consolidation will occur.  Sadly, the next round of consolidation will occur around marginal CLECs.  Who are marginal CLECs?

Marginal CLECs will be those CLECs that are faced with pricing pressures as the result of not having an ability to differentiate services or hold a margin due to reliance on ILEC infrastructure.  In addition, those ILEC-dependent CLECs carrying debt greater than 3x EBITDA, in my opinion, may be forced into the situation as credit markets remain elusive and expensive.  For example, in the State of Missouri, the ILEC has been relieved to raise prices to CLECs.  In general, Special Access costs across the United States will increase as the ILECs are no longer obligated to provide volume or terms.  The ability for ILECs to raise prices of wholesale pieces and parts via forbearance is not an issue of “if” just when – that’s reality.  Most CLECs relying on Type 2 ILEC will not see costs decrease as prices decrease.

If the telecom meltdown of 2001-2003 is any indicator of how the current market conditions may force behavior, the squeeze could be on. It is important to note that the current downturn is not network-centric as in 2001-2003, but it is deeper, wider, sinister and global.

Some unsophisticated CLECs will make an attempt to survive by lowering prices believing that lower prices will stimulate growth and cash flows.  I agree with this somewhat but only to the extent you have 100% control over your network operating costs and by increasing volume you get economies of scale for better margins.  However, the more a CLEC relies on the ILEC for pieces and parts, the more likely the CLEC in a price lowering market cannot achieve margin sustainability. The ILECs are not benevolent and will not lower their wholesale pieces and parts unless the law says to do so.  We saw many companies go bankrupt 2001-2003 by lowering prices as a single, unsophisticated strategy.

Season’s greetings from the Straight Shooter and the entire AFS team. If you’d like to receive Dave’s posts direct to your inbox, click here. We always welcome your questions and comments. Email Dave or post a message below.

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.

For those of us conducting ourselves in a fitting manner by actually winning business the hard way (by competing without bribing anyone), on our behalf, this is what really pisses us off.  This story, in my opinion, is yet another “too big to fail” situation.  But in this case, the $1.5 billion dollar fine is just a cost of doing business which, by the way, gets passed along to customers of Siemens/Nokia.  Getting too big is just like our politicians, all of a sudden you think you are above the law or the law does not apply to your title or stature.

Where is the accountability?  I am growing tired of the “too big to fail” writing checks to get out of situations or someone writing a check to keep them in business.  Where are the criminal charges?  Who were the recipients of the bribes?  Who is going to prison?

We already have laws on the books to remedy this; we don’t need a global Sarbanes-Oxley.  We have corruption laws, extortion laws, fiduciary duty laws, embezzlement laws, conspiracy laws and recent trends in America tell me we have prison space readily available.  And, what I mean by prison space is real prison, not Club Fed.

Sit back for a moment and think about all the people who were cheated by this activity.  Think through it.

Those that delivered the bribes and those that accepted the bribes, all I can tell say is that your parents failed.  Your parents did not provide you with an adequate moral compass and ability to reason right from wrong.  Those that refuse to criminally prosecute the culprits — ibid.  Fines are not the only answer, putting clowns like this behind bars sends the appropriate message to the “too big to fail” companies and the “too small to have fairness” – the risk is loss of freedom and all your worldly possessions that you so much coveted.  I hope it isn’t too late for your children or grandchildren.

Am I the only one ticked off at this type of garbage and all the underlying corruption?  Believe me this is not unique to Siemens or telecom, but when is enough is enough?

I would enjoy hearing from you.

Tell Dave what’s on your mind. Email Dave or post a comment below.

Surprise, surprise, surprise … yet another game of Beltway insiders and money-people playing do as I say, not as I do.  We have a two tier society in America. The top tier is for the greedy Real Smart Guys (RSGs) and politicians with perceived power and money and the second tier, for us common folk. It is rare a top tier villain goes to prison, but us second tier folks, don’t jaywalk or you will end up in jail.

The Readers Digest version of the story is that FCC Chairman Martin (R) and the venture capital RSG John Doerr of Silicon Valley fame Kleiner Perkins, worked back channels to place terms on the spectrum auction whereby the spectrum in an auction would not be attractive to dominant carriers.  The article mentions under the “conditions” placed on the spectrum at auction it would sell for $50 million. However, economists estimate the value to the federal government coffers of $3 billion without said conditions.

Kleiner started a company to pursue this spectrum auction called M2Z. As the articles states:
“M2Z and Mr. Doerr are essentially asking taxpayers to subsidize their attempt to start a new telephone company.  Mr. Doerr will have profited from what amounts to a government subsidy via a rigged auction. And if the start-up fails, don’t be surprised if M2Z attempts to sell licenses that it has acquired for a song and reap a windfall.”

For those that want to point political fingers, I suggest you read the article.  Both parties are just as guilty as they are in our credit crisis. And, by the way, a company called Frontline also funded by Kleiner Perkins and headed up by former FCC Chairman Reed Hundt(D) failed in a similar scheme this past January.
Now for my soapbox.  There will be no outrage over this.  There will be no criminal charges. Why?  This is top tier money play of influence and power at the expense of the second tier of our society.  This is about greed.  It’s not about fairness, transparency and equal opportunity. It’s a classic “non-nod, wink-wink inside the corrupt beltway” event.

My advice to CLECs: stop lobbying Congress and the FCC — they don’t give a rat’s ass about what is best for America.  Sure they will meet with you and your highly paid lawyers to act interested, but unless you are driving party politics by stature and cash, you are nothing. By the way, what may be good for America may also not be good for CLECs, for the record.  But in my naïveté, I actually fantasize that our elected officials and their appointees like Chairman Martin can be objective and not deal in dishonest dealings or dollars.

My fellow CLECs, spend your beltway dollars on infrastructure to gain your independence from ILEC infrastructure (UNE’s, Special Access) and the FCC.

What do you have to say about it? Let Dave know. Email the Straight Shooter or add your comments below.

For the record, a few years back, I had a meeting with the president of Comptel at our offices.  We discussed openly and candidly the lack of success non-ILEC lobbying efforts has had inside the beltway.  I will keep the majority of the conversation private.  However, I did provide a bold strategy for Comptel to consider.  I suggested that Comptel issue a press release stating that the non-ILECs represented by Comptel have given up and that the ILECs and cable companies have the FCC and Congress in their back pockets. Comptel members are no longer going to fund lobbying efforts to effectuate competition.  Comptel would no longer encourage membership to lobby independently as well.  Comptel, the last remaining non-ILEC membership group, surrenders to the FCC and Congress.  I suggested that doing this will get Comptel and its members all sorts of Congressional hearings.  But alas, my suggestion was ignored.

As you will find in the Martin allegations, the game is rigged. It’s a house of mirrors.  As we are slowly learning in America, justice, opportunity and fairness is a function of how much you can afford to spend whenever our government or politicians are involved.  Just look at the picking the winners and losers on Wall Street by Congress in our financial crisis. The responsible companies are getting punished while “the too big to fail” real smart guys (RSGs) get bailed out.  There is a bit of poetic irony with the banking firms selectively being bailed out – all those years banks picked winners or losers for investment not on the basis of merit, accomplishment or experience, but by whom you knew or were referred by.

Has America lost its direction?  I would like to hear your opinion.

Sound off now by posting a comment below or by shooting Dave an email.

For years at telecom conferences and most recently on this blog, I have heralded the waste of time, money and effort spent on lobbying the FCC or anyone else inside the beltway.  I have referred to such expenditures on lawyers and/or lobbyists as money entering a large vortex.  The only winners in the vortex are the lawyers who create arguments amongst themselves in an endless circle only to bill you with no results.  Non-ILECs have no voice inside the beltway. I say spend your money on infrastructure rather than legal fees and lobbyist bills – because infrastructure gives you ILEC independence.

I can sum up things relative to non-ILECs receiving a fair hearing inside the beltway as appalling at best and at worst bordering on corrupt.  Yesterday, a report was released entitled: DECEPTION AND DISTRACTION: THE FEDERAL COMMUNICATIONS COMMISSION UNDER CHAIRMAN KEVIN J. MARTIN.  A few excerpts for my loyal readers:

“Transparency was plainly not a priority.”

“Chairman Martin withheld important and relevant data from the other Commissioners … “
“The Chairman’s office appears to have ignored evidence that rate payers have been over charged, while the companies providing Telecommunications Relay service has been over compensated, potentially by as much as $100 million per year.”

“Chairman Martin manipulated report findings and policy direction … when he ordered that a report to Congress previously issued by the Commission be rewritten with a completely different outcome ….”

“There is a climate of fear and intimidation at the FCC.”

See for yourself. The full 110-page report is available online.

Now, to be fair to FCC Chairman Martin, he has yet to respond.  In addition, given the change of administration, there is certainly an air of cowardice in issuing this report in December 2008.  That said, and I will say it again, non-ILECs have no voice inside the beltway; spend your money on infrastructure which gives you ILEC independence.

What do you think? Post a comment below or email Dave your opinions and ideas.