TC2's David Rohde on Telecom
By David Rohde Posted March 6, 2014
Sprint’s palpable interest in buying T-Mobile, despite John Legere’s mock insults and Deutsche Telekom’s claimed lack of interest in selling, isn’t the only potential 2014 Giant Telecom Merger that won’t go away. The other one is AT&T and Vodafone.
Wait, what? Didn’t Vodafone just cash out of the U.S. market? Yes, but AT&T certainly hasn’t cashed out of the global market. To the contrary, AT&T sees a spectacular opportunity with U.S. and European multinationals now that Verizon is tied down with $115 billion in debt and can’t realistically make an international acquisition.
And the beneficiary of all that Verizon debt-raising – Vodafone – is also the repository of the single biggest collection of telecom networks eyed by AT&T around the world.
Apparently AT&T CEO Randall Stephenson and Sprint Chairman / Softbank CEO Masayoshi Son come from the same school of “I Know What I Want And Dammit I’m Gonna Get It.” (Stephenson’s Texas-based predecessors as CEOs of the sharp-elbowed RBOC “SBC” – that’s SBC as in Southwestern Bell Corporation, not Session Border Controller – attended the same school and now have the AT&T name and enterprise customers to show for it.)
Stephenson’s all-but-declared first run at Vodafone in 2013 ran aground over the U.S. National Security Agency spying scandal. Vodafone may be based in the U.K., but among other things it’s Germany’s No. 2 wireless carrier. Surprisingly, the Germans did not find any of the U.S. telecom carriers’ purported participation in alleged snooping on their government officials quite as funny as a John Legere stand-up routine about wireless pricing plans. (Or, presumably, as funny as some of the ex-employee protest websites that popped up following the Legere-run Global Crossing’s 2002 bankruptcy filing, with names like globaldoublecrossing.com.)
But time heals all wounds, and a clear sign of AT&T’s renewed interest in Vodafone can be seen in some influence it’s trying to exert of Vodafone’s decision-making right now. Last week the Wall Street Journal reported that AT&T is unhappy over Vodafone’s plans to buy cable networks in several European countries, because AT&T would prefer that Vodafone motor ahead in the wireless arena instead.
The problem is that Verizon’s $130 billion payoff – even after a gargantuan $85 billion distribution to Vodafone’s shareholders, mostly in the U.K. – is burning a hole in Vodafone CEO Vittorio Colao’s pocket. Colao himself wants to “transform” Vodafone, which requires big acquisitions of his own. In individual markets like Spain, that’s thought to require both wireline and wireless assets. The Journal reported that Stephenson told AT&T’s own institutional investors that he could understand Vodafone’s strategy if it remained an independent company, but as a global behemoth, a merged AT&T and Vodafone would not find much benefit in a legacy operation like a domestic European cable company.
Where this potentially leaves multinational enterprise customers is an interesting dilemma. Nobody doubts that the entire world is moving in a broadband wireless direction, but enterprises’ classic global challenge for 20 years has been and remains core wireline global WANs. Indeed, Vodafone’s moves toward wireline networks in India and elsewhere plus its 2012 acquisition of Cable & Wireless’ international network has been of keen interest to us in recent years.
But a huge industry factor here is every carrier’s newly intense desire for postpaid (i.e. subscriber) wireless subscriber revenue anywhere they can get it – the very factor that drove Softbank toward a fairly weak No. 3 carrier in Sprint and that drove Verizon to pay an astonishing sum just to get Vodafone’s hands off of 45% of its wireless subscriber dollars. Against that critical priority the precise needs of any given multinational for a global carrier probably takes a back seat. Almost certainly that’s Stephenson’s No. 1 thought in keeping his eyes trained on Vodafone.
To be sure, newly important enterprise management questions around global roaming, BYOD, cross-border mobile functionality, and mobile device management all could benefit from a gigantic AT&T push forward in global mobile – after the usual post-merger operational chaos, of course. What’s best to keep in mind is that what’s gotten the Dallas-based U.S. behemoth now called AT&T this far – intense focus and stubbornness in both regulatory affairs and acquisitions – persists to this day. Do not be surprised to find AT&T back in the big acquisition headlines this year, and very likely on the biggest stage of all – the entire world.
By David Rohde Posted March 5, 2014
Didja hear the one where T-Mobile tells wireless subscribers to #SprintLikeHell? T-Mobile CEO John Legere, famous for trashing Verizon and crashing AT&T’s parties, has a few yuks saved up for the No. 3 wireless carrier. Former Sprint customers – which are not that hard to find – are rewarded for switching to T-Mobile with some funny hats, goofy pictures and a cutesy hashtag on Twitter.
Hey, why not? Legere didn’t spare Sprint from his comedy routine when he barreled out of the gate at the beginning of the year at the Consumer Electronics Show. “Sprint is a pile of spectrum waiting to be turned into a capability,” Legere wittily observed.
He also called Sprint’s network “completely horrible” (which, given T-Mobile’s third-place finish well behind Verizon and AT&T in the just-released 2014 RootMetrics study, makes T-Mobile, what, “not completely horrible”?) and said that Sprint consists of “people in lab coats talking about what’s going to happen when my daughter is President of the United States.”
Legere then leaked that Sprint for some reason is thinking of bringing back the Nextel name, and added that Sprint’s motto seems to be “Pardon our dust while we redecorate.” Stop it, John, you’re killing me here.
Well, here’s one thing that might actually stop John Legere: red ink. The Uncarrier, which has unquestionably cajoled, dealed, or joked its way back into the conversation, also has no profits to show for it. The carrier lost $20 million in the fourth quarter of 2013 even as it added 1.65 million net new customers in the otherwise fabulously profitable U.S. wireless industry.
And you know what, Sprint seems remarkably unfazed by Legere’s insults. Sprint Chairman Masayoshi Son of Softbank, who has been privately arguing for U.S. industry consolidation and basically gotten no for an answer in meetings with U.S. government officials, has now scheduled a public campaign in favor of what could be an offer to buy T-Mobile. Step 1 is a March 11 speech in Washington before the U.S. Chamber of Commerce. Son is not known for his improv talents and yet suddenly has some similar rhetoric to Legere, swapping “horrible” for “terrible.” Of course he doesn’t mean Sprint itself. What he means is, “Every time I make a business trip to the U.S., I am reminded how terrible connections are there.”
Hmmm, well since the last thing that Softbank and Mr. Son did when they wanted to enter the U.S. market was #SprintLikeHell, one wonders what exactly John Legere was hired to do as CEO of T-Mobile’s U.S. unit and why Legere – despite calling out Sprint for a few hardy-har-hars – has also actually had positive things to say about U.S. wireless consolidation.
The reality is that mobile subscribers are expensive to acquire – by some estimates $1,000 apiece given retail space, wall-to-wall advertising, equipment subsidies, net losses to other carriers, and increasingly generous upgrade programs. At 37.3 million branded T-Mobile subscribers folded under its tent, that would be quite a prize for Sprint even if the balance sheet they take over in the process yields no earnings right now. Besides, pricing plans can always be changed, can’t they?
For enterprises still waiting to see whether T-Mobile’s moves and John Legere’s antics can really knock Verizon off its post-Vodafone high horse, it would be a shame if all this Uncarrier business was ever about was a ruse to build up T-Mobile’s numbers in preparation for a sale to the perennially struggling Sprint. Interestingly, Deutsche Telekom’s CEO says a sale of T-Mobile US, of which it still owns 67%, is “unlikely soon,” although that may simply be a truism given U.S. regulatory approval timelines. In any case, the public lobbying for what is obviously some sort of deal is about to begin.
Like the 2011 AT&T/T-Mobile saga, which featured such knee-slappers as AT&T’s claim that the merger would increase employment (in contrast to every other merger in recorded history), we appear to be in for a lively mix of public cajoling and private hardball negotiations. Let the hilarity ensue! Maybe Mr. Son can be John Legere’s straight man.
By David Rohde Posted February 25, 2014
A hundred and one years ago Gertrude Stein said “a rose is a rose is a rose.” Not until last Friday could the nation’s No. 2 carrier finally say, “Verizon is Verizon is Verizon.”
It took sending $130 billion across the Atlantic Ocean to accomplish, but Verizon Wireless at last said good-bye to Vodafone and its 45% ownership in the wireless carrier. That left Verizon with full control over everything in the telecom industry that starts with the letter “V” and carries that slashy logo.
Or wait a minute – does this now make Verizon the No. 1 carrier in the U.S.? After all, Verizon is the front-runner in U.S. wireless. And for all anyone outside of the enterprise market knows or cares, wireless telecommunications is the telecommunications business.
So when Verizon CEO Lowell McAdam emailed Verizon employees that with the full takeover of the wireless house, Verizon will make changes ending “separate businesses” and “stovepipes,” that clearly was a signal that he wants Verizon Wireless’ top dog standing to transfer to the entire company.
On the surface, it certainly sounds cool and trendy for a business to work hard to defeat internal “silos” and “stovepipes.” But is that really a good thing or a bad thing for Verizon’s customers? Let’s examine this.
Verizon has actually been collapsing enterprise accounts as between their wireline and wireless components for some time. The problem is that the glamour part of the business is Verizon Wireless, and it’s that side of the house that’s been gaining power. And Verizon Wireless doesn’t necessarily view “competition” in the optimum way for enterprise accounts as a whole.
Verizon Wireless is habitually gunning for the high-value end-user and (in its own mind) leaving the dregs of end-users to everyone else. And because McAdam’s own background is in wireless, one wonders how much he perceives the large qualitative difference that still remains between enterprise wireline and wireless. An individual end-user may get to choose his or her own device under BYOD, but not her or her own 10M Ethernet access circuit from the office. And yes, 10M Ethernet is likely to be the new table stakes displacing the T-1 soon – remember businesses locations’ increasing intolerance for getting less bandwidth at work than their employees get at home.
Very hungry competitors, from cable companies to mid-level players like XO and TW Telecom, will pounce at the slightest hesitation by either Verizon or AT&T to play ball on major wireline contracts. And as AT&T continues to make bear-hug offers to large enterprises combining local, wireline, wireless, and managed value-added services, Verizon can’t assume that its own new freedom to make comprehensive bear-hug offers (because it no longer has to carve out specific profits for a minority shareholder) will land them the deal if that deal is no good on either the wireline or wireless side of the house.
As a result, Verizon’s promise to take down “stovepipes” and “silos” could either be a vehicle for it to make comprehensive smoking offers to major enterprises without the overhang of the Vodafone ownership to prevent these consolidated contracts – or a threat to deprive flexibility and independent power from the key wireline part of its business. That can only be countered with multiple competing offers in competitive procurements to show Verizon who’s boss.
Since we’re now in an era of IP Transformation projects, competitive procurements are at the apex of an opportunity for many users. Start tracking closely the behavior of any and all account relationships you have with Verizon. Have your radar out to take “haughtiness” readings of Verizon account control, especially if enterprise wireline offers start taking on the “We’re No. 1, we don’t have to try very hard” aura that many business customers pick up from Verizon Wireless. As the walls of Verizon’s silos start coming down, you don’t want them to crash onto the competitiveness of the pricing or business terms and conditions of any of your Verizon deals. The beginning of the Vodafone-free Verizon U.S. domestic empire is here. It’s going to be an important story to watch.
By Ben Fox Posted February 19, 2014
The following is a guest post by TC2 managing director Ben Fox.
Enterprises with multiple locations spread across Europe commonly purchase traditional fixed voice transport services (i.e. voice circuits, usage and DID/DDI services) from a range of local PTTs and in-country vendors. Even though a number of vendors exist that can offer such services across most countries in Europe, it is quite rare for enterprises to have consolidated these voice transport services with one vendor (or even a couple of vendors). And even when a single vendor has been engaged across Europe, the local PTTs still tend to linger on, e.g. keeping DDI services and local exchange lines.
Strategically procuring voice transport services across Europe drives significant cost savings, not least because in-country PTTs are almost always the most expensive vendor option. But various barriers and hurdles have historically discouraged pan-European vendor consolidation and strategic sourcing in this area:
- Obtaining the existing spend, pricing, contract and volume/inventory data tends to be an arduous task across so many incumbent vendors.
- Budgets for voice transport services are often held locally, so decisions are typically made locally too.
- Awareness of the total spend is often limited (not least where it’s spread over a large number of vendors), and thus the services often fall below the radar of cost reduction initiatives.
- Voice transport services typically have lower management visibility than core data network and mobility services.
- Services and spend are sometimes combined with other in-country services, such as mobile, and thus awkward to de-couple and extract.
- Incumbent PTT vendors often have pricing/contract arrangements that make it hard to move away without incurring additional costs. These include auto-renewing contracts, prices that increase as volumes decrease, and discounts that can be “clawed back” if spend commitments are not met.
However, SIP Trunking is now a key force in overcoming these barriers. A centralized SIP Trunking architecture that consolidates all European PSTN access (ingress and egress) at your primary data centers forces vendor consolidation and reduces individual in-country PTTs to providing limited local site services (e.g. exchange lines for calling emergency services or out-of-band access to network devices).
Vendors’ coverage is continuously growing and the larger European and global SIP Trunking vendors can migrate your voice services (including in-country DDI numbers) to their network for most major European countries and support the majority of your voice transport needs.
This delivers a double dose of cost savings – not only the transformational savings from decommissioning expensive local site voice trunks and replacing them with consolidated access at your data centers, but also the reduced outbound calling rates via the SIP Trunks that will be far lower that the in-country PTT voice rates that they displace.
Enterprises are implementing SIP Trunking for various reasons, including technical benefits such as improved resilience and redundancy, as well as the widely documented cost savings. But an additional long-term benefit in Europe is the improved negotiation leverage that centralized SIP Trunking provides. Once your voice services are consolidated with one or two vendors at your data centers, rather than distributed across numerous sites, vendors and countries, the complexity of changing vendor(s) in the future is considerably reduced. The flexibility this offers, and the increased ability to take advantage of competition for voice services, means that you will be reaping the rewards of the SIP Trunking migration and vendor consolidation for many years to come.
By David Rohde Posted February 13, 2014
Today’s major business headline is that Comcast is buying Time Warner Cable. If I change the headline, fully accurately, to “Nation’s Wealthiest Media Company Buys Fifth-Leading U.S. Ethernet Access Provider,” you’d get a better idea of the impact on enterprise telecommunications.
Your view of what the cable companies can and can’t do in competitive enterprise procurements may depend on your vertical industry and procurement philosophy. Cable companies have developed tremendous generic interest in serving the business data communications market, partly because their last-mile footprints are no longer confined to residential areas. It’s also because the historic “cable TV” market has sunk into a morass of concerns over programming fees, demographic shifts in entertainment options, and worries over technology substitution (not least Verizon’s LTE marketing machine promising broadband multimedia mobility over any device). So the cablecos are looking for new revenue sources.
At the same time cable companies have shown less than no interest in finding out how to compete in geographic areas that aren’t their own last-mile bastion, inhibiting clean national bids. If you permit balkanization of your ordering authority, or have an unusually broad distribution chain such as a franchise system, you almost certainly know of the cable companies encroaching on the telecom carriers with high-speed Internet offers to your partner companies or individual locations. If you don’t, you may not – unless you also solicit national bids via carriers like MegaPath that aggregate underlying physical carriers where they can best find them.
And that’s where the combination of Comcast and TW Cable is more compelling than other merger scenarios would be. Of all the possible combinations in the consolidating “cable TV” industry, this is the one that could most make a difference in telecom managers’ lives.
TWC is the most business-market-focused of all the cablecos, having just placed first among cablecos – and fifth among all providers – in Vertical Systems Group’s yearend 2013 Ethernet Leaderboard. Up until recently, TWC had been eyed as a takeover candidate by lesser cable companies such as Charter Communications, which would have drowned the combined companies in debt and involved them in a likely management soap opera over the colorful personalities that surround Charter. But Comcast is a bigger, more stolid purchaser and well capable of paying the $45 billion acquisition price. And Comcast itself has expressed keen interest in certain enterprise accounts and in learning the large business market.
There are so many other factors here that even the cliché “caveats abound” doesn’t capture it. Even together, Comcast and TWC cover about a third of the country, leaving a combined company with a task of still exploring how to make national bids. They still might have to divest some territories to a Charter or other player to get regulatory approval for the merger. Scalability and account management are always enterprise concerns, and Comcast is not exactly known for spectacular customer service at the individual cable subscriber level.
And while the loser Charter is considered somewhat dodgy, the winner Comcast has its own distraction in that it happens to own NBC. So Comcast’s top executives may still go to bed worrying a lot more about Olympic ratings than your MPLS network.
Of course if you peek a little higher in the Ethernet Leaderboard, you can see a familiar-looking company in third place behind AT&T and Verizon – TW Telecom, a long-ago spinoff of Time Warner Cable that is now a mature telecom carrier that has nothing to do with cable TV or other residential services. There was once a time when TW Cable was considered more likely to go after TW Telecom rather than sell out to another cable company. By most calculations Comcast could do that themselves even after buying TW Cable – and get the coverage of almost all major U.S. metros along with telecom carrier smarts that they still lack. It’s an area very much worth watching.
By Joe Schmidt Posted January 23, 2014
The following is a guest post by TC2 Project Director Joe Schmidt, who is based in Philadelphia.
VMware, a main provider of virtualized software and cloud solutions, announced yesterday that it is acquiring AirWatch, a leading mobile device management (MDM) supplier. We at TC2 have worked with both suppliers and think this $1.5 billion combination will be a positive for enterprises. Perhaps more significantly, the deal is likely to spark more acquisitions of MDM providers and signal a critical arena for serious enterprise engagement with the cloud.
When we help clients assess and buy MDM solutions, AirWatch is almost always on the shortlist of suppliers. Their solution-set is one of the best in the MDM space. With the demand for mobile devices and applications continuing to grow, along with AirWatch’s global capabilities and customer base, it’s easy to understand why VMware would be interested. The acquisition will add a powerful mobile device solution to VMware’s portfolio of desktop solutions.
For its part, VMware is a proven leader in providing virtualization of technology and providing cloud-based services. Most of AirWatch’s customers use its cloud-based MDM solution, so AirWatch and its customers should hope that the cloud-based MDM solution will become even better and integrate with other cloud-based enterprise solutions.
All this means that, sooner or later, other MDM solutions provided by the likes of Good Technology, MobileIron and BlackBerry may become part of a larger technology company’s product portfolio. As users demand access from any device, to any service, at any time, the solutions that can address this need are the ones that will succeed. And the AirWatch acquisition is an alert that MDM is critically important and needs to be part of an enterprise’s network strategy.
But this strategy needs to go much deeper than simply deciding if you’ll support BYOD and/or corporate-sponsored mobile devices. Your strategy needs to acknowledge that employees will expect access to personal and corporate information from a multitude of devices, including smartphones, tablets, laptops, and workstations, and you need a solution that secures and protects the users, the enterprise, and the data.
That’s also good motivation to turn your attention to a more comprehensive corporate cloud strategy. Enterprises need to realize that more and more suppliers are developing and acquiring solutions that will be sold as a service in the cloud. You may eventually find that if you want a best-in-breed solution in a variety of areas, not just MDM, it may only be available in the cloud.
By Janis Stephens Posted January 10, 2014
The following is a guest post by TC2 Senior Consultant Janis Stephens.
A New Year is always a great time to think about goals and what one could do better. While usually thought of in the context of one’s personal life, some New Year’s resolutions related to managing your contracts are also a good idea. So here are some proposed resolutions to consider:
I resolve to find creative ways to lessen my dependency on vendors’ lead times. Instead of complaining about how slowly your supplier turns around quotes, work on some ways to eliminate the need for quotes for routine stuff in the first place. Show your engineering and provisioning teams how to read your contracts, or give them the relevant parts, or give them a “cheat sheet” of your access, MPLS and Internet pricing.
If you don’t have postalized rates for some types of service elements, can you come up with some averages you can use for ROM estimates? This might be enough to work from while you get the official quote from your supplier. You could work with your supplier to change your contract from location-specific pricing to postalized pricing, so in the future some of those quotes would be unnecessary. And your supplier will be able to spend more time on quotes for the less-routine services.
I resolve to only pay for the telecommunications services that I am actually using. Have you ever paid for services long after they were disconnected? (Has anyone NOT had this problem???) Who pays your bills? Whether a TEM or internal group, are they notified when service orders are placed, or copied on the orders? Do they actually pay attention to the orders? Can they translate the order information into a list of things to look for, and do they know which bill to look at? If the information they see on the actual invoice isn’t detailed enough, do they know how to find the details (in a vendor portal, for example)?
Usually the collective knowledge of engineering, provisioning, procurement and finance is pretty good. But none of these groups individually has the whole picture, and often they don’t share as well as they could. Sharpen up your business processes and you could save your company a lot of money.
I resolve to proactively manage my telecommunications contracts. Review your contracts to see when certain events are required or permitted to happen. Do you have to give notice to have a rate review? Is your supplier supposed to post a credit in a particular month? When does your contract expire and when would you have to give notice to extend if you chose to? If you don’t have one already, make a contract timeline so you know the calendar month of, say, Contract Month 41 (for example, would that be March or April of 2014?), and then note when any events should take place. You might have multiple effective dates to pay attention to, just for a single supplier: your master agreement, your data network, your voice network, and a metro ring. Get the aggregate schedule right and you won’t miss any important dates.
Your contracts probably have some sort of minimum commitments (Minimum Annual Revenue Commitment, Term Volume Commitment, etc.), but do any of your contracts have sub-commitments? These can take many forms but they have one thing in common – if you don’t meet the sub-commitment, some prices will go up. Maybe you have to maintain a certain number of circuits, or maybe you get a fixed credit as long as your usage exceeds a certain level. If you’ve come to depend on that credit, it creates an effective commitment even if not stated as one. We advise against sub-commitments in any form, but they could be lurking in an old contract that’s been extended and amended many times, or in a place far from the pricing dependent on the sub-commitment. So first of all, check to see if you have any time bombs. If you find one, see if you’re getting close to it and figure out what your potential exposure is. Then work with your supplier to get it removed – or if your supplier won’t agree to eliminate it, at least change it.
I resolve to establish and maintain an accurate inventory of telecommunications services. Do you have a good inventory of your services? Why would you want one? Well, maybe your company decides to divest some business unit, and suddenly you’re being asked how that will impact your spending and your contracts. Or maybe your company decides to make some changes in the way business units are charged for services. Or maybe you’re planning a full RFP process soon. There are a lot of reasons why you might need an inventory, and sometimes you need to know something in a very short timeframe.
If you have an inventory that’s kept up-to-date (get yourself copied on those service orders while you’re at it!), you can respond in a timely manner and look like a genius. Our previous post, “Getting a Grasp on Your Telecom Inventory,” can help you get started.
Finally, an inventory is often thought of in terms of circuits and ports. But voice usage may need to be associated with a site or business unit also, and that can be a lot harder to work out. After all, the above reasons you might want an inventory can apply to voice usage also. Take steps to build an inventory of Billing Telephone Numbers (BTNs), toll-free numbers and sites so you’ll have this info when you need it.
I resolve to “do something” about wireless in 2014. Does your wireless deal have different discounts associated with different quantities of devices? Do you know how many of each device you have – both corporate and individual liable? If you don’t know, do you know how to find out? Are there reasons to suspect significant changes in quantities have already occurred, or do you anticipate any? What about those individual termination dates? Wireless can be considered a special case of inventory, but your method to create it is probably different from that for your wireline services.
Staying on top of your contracts can be a lot of work, but if you do it you will find that you’ve identified savings and/or prevented problems. Those little nuggets (or big ones) can buy you some good press inside your company and increase your hero status. Not to mention the improved leverage you will likely have with your suppliers when they realize you know your services so well!
By David Rohde Posted December 19, 2013
How many states are significant in a national enterprise deal? The answer is that every state is potentially very significant if it goes through a change as meaningful as this.
On Tuesday AT&T announced that it’s giving up its historic outpost as the incumbent local exchange carrier in Connecticut by selling the territory to Frontier Corporation for $2 billion. If the old corporate name Southern New England Telephone “rings a bell” – pun fully intended – then you’ve placed it. The local telco roll-ups of the 1990s and 2000s plopped the venerable SNET, which was the major hole in Verizon’s Northeastern ILEC territory, into first SBC’s, then AT&T’s hands.
Of course that was back when the copper last mile meant a lot to telecom carriers. Today the word “copper” makes carriers sneeze in an allergic reaction. Selling this isolated outpost takes doing something about hundreds of thousands of copper connections off AT&T’s to-do list. But the Connecticut story is not that simple, and that’s where Frontier comes in.
Like every local telco, Frontier is rapidly changing over to residential broadband and television “triple play” deals in competition with cable companies. But unlike its close peers CenturyLink and Windstream, Frontier isn’t particularly trying to upend its business model by also branching out into national competition and corporate IP services. If anything, the Connecticut acquisition seems to redouble Frontier’s focus on the new local telco model.
On paper it’s a curious decision, because like the other independent aggregators of telco territories, Frontier had to reduce its shareholder dividend last year as the local telco business lost some of its customers entirely due to wireless substitution. Yet Frontier’s announcement of the Connecticut acquisition emphasizes that the move will increase available funds for the dividend (conveniently failing to note that a hinted-at 5% dividend increase hardly restores the previous 47% cut). Frontier probably figures that Connecticut as a whole is more fertile ground than some of the backwater ILEC regions that Verizon has previously offloaded to Frontier, and it may have made the move now because there were analyst rumblings of a further dividend cut at Frontier.
But you have to wonder how long that additional cash boost can last as even more young adults go out on their own and say phooey to wireline connections entirely, even for data and entertainment options.
Of greater immediate concern to enterprises is what happens to unique arrangements they have with AT&T in Connecticut. Moving a (virtually) statewide connection from one carrier to another has arguably more operational impact than even the famously gigantic RBOC mergers of the past. Big and controversial as they were, those deals simply transferred an existing RBOC into a different parent. This one literally changes the ownership of a key territory from one type of company to another.
Many enterprises have ultra-high-capacity local access and metro connections at a time when AT&T is changing up its historic “ring” services. Not only is AT&T moving customers from certain ring platforms to others, but it also has a range of ostensibly “local” services from straight dial-tone up to OC-3 and beyond that originate in distinct historic pieces of AT&T’s overall business – from its CLEC purchases in the 1990s, its own past organic attempts to “compete with the RBOCs” before it was sold to one, and the legacy SNET’s own native services. The genesis of each service could affect exactly how it does or doesn’t transition to Frontier.
Even for companies with no greater presence in Connecticut than elsewhere, AT&T’s sale has potential impacts on pricing schedules. In national contracts, increasingly popular Ethernet access is often priced according to whether any given network site is in the “footprint” of the carrier’s national ILEC map or not. That can be explicitly true of national Ethernet pricing schedules or implicitly baked into site-by-site custom pricing. What happens to, say, a 5M or 10M access connection when AT&T no longer “owns” Connecticut? There are even considerations in plain old ILEC multi-state agreements historically used to get enterprises at least meaningful discounts off traditional PSTN local services that are “still in the ground” even as the IP telephony and SIP trunking transition starts to accelerate.
Every enterprise’s current situation needs a check of the Connecticut situation and close monitoring over the next few months. There’s time to watch it as the AT&T-Frontier deal is not expected to close until sometime after July 1, 2014, given that the FCC, the Justice Department and the Connecticut PUC all have to approve it. We’re closely monitoring the deal as the answers to these key operational questions emerge.