Wireless data pooling: Carriers’ offerings are just beginning to catch up with voice pooling

By Ben Fox Posted January 31, 2012

The following is a guest post by TC2 managing director Ben Fox.

Wireless usage pooling – the concept of a company’s users sharing (or “pooling”) their usage allowances, so that users who exceed their individual allowance are allocated another user’s unused allowance – has been commonplace in terms of voice minutes for some years. But pooling is now becoming more widely available for data usage allowances as well.

The benefits are clear. It’s almost impossible to manage usage allowances effectively for thousands of individual users, all with different usage profiles, and with usage needs that fluctuate widely from month to month. Pooling enables usage allowances to be managed across many users simultaneously. The usage fluctuations of individual users even themselves out across the whole user base, making it straightforward to define an overall fixed usage pool. Overage charges and unused capacity are both minimized, because pooling gets you close to only subscribing to (or buying) the minutes (or data volume) that you need, rather than over-subscribing to avoid overage charges.

Enterprises have been taking advantage of voice pooling to reduce their costs for many years, but now data pooling plans are starting to appear. They’ve been available for some time for telemetry applications and for wireless back-up applications (where wireless data is used for data circuit back-up, instead of DSL or ISDN backup). Usage tends to be very spiky for these applications, thus pooling was a natural fit.

Data pooling for aircard plans is newer, and both AT&T and Verizon Wireless will offer pooling for aircards/ USB modems. But currently the data pooling plans tend to focus on 5GB usage allowances. This means that the main benefit is that overage charges for “power” users that trend above 5GB are eliminated. Meanwhile, data overage charges have come down substantially in the last year or two, to typically $10 per gigabyte overage.

Eliminating these charges is still a useful cost reduction, but where data pooling really needs to catch up with voice pooling is with plans optimized for the average usage profile. Most users will average less than 5GB usage per month. So a pool to which every user contributes 5GB will result in a pool that is substantially larger than is required, and you’ll still end up with substantial volume that is being paid for but not used.

As carriers become more willing to offer data pooling plans at lower levels than 5GB (and with a suitably lower price point), it will allow companies to size the overall pool to better fit their total usage requirement, and drive down the overall costs for aircard plan users. It would also present a lower cost of entry to the pool for users with lower usage needs or who would only use their aircard occasionally.

Interestingly, with regard to occasional aircard users, we’ve also seen special plans for which a greatly reduced monthly charge applies for months in which the aircard is not used. This is an extremely cost-effective approach for companies with many users who only use their aircards from time to time, especially if it’s inconvenient to administer a central store of aircards that could be distributed to users when needed.

Regarding smartphones, data pooling has yet to register. In aggressive negotiations the carriers continue to offer unlimited smartphone plans (tethering excluded) at competitive price points, so pooling becomes a moot point.

2012 is likely to see data pooling becoming more common, and one area where data pooling may have a significant impact is for tablets. More and more enterprises are starting to roll out tablets, for instance to sales forces, and much of the time the tablets are wireless enabled.

But deciding what data plan to purchase for tablets is little more than a guessing game. How users will use their tablet is still evolving, thus predicting wireless data usage is almost impossible. Tablet plans can vary from 2GB to 10GB usage, with a correspondingly wide range in plan costs, and picking the correct plan for each individual tablet user is a major challenge. Pooled tablet data plans would make this challenge significantly easier, and reduce the cost of getting it wrong.

We’ve yet to see much in the way of tablet plans that allow pooling, but it can only be a matter of time for data pooling to reach tablet plans, given the competition between suppliers for what is normally new, incremental business for them. And that will surely be followed by pooling for smartphone tethering, MiFi plans and any other types of pooling plans. Canadian carriers have already reached this point and offer data pooling regardless of the device used, including BlackBerrys, other smartphones, and aircards.

Merger’s end: Time is money, and AT&T wasted both

By David Rohde Posted December 21, 2011

AT&T’s decision on Monday to scuttle its acquisition of T-Mobile USA – for real this time, not just withdrawing its FCC merger application for tactical reasons – has implications beyond AT&T’s failure to merge the two carriers.

The broken deal probably represents more than just a single lost year in AT&T’s wireless network development. National mobile broadband upgrades in the U.S. are a three- to five-year proposition, from planning to completion. Just ask Sprint, whose October 2011 claim that it would get to 120 million LTE POPs by December 2012 from a standing start was laughed out of the room by all of its financial and market analysts.

True, AT&T does have its own LTE upgrade under way. It just started promoting LTE here in the Washington, D.C. metro market with ads that cleverly hint that this is real 4G, not the fake 4G that AT&T previously rebranded its HSPA+ network. But AT&T is miles behind Verizon Wireless, which claims 190 LTE markets and has momentum from already having settled out its strategy for vendors, tower siting, zoning, backhauling and other details.

And the issue has never been just the highest rung in the network capacity sweepstakes, whether styled as “4G” or anything else. In the January 2011 issue of Consumer Reports, AT&T ranked last among the four U.S. national carriers for overall network quality. In the January 2012 issue just out, AT&T ranks … exactly the same, last place. Not much to show for a year of intense focus by AT&T’s senior management on the wireless business.

The problem, of course, was that the focus was almost all inside the Beltway, not out in the field. That focus became so obsessive that, toward the end of the T-Mobile merger saga, AT&T’s political promotion of its dodgy “jobs” claims seemed to overwhelm its normal advertising of exciting new devices and plans – in the holiday shopping season, no less!

Here’s another indication of how hard it will be to regain momentum. Much has been made of the $4 billion break-up fee – $3 billion in cash and $1 billion in spectrum – that AT&T now has to pay Deutsche Telekom. But the $1 billion figure has always been a “book value” estimate of the spectrum turnover. Analysts now estimate the real value of the spectrum in question at $1.3 billion or more.

Why? That confounded Verizon again! Its recent rich deal for $3.6 billion in spectrum from three cable companies – supplemented last week by another $315 million for a fourth cable company’s spectrum – has boosted the “comparables” for spectrum to a new high. For AT&T, it’s probably not even that important that the bill for merger failure has risen above $4 billion. Worse is the fact that when it goes back into the market for the additional spectrum it needs, the price will have risen.

Where all this goes for the enterprise market is essentially a balance-of-power issue. As LB3’s wireless contracts guru Kevin DiLallo continues to emphasize, Verizon’s lead in the network arena is paired with Verizon’s increasingly haughty negotiating stance. And Sprint continues to live in a world apart. In almost a cliché illustration of the what goes wrong when you get what you wish for – in this case, breaking up the AT&T/T-Mobile marriage – Sprint’s immediate reaction was to sue some of Verizon’s new cable partners over alleged patent infringement issues. For the capital-constrained Sprint, juggling so many partnership balls puts it in nearly constant firefighting mode, regardless of which stratagem either AT&T or Verizon uses to boost its market power.

As pressure dramatically increases on corporate users for their wireless procurements, the end of the AT&T/T-Mobile merger has turned the tables yet again – not just because AT&T’s strategy failed, but also because the world failed to stand still in the meantime. AT&T now will have to come up with something new, and big, sooner rather than later. In doing so, the more that AT&T focuses on network nuts and bolts and the less on promises and politics, the better off it will probably be.

USF surcharge factor reaches yet another record high

By Andrew Brown Posted December 20, 2011

The following is a guest post by LB3 partner Andrew Brown, who is based in Washington, D.C.

Last week, the Federal Communications Commission officially announced that the Universal Service Fund contribution factor – the percentage surcharge that appears each month as a line item on your bills for telecom services – would be set at an all time high of 17.9% for the first quarter of 2012. 

For the companies that follow this issue closely, the increase, however unwelcome, didn’t come as a complete shock. The USF contribution factor has been on a steady upward trajectory for the better part of a decade. (Here’s a quick flashback: the factor for the first quarter of 2002 was set at a now seemingly quaint 6.8%.) So, another quarterly increase in the contribution factor was hardly surprising given the obvious trend line that has developed over the past ten years.

But any time the factor reaches a new high (and especially when the increase from the prior quarter is so huge – a jump of 2.6 percentage points, which comes out to a whopping 17% increase), it’s helpful to understand what’s going on with the USF that requires these seemingly endless increases. The cause is two-fold:

• The fund is sized based on fund recipients’ (that would be wireless and wireline carriers) demands for dollars. Demand has regularly increased over time without any meaningful review or audit of whether the carriers’ demands satisfy actual needs, bloating the fund to its current size of over $8 billion.
• The base of telecommunications services that contribute to the fund has been rapidly shrinking as consumers switch their landline voice connections to cable modem service, or “cut the cord” to become wireless-only households.

You don’t need to know much more than basic arithmetic to figure out that if the size of the universal fund is growing and the base of contributing services is shrinking, the USF contribution factor has to increase – in some quarters by significant amounts – to keep the “right” amount of dollars flowing into the fund. Unless the size of the fund is stabilized or the base of services that contribute to the fund is broadened – both fundamental reforms to the way USF is currently conceived and administered – the USF contribution factor will never stabilize, let alone decrease over the long term.

Now for some good news. Last year, the FCC began a comprehensive and controversial rulemaking to reform the USF. It just released an order in November with new rules to increase the efficiency and accountability in the administration and distribution of USF dollars. Most importantly, and for the first time ever, the FCC has put in place several measures to stabilize the size of the fund so that it will not grow significantly larger.

So far, so good. But go back to the basic and inescapable math problem. Even if the USF stops growing, the contribution base is still shrinking. And that means the contribution factor will still need to increase over time just to keep the fund steady at its current size.

One way to deal with an increasing contribution factor is to transform or trash it, meaning that the FCC could come up with a new “contribution methodology” that raises USF money using something other than a percentage surcharge on the price of network services. The FCC inexplicably left that issue out of its first round of USF reforms, but has promised to address that issue next. In fact, the dramatic jump in the contribution factor this quarter may force the Commission to make good on its promise sooner rather than later.

This presents a real opportunity for enterprise customers to shape the rules that determine who contributes what (and how) to support universal programs, potentially reducing the financial burden on enterprise customers who pay a disproportionate amount to USF under the current system. But it also presents a very real risk that the FCC might adopt a new methodology that is even more disproportionate in its treatment of enterprise customers. The FCC is always interested in what business customers think about regulatory issues, and on this issue, there’s good reason to speak up – it will keep end users from having their interests left behind or, worse, being viewed as a “deep pocket” to fund universal service programs.

That’s why the Ad Hoc Telecommunications Users Committee, an established group of large enterprise customers that have joined together to promote regulatory outcomes favorable to business users, was front and center this year in persuading the FCC to adopt many of the new rules that should limit growth in the fund and impose competitive mechanisms to reduce waste and inefficiency in fund disbursements. The next challenge will be getting the FCC to transform the current contribution system that applies an ever-escalating surcharge to a diminishing base of services to a more stable and predictable system – one which relies on a broader base of services, and which doesn’t disproportionately hit enterprise customers’ already strained telecom budgets.

If ever there was a time for enterprise customers to step up and get involved in regulatory reform, this is that time and this is the issue. Or end users can do nothing and risk paying for it handsomely on their telecom bills. Stay tuned.

Verizon spectrum purchase raises the pressure on the AT&T/T-Mobile mess

By David Rohde Posted December 7, 2011

Let’s say you have a spare $4 billion lying around. Okay, I know you don’t, but go with me here. Assume you’re with a telecom supplier rather than sitting in the customer’s chair. What do you do with the money?

If you’re Verizon Wireless, you take $3.6 billion of the money and buy a big chunk of additional spectrum covering most of the country. Last week Verizon snapped up spectrum held by three cable companies – spectrum they’d been holding onto since the days when they thought they might go into the wireless business themselves. Verizon also signed cross-marketing agreements with the three cablecos, giving it a new sales channel that can’t be matched by Verizon’s rivals.

By contrast, if you’re AT&T, you have the opportunity to take a nearly identical figure – $3.7 billion – and build out a nationally complete LTE network. And then … you don’t do it. Instead, you enter into a nasty political battle over an attempt to buy a direct rival for ten times that amount. You expend all your energy on credibility-challenged promises and ads and repeated attacks on the integrity of the public officials who regulate you.

And you engage in tactics that result in bizarrely counterintuitive headlines, like demands that the FCC “let” you withdraw your merger application, which the general public (including CIOs!) is somehow supposed to understand advances the merger rather than kills it. All while your rivals are plotting to move ahead of you in the actual marketplace. In fact, Verizon has been hoarding cash for an opportunistic network buy during the entire AT&T/T-Mobile saga.

As LB3’s Kevin DiLallo observes, Verizon’s spectrum/marketing deal with Comcast, Time Warner Cable, and Bright House Networks means that Verizon Wireless will have the most spectrum by far and the most clout with infrastructure vendors, device manufacturers, and application developers. It threatens to lengthen the competitive lead that Verizon Wireless has over AT&T, leaving AT&T staggering from its poorly executed attempt to acquire T-Mobile, and T-Mobile itself possibly withering on the vine with lack of investment from Deutsche Telekom.

It even puts another nail in the coffin of Sprint partner Clearwire, which uses Time Warner and Bright House to resell its Clear 4G service. Those deals are unlikely to be renewed, now that the cablecos have the Verizon brand to sell.

But Kevin also notes that this is certainly no unalloyed benefit for customers! Verizon’s bold move – one that technically requires license transfers from the FCC, but with none of the political risk of the AT&T/T-Mobile merger – could eventually leave Verizon Wireless in a position to call the shots and tell enterprise customers to “take it or leave it.” The difference between AT&T’s dithering and Verizon’s action actually presages not just a duopoly, but prospectively something even worse.

Yet as always, so much depends on customer reaction and positioning. So Kevin and I, along my colleague, TC2 Project Director Joe Schmidt, will be conducting a webinar next Tuesday called “Beyond AT&T/T-Mobile: What the Industry Dust-Up Looks Like Going Forward for Your Procurement Choices.” It’s the latest in our series of “Staying Connected” webinars.

“Staying Connected” webinars are for corporate end-users only, who should use the registration link here. If you’re not a customer – if instead, you’re AT&T – don’t even count on holding onto the $4 billion you could have spent on the network! Turns out that’s also the exact amount (in cash and spectrum) that it’s on the hook to pay Deutsche Telekom in a merger break-up fee. And AT&T is already planning to write it off at the end of the quarter.

Nothing is standing still in the market. The merger timeline is eating away at AT&T regardless of the outcome, and the headlines it generates are almost comically designed to confuse. But we’ll run through all of the main suppliers’ advantanges and disadvantages for your 2012 procurement planning, so join us next Tuesday for “Beyond AT&T/T-Mobile.”

SIP Trunking is about competing all your voice business, not converging onto an existing data carrier

By David Rohde Posted November 29, 2011

The nation’s biggest carriers – okay, AT&T more than Verizon – have been following a distinct pattern when it comes to SIP Trunking.

In the first phase, the carrier heartily endorses the new service in public but can’t believe that you, a real-life customer, would actually want to buy it. In the second phase, the carrier actually offers the service, but on an underlying network platform that you probably don’t have and don’t want, and on the worst possible terms. In the third phase, the carrier finally offers a robust service, and says you’d better buy it from them rather than someone else or you’ll be in big trouble.

You might want to consider the source of all this friendly guidance. For incumbent providers, VoIP over SIP Trunking is not only a new technology that might cannibalize existing revenues like toll voice, but also might cause some of their other revenue (like local trunks) to disappear entirely. Of course they don’t want you to leave their embrace when they realize you’re not kidding about a serious consideration of migrating to SIP.

And there’s a little bit of self-sabotage that goes on with customers themselves. It’s easy to think that SIP Trunking is just the latest thing in “convergence,” where voice and data ride on the same network. If you’re essentially getting rid of your old voice network, where else are you going to go except your existing data network?

Except that’s not the whole story with SIP, or even the primary framework. SIP Trunking is a carrier service unto itself, one that finally doesn’t have to justify itself by the “coolness” of convergence or mere “toll avoidance.” And there are different fundamental models of deploying SIP Trunking.

The model that’s becoming the most prevalent is the centralized model, where corporate voice is aggregated, via the existing MPLS network, to a small number of data centers. That’s where the SIP “trunks” (which after all are virtual call channels) for external inbound and outbound voice traffic are consolidated. This centralized model enables you to compete the SIP Trunking service among suppliers, and even use multiple suppliers for the SIP Trunks.

The broad hints you’ll get to simply default to your existing MPLS supplier for everything miss the point that SIP Trunking enables you to increase the competition for your business, rather than tying in voice and data to a single supplier. Think of the origins of centralized corporate Internet access and the huge price war it touched off (I remember when Internet T-1s were $1,600-$2,000 a month!) and you’ll get the idea.

The mere act of competing your SIP procurement – RFI or full RFP – also dramatically improves your ultimate SIP design and boosts your chance of migration success. Different suppliers – from giants like AT&T and Verizon to hard-charging SIP evangelists like Level 3 and XO, and onto a legion of SIP wannabes – have different strengths and weaknesses based on a centralized or distributed model. You’ll have greater leverage and latitude to conduct trials and evaluate E911 risks. You’ll be forced to identify for yourself and for the bidders the voice features you’ll need to emulate on SIP.

And you’ll avoid the mistake of thinking your existing voice SLAs apply to SIP. Instead you’ll be negotiating real installation and network SLAs in a competitive environment.

There are many more considerations, ones that you’ll be able to anticipate and line up in a more robust fashion the wider the net you cast. Our own knowledge base grows as SIP experience accelerates, and my colleagues will be highlighting individual SIP RFP items here as we go along.

For now, watch for the moment your incumbent provider suddenly becomes enthusiastic about your SIP inquiries. Make sure it doesn’t wind up as just another Pricing Schedule or Contract Amendment attached to your underlying deal, like some minor add-on service. SIP Trunking – with its potential for big economic gains and the critical nature of the migration from POTS voice – is way too important for that.