TC2's David Rohde on Telecom
By David Rohde Posted June 24, 2016
Waves of change are breaking across the entire seascape of enterprise network communications. Catching these waves is the principal strategic challenge of professional enterprise IT and network managers. Folding these into the unquestionable reality of the day-to-day firefighting responsibilities of your job is probably your biggest personal challenge.
I was reminded of all this yesterday when I saw something I really don’t see much of any more – a perfect, 1990s-style supplier press release that makes you want to roll your eyes. CenturyLink, an important “telecommunications” supplier to the U.S. market that tends to loom smaller than it should in industry discussions, issued a paint-by-numbers press release about its “unveiling” of a “fully managed SD-WAN service.”
SD-WAN is really important and CenturyLink makes the correct point that if you stand idle and let soaring bandwidth demands take over your full-featured site-by-site network – probably on MPLS – your budget will scream. Now read the CTO’s canned quote. Doing it CenturyLink’s way is “game-changing,” resolves “pain points,” it “ensures security,” handles demands that are “ever-growing” and improves the “end-user experience.” And don’t worry, it can be “hybrid” with MPLS for “seamless” connectivity. Oh and its management portal is “intuitive.”
Here’s my question: If this company is so great, how on earth is CenturyLink and its gigantic ILEC (the historic USWest) and legacy IXC (the original Qwest) not the clear No. 3 provider in the U.S. now? When Sprint mismanaged itself into irrelevance, how did CenturyLink fail to take advantage of the opportunity and let the once nearly-bankrupt Level 3 soar into the principal competitive spot against AT&T and Verizon for real U.S. enterprise WAN services?
My guess is that CenturyLink employs a few too many people who also write sentences like this balloon-popper at the end: “CenturyLink SD-WAN is being piloted today by more than 10 enterprises and will be generally available in Q3 2016.” What is “more than 10”? Eleven? Thirteen maybe? I’ll tell you what it is: it’s a press release template. I’m serious, I once saw one accidentally left on a table at one of the 1990s Interop trade shows in Las Vegas. The fill-in-the-blanks press release ended with: “The product is being piloted by over [ ] customers in more than [ ] locations.”
This sort of follow-the-leader, buzzword approach is not what’s making the world go round anymore. Level 3 is relevant because it does NOT have an ILEC and was forced into a situation where it decided to essentially build out on its own everywhere, and to some extent because it doesn’t have a set of legacy products to milk for revenue, which has turned out to be a giant distraction for the biggest suppliers. You now see echoes of that in Verizon’s post-strike hints that it would rather chuck its regional, wireline-based local territory for a national, broadband wireless access network.
We are realists on all new technologies, and no one is suggesting that you discard your current reliance on hard bids for 5M and 10M and up Ethernet access on a location-by-location basis and use rigorous “total cost of ownership” modeling to come up with bottom-line network numbers. In fact, that is one of our core functions – to rigorously line up bids on an apples-to-apples basis, not just after they arrive but in the quantitative and descriptive design of the RFP before it even goes out.
But consumerization is a real, driving factor. In a day and age when people realize they can often get more bandwidth per bit in their homes and on their mobile devices than in their employer’s national contract, you as a professional can go in one of two directions: You can drive forward to a real breakthrough in network procurement for both capabilities and economics, or you can do things the same old way and eventually have people realize their network at work has fallen way behind.
What you don’t want to do is match the most clueless vendors’ dreaminess with your own utopian wishfulness. The nexus of virtualized, hybrid, cloud and managed services requires a keen eye for the balance between prescriptiveness and creativity. There are a select number of suppliers in each field and each global geography that need to be on your bid list for appropriate silos of services. Knowing who’s in and out is half the game, and we constantly evaluate that, not by press release, but by real-world experience in our peer client base.
Knowing the speed at which legacy services (and by legacy, I don’t just mean POTS, T-1s and frame relay) will not just be officially retired but will be price-signaled out of realistic economics is another part of it. Finally, proof of use not just in “concept” but in actual global enterprise use is invaluable intelligence.
We are aiming higher than ever before for our clients. Make sure not to set your sights too low in your procurement projects for the rest of the decade. Minimalism won’t get the job done. But that means rigor is more important than ever before. Enjoy the ride.
By David Rohde Posted June 22, 2016
In the couple of days since I explored the risk to the enterprise market of leaving hordes of spectrum in the hands of those who don’t have the money to build it out, a rather creepy set of events at Sprint parent company SoftBank has exacerbated the situation.
Yesterday SoftBank president Nikesh Arora abruptly resigned. Already a Google gazillionaire, Arora will do fine, although natural human pride caused him to unleash a tweetstorm – complete with faux-casual details such as “too many calories in butter chicken :)” reporting on his sushi dinner last night – as he pushed back against reports that SoftBank investors wanted him gone.
Then today in Tokyo, CEO Masayoshi Son declared that he’s decided to stay at the helm for another decade or so rather than find another heir-in-waiting like Mr. Arora. See if you can avoid laughing when you read how the Wall Street Journal is reporting this: “The 2,000-plus shareholders gathered at SoftBank’s annual general meeting Wednesday welcomed Mr. Son’s decision to stay on. Some called for him to keep working until he is 200 years old.”
Telecommunications is in fact a people business … but in exactly the opposite way that this cult of personality at SoftBank implies. We saw this during the recent Verizon strike when the disruption to the organization and the distractions imposed on account managers on the front lines made ongoing business matters and negotiations grind to a halt.
On a larger level, this is a exactly why we at TC2 and LB3 make such a big deal of raising account executive and account team selection to the front end of RFP requirements. Generalizations about whether a particular carrier is “good” or “bad” sometimes pale in comparison to whether you have the good or bad account exec at work for you advocating within their organizations. A cool CEO does nobody any good if the account manager on the street can’t drive home the good deal that rigorous benchmarking (for prices and terms) and effective negotiations uncover as the true winning bid.
Now imagine you work in a customer-facing position for Sprint in the U.S. Every single chair in the CxO suite in Kansas City is occupied by a new person. They in effect or literally report up to a parent company on the other side of the world. That company itself now has its own executive drama – resolved through an apparent reversion to habit. This trait appears to be based on the same over-analogizing that seems to have gotten SoftBank in trouble in the first place, via assuming that the U.S. market would bend to its strategy the way other, more uniformly dense and less culturally diverse markets have. If you’re a cog in the wheel at Sprint, how are you supposed to have any empowerment at all? Answer: You can’t, and you don’t.
Sprint is in fact not SoftBank’s only recent investment problem. And Sprint’s ugly debt maturity chart – although addressed in the short term by fancy financial engineering – is clearly impeding investment. No executive sacrificial lambs and messianic complexes among company legends are going to change the radio spectrum, investment capacity, and brand value realities in the U.S. market. Who will really help provide strong, 3-way competition in every market segment that urgently concerns enterprises, including ultra-broadband wireless for both mobility and, ultimately, primary fixed access circuits? If SoftBank thinks this week’s soap opera changes the likely answer, it’s kidding itself.
Whatever else you can say about it, Sprint has very important spectrum assets. That spectrum needs unencumbered financial capacity to actualize its potential. Something has clearly gotta give.
By David Rohde Posted June 20, 2016
One of the great ironies of the current moment in enterprise telecommunications is that for all of the threats to wireline supplier survival and support from their parent companies, they arguably offer more current competition than the supposedly vibrant wireless industry.
U.S. national enterprises now have Level 3 to bring into RFPs against AT&T and Verizon. For U.S.-based multinationals there’s a new breed of super-regional carriers like SingTel in Asia-Pac (and extending into the Middle East) to duke it out against the U.S. Big 2 plus BT and Orange. And the nexus between managed services and next-generation IP, cloud, virtualized and hybrid networks is renewing the importance of Accenture, Dimension Data and other experienced, rigorous providers to compete in transformational network procurements.
Meanwhile, what looks like a free-for-all for U.S. wireless consumers among four competitors increasingly looks like a supplier desert to large businesses. T-Mobile US is run by a clownish demi-celebrity who is arguably too successful in consumer wireless to pay attention to large enterprises (although to be fair we know of business customers who are attracted to T-Mobile’s international roaming innovations). Meanwhile, Sprint has lost customers, prestige and brand value and only has debt maturities, an executive merry-go-round and multiple failed advertising campaigns to show for it.
To recover its status, Sprint now seems to want credit for some crazy financial engineering schemes that keep the doors open while analysts reveal that these are just ways for parent company SoftBank to avoid putting in more of its own money. Yet the one thing that Sprint does have is an enormous boatload of spectrum, especially in the highest bands of usable spectrum for voice and data communications. Which could benefit them – or anyone – if only they could make it a viable part of their network. The question is whether they can really do that, or whether somebody else could do it better and faster.
The Wall Street Journal recently ran a feature article about Sprint’s network “densification” plan that it touts as a way to shoehorn network upgrades into a limited capital expenditures budget. Murphy’s Law – that’s the one about “if something can go wrong” and so on, not the one about doubling of bandwidth demand every time you blink or something – has paid a visit to the project. Surprisingly, people are not totally thrilled about the new low-power antennas popping up around them and – surprisingly again – there turn out to be a variety of municipal, state and federal laws to which they have recourse to slow the project down. Who knew?
Certainly Sprint Chief Technical Officer John Saw seems reasonable about this. The Journal says he wants to make sure municipalities are comfortable with Sprint’s plans and is willing to be patient about it. “We’re not surprised that sometimes you will run into opposition in certain jurisdictions,” Mr. Saw is quoted telling the Journal. “‘Not in my backyard’ has been around for a very long time.”
The problem is that all of Sprint’s top officials – CEO, CFO, CTO, CMO, literally everyone – is new in their positions and the parent company doesn’t actually have that kind of time. It’s not just that SoftBank has lost a lot of money already on its U.S. venture. It’s that the wireless market and user expectations never stand still anyway. Verizon is gunning for 5G for fixed-location use in access as well as mobility, and AT&T has in some interesting ways been riding Verizon’s coattails while the U.S. market quietly splits into two tiers, with cut-rate MetroPCS of all people directly targeting Sprint customers in their ads because they know they now share a downscale market segment.
Notice that the Journal is not really bashing Sprint in terms of what its assets could do, since this boatload of high-frequency, low-propagation spectrum it owns can hop among stations wirelessly rather than require completely wireline backhaul. But with $33 billion in debt – and over $50 billion in debt and contingent lease liabilities – it’s always forced into a situation where it needs to look for the lowest-cost solution to “lighting” the wireless network, if you will.
Perhaps someone else with more unencumbered cash wouldn’t be in that position. It’s interesting that T-Mobile now has its gaze fixed on a completely different set of spectrum assets – the 600 MHz low-band, high-propagation spectrum that the FCC itself is currently in the process of trying to procure from television stations via a reverse “incentive” auction, in preparation for forward-auctioning it back out to the carriers. T-Mobile will be able to bid for a portion of this spectrum in a set-aside where other bidders can play but Verizon and AT&T can’t, and T-Mobile needs it because it still scores lowest in exurban and rural areas despite John Legere’s whining about the test results (and his hilariously failed attempt last year to lobby for an even bigger set-aside).
Sprint also is allowed in the set-aside but won’t bid for a different reason. It doesn’t have the spare cash and it has no remaining financial capacity to go to the ordinary U.S. bond market and raise the money.
Those of us in the business a long time know that supplier mergers are usually horrible to live through. But sometimes they’re necessary anyway. Level 3’s acquisition of TW Telecom – and its consequent acquisition of a national-metro model – has required a lot of follow-up work but was crucial in finding the very replacement for Sprint in the national enterprise wireline market that it’s finally becoming. So would Sprint’s spectrum assets be better off in someone else’s hands, perhaps even paired with someone whose spectrum assets are about to bulk up on the other end? We have the basic problem here of the “strong” vs. “weak” No. 3, where enterprises don’t really need four – or twelve – competitors for a given requirement but do much better with three completely viable bidders rather than two complacent giants.
SoftBank basically bought Sprint because it had created strong wireless No. 3’s out of acquisitions in Korea and Japan, but it dramatically miscalculated the difficulty in doing so in the United States. Financial weakness only forces the carrier into more unintended consequences like the zoning delays it’s facing, and a decline in status to a secondary provider that enterprises simply won’t consider. It may be time for SoftBank to admit defeat in the U.S. market and move on to something else. If somebody else can do better and move faster with these spectrum assets, it’s probably best for all concerned.
By David Lee Posted June 17, 2016
The following is a guest post by TC2 Technology Director David Lee.
One of the fears of implementing a Hybrid WAN with elements of a Software Defined WAN, or SD-WAN, is that it typically involves installing more costly hardware at each network site.
But how’s this for an incentive: Greater availability of cost-effective high-bandwidth Internet access creates huge opportunities. Ultimately hybrid WANs can provide real cost avoidance or at least cost reduction on transport. For example, a 1G broadband offload circuit for cloud-based or other applications can overcome the need for the QoS that might be required on a lower bandwidth circuit. And you may already know that 10M and faster LTE access is increasingly available, with carriers gunning for far more with 5G.
It’s just that getting there is a matter of getting over the equipment and capex hump. That’s where startup vendor Viptela wants to come into the mix. It’s a name that should be on your radar screen.
Viptela recently signed a deal with Verizon to deploy its Secure Extensible Network (SEN) SD-WAN technology on the Verizon network. And it’s trying to compete directly with Cisco, which has been working on bringing SD-WAN to their devices in the form of its “Intelligent WAN” platform.
You can get a good, starting comparison of the two approaches in this article from TechTarget comparing Viptela favorably to Cisco IWAN. But given that most companies are heavily invested in Cisco, let’s not shortchange reuse of their existing equipment for this purpose.
The fact is, you can use or re-use existing 1900/2900/3900 series Cisco ISR G2 routers and don’t have to forklift upgrade to the new Cisco 4000 series routers to obtain the benefits of Application Visibility and Control, Per-flow routing (PfR3), Deep packet inspection (NBAR2), Flexible NetFlow (FnF) and other capabilities which provide the granular application visibility and per-flow control that is “SD-WAN.”
Now, you do need to have the Cisco 4000 series routers if you want the ease of provisioning and graphical user interface that comes with Cisco’s Application Policy Infrastructure Controller (APIC) application. Keep in mind that the Cisco APIC is not just about edge routers and the WAN, meaning that the two solutions are not completely parallel. Viptela is a point solution covering a portion of the end-to-end user experience (edge router and WAN). But most large companies have a big investment in Cisco in the closet, data center as well as the edge routers, so the entire network architecture needs to be considered.
Cisco’s APIC also provides application visibility and control and automated provisioning into the branch and data center switches and switch fabric supporting the application and end-user experience (UX) from the desktop to the application server. APIC provides the unifying point of automation and management for Cisco’s Application Centric Infrastructure (ACI) fabric.
As you may imagine by now, much may depend on your vertical industry. If you’re in the retail industry, where each location’s technology needs are straightforward and essentially the same – and where you may face a big upgrade at the edge router due to Cisco end-of-life issues – a Viptela point solution with a deployment of SD-WAN could be a solution. But even there, you should do an RFP and leverage what may be your incentive to kick out Cisco precisely to obtain better pricing from Cisco and free professional support – or choose their competitor in the next generation of technology.
Some enterprises may also want to consider VeloCloud, which uses a cloud-centric operational model for its SD-WAN offering supporting branch office connections to several types of data centers such as private enterprise data centers and cloud-based services like Office 365. VeloCloud SD-WAN includes a distributed network of VeloCloud Gateways, a cloud-based VeloCloud Orchestrator and a branch platform, VeloCloud Edge.
In the meantime, we’re watching for Viptela, VeloCloud and other start-ups in this space to drive Cisco to provide the same features, capabilities and price points to prevent these competitors from gaining too much traction. It’s a classic challenge/opportunity mix both for the vendors in the industry and for your enterprise. Think of it in the latter, more positive sense and it’s going to pay dividends one way or the other, possibly big-time.
By David Rohde Posted June 15, 2016
By now the industry may have grown allergic to the word “wireline,” but they sure love to throw around the word “enterprise.” Most of the time “enterprise” is used wrong as simply a synonym for “business customers” and it’s impossible, or comical, to imagine the people using the term actually providing the structure for a multinational corporation’s corporate network. But this broader usage of “enterprise” basically dates from the margin collapse early in this century of carrier-to-carrier telecommunications in the face of a glut of national and global bandwidth.
Carriers were desperate not to be seen as “wholesale” carriers pricing long-haul links for a tiny margin above their cost. So presto-change-o, they were “enterprise” carriers (and then went on to lose almost all their competitive bids to AT&T and Verizon anyway).
Well, the pendulum has swung back and carrier’s carriers are viable again, and then some. The non-telecom tech giants are also in on the game, becoming part-investors in new undersea routes as well as some notable startups in metro networks. You can imagine the reasons for all this – global voice now massively turning over to IP networks, T1s going the way of 56K circuits as Ethernet access takes over, cloud networks and simply one-off cloud applications even in organizations with traditional WANs, and so on.
But from the standpoint of how this will ultimately affect enterprise procurements downstream, the No. 1 reason for the re-emergence of wholesale telecom viability is clearly wireless backhaul. Consumer cord-cutting in a data and entertainment or multimedia sense instead of simply the old voice telephony sense of cord-cutting is forcing a demand for wholesale builds in ways that mean far more to enterprises than the insipid “competition” in the early and mid-2000s for national long-haul networks without meaningful metro or last-mile “capillarity.”
While names are often not attached to the contract wins, it’s very evident that Verizon Wireless, AT&T Mobility and to some extent T-Mobile US are voracious customers for a new breed of players – some veteran, some newly formed, and many re-forming ameba-like around a constant low-level buzz of small acquisitions – that are building out wholesale routes at the state and local level. Pretty much any day of the week now, you can see the latest news about this stuff at the invaluable and also entertaining industry site Telecom Ramblings.
Sometimes even they at Ramblings are surprised at the geographies where this is happening. Just this week I myself was happy to fill in from my own personal knowledge why a market that seemed out of the way to them was logical for this. (See the Ramblings story about a buildout to Kent County, Maryland, and for Pete’s sake don’t make me regret my comment by sharing my remark about the lovely town of Chestertown with all your friends.)
But the surprising smaller deals obviously pale in comparison to the money that at least the three mobile carriers I mentioned are clearly throwing at the Zayo Group to keep their mobile networks from collapsing before major new custom Zayo builds in the Atlanta area, several Texas markets, and many other places are completed.
Here’s where the effect on the enterprise market, even if indirect, begins to take hold. We already know that Verizon is beginning to feel the pinch from the possible and relative new disadvantage of its obviously coveted Boston-to-Washington ILEC/RBOC position compared to the more naturally balanced national-metro model of Level 3. Or at least Verizon’s constant whining and withdrawal of their promises that the recent strike would not affect service or profits (which it did, both, badly) would lead you to believe that they’re feeling the pinch.
This is the source of Zayo’s current position as the carrier (among those I can measure) with the highest rate of capital expenditures to company revenues, now more than 41%. As was pointed out to me earlier this year by an independent analyst (and I appreciated it), it’s a bit of a misleading figure in that it incorporates a certain kind of double-counting. That is to say, if a T-Mobile contracts with Zayo for a backhaul buildout of, say, $20 million, then both parties wind up counting the same dollars in capital expenditures.
And of course, the wireline RFP benefits to you of this ground-level buildout is not in direct sight. T-Mobile simply doesn’t offer that service, and Zayo’s sights in the enterprise market are clearly on the post-MPLS generation of services as well as, at the moment, skewed to certain vertical markets. (Although I have to say, if you have a dark fiber need, or really any dedicated intercity fat pipe at all, call them and they will probably jump no matter who you are.)
In the end, nothing will replace the actual entry of a true enterprise carrier that learns about terms and conditions, RFP responses and multi-round coaching, and scalability to hundreds or thousands of sites. To make a pun, that’s a long haul, as Level 3 has learned. But the groundwork is being laid for more industry players to reach more places on-net because the wholesale margins are back – and that in turn is happening because of the huge retail operating margins of consumer wireless players who are then paying out huge sums to stay one step ahead of the network congestion monster. It’s a fascinating dynamic and one we’ll continue to watch.
By David Rohde Posted June 9, 2016
Man, Verizon sure is hot to trot on this 5G fixed wireless thing to handle business and consumer broadband access nationally as soon as possible. If it seems that 5G fixed access has gone from a far-out concept to a top-of-the-agenda project in a relative nanosecond, it’s fairly evident that the bruising strike of ILEC workers has focused Verizon’s attention on speeding up the transition to wireless access.
Verizon seems to be looking for a way someday to get out from under the reliance on a specific labor force under collective bargaining, now that it’s been proven that they can’t rely on replacement workers to install landline broadband correctly. The other driving factor is the rise of Level 3 as well as potential imitators of Level 3’s enterprise model. A carrier like Level 3 may have no ILEC, but it’s finally starting to deliver on nationally consistent broadband bids through a national-metro model that Verizon doesn’t enjoy.
Also in play is the latent threat that cable companies will someday get their enterprise act together. Verizon should thank its lucky stars that the cablecos still treat their enterprise offers as glorified consumer broadband products with extremely subpar terms and conditions. It’s almost as if Verizon is timing its 5G initiative to the projected learning curve of the cable industry.
This week it was Verizon CFO Francis Shammo’s turn to play technology Pollyanna on this question after CEO Lowell McAdam had handled those recent duties. You wouldn’t think a company with half a legacy in the RBOC Bell System (remember Bell Atlantic and Nynex? Or “New England Telephone” and the “C&P Telephone Company”?) and another half a legacy in cheap MCI long distance would be so sanguine about delivering 10M, 100M or more Ethernet access unplugged. Yet here was Shammo – a financial guy after all – talking to a Merrill Lynch analyst conference on Tuesday and making the transition sound like a piece of cake.
“There is really no capex increase that comes along with 5G,” he said. “There is no labor to dig up your front lawn, lay in fiber, or be able to fix something, whether it’s on your window or somewhere to receive that line-of-sight signal [and] deliver it to a router.”
The residential orientation of Shammo’s statement – in response to a question from Merrill’s David Barton as to how to financially model Verizon’s fixed wireless effort as early as 2018 – was natural in a room full of Wall Street people. But remember the underlying tension here, because it easily demonstrates that he meant “front lawn” in both a consumer and business location sense.
Everyone knows that something’s gotta give on Verizon’s landline business. The ultimate fear remains that Verizon may theoretically try to offload the “MCI” or “interoffice channel” portion of the wireline business. But it’s obvious that there’s a huge gap between what Verizon justifiably believes it’s worth and the pittance (probably around $10 billion) they’ve likely been offered for it. In the meantime, the recently settled strike highlights that Verizon may actually be more skittish about its ILEC business than anything else. After all, enterprise is national (and global) but the ILEC is only regional, no matter how important Boston, New York and Washington are in the scheme of things.
While Shammo was confabbing with analysts and institutional investors in New York, we at TC2 and LB3 were with a very lively and engaged user crowd at our own conference Monday and Tuesday in D.C. We were hearing more stories not so much of newer carriers completely displacing Verizon and AT&T yet but really significant sales energy and attention-grabbing bids from Level 3, the cable companies, specialized players in the SDN and/or managed services fields, and in one case even XO Communications, the very company that Verizon is counterintuitively snapping up on the wireline side.
Notice that in the strike settlement, Verizon all but gave up on its effort toward full flexibility in moving FIOS installers around the ILEC territory willy-nilly. I guarantee you they’re not happy about that, but maybe they picture a time when they won’t need those landline installers at all. Only question is: Who are they going to sell that business to? Frontier is not going to fall for that old trick a third time! At least I don’t think they will.
Shammo did of course mention the need for standards work on 5G and the appropriate spectrum for it, some of which Verizon gets in a lease-with-option-to-buy with XO. But he seemed to relish “the capability that 5G brings to the table that I think also puts some cable companies on their back heels.” The moment that “cable companies” starts to mean “real enterprise revenue” is the moment that Verizon starts moving the pointer on “what to sell in wireline” away from the national business and toward the increasingly painful ILEC. The strike, and its settlement, may have more far-reaching implications than anyone yet realizes.
By David Rohde Posted May 25, 2016
Tilting Verizon completely over to wireless by the end of the decade naturally seems like a small piece of insanity to any of us in enterprise networking. Certainly consumer connectivity is now dramatically moving beyond fixed-line telecom, with U.S. mobile data consumption, once notorious for falling way below individual-line bucket limits, having stunningly doubled in 2015 alone. But the world’s corporate and government networks still run on reliable, hard-wired wide-area networks. Doesn’t Verizon know that?
Still, we have to deal with the queasy implications of:
- Verizon’s half-hearted commitment to holding onto its data centers if they get a good price for them
- A 12% projected reduction in Verizon’s wireline capital expenditures in 2016 even after new FiOS buildouts
- Verizon’s long-running strike that’s put sand in the gears of important customers’ forward-looking account matters
- The shrugging off of big customers’ concerns over worsening contract terms in the attempted forced march to the amusingly named “Verizon Rapid Delivery” platform
Perhaps this will start to make things add up. This is the week of JP Morgan’s annual TMT (Technology, Media & Telecom) conference where big players in all these fields gather for a gentle grilling by JPM’s generally excellent (as these things go) stock analysts. Verizon CEO Lowell McAdam has been at this long enough to know that you don’t go to the JPM TMT just to deliver pablum as you might at some other investment conference.
With the strike grinding on and now getting federal government intervention, many reports this week are focused on McAdam’s newsy concessions on strike earnings impacts. But I was more interested in a statement McAdam made at TMT yesterday when he said Verizon will “lead on 5G” and JPM’s Phil Cusick asked whether that’s really justified by the rate of wireless subscriber growth.
“Well I don’t think we have to wait a long time,” McAdam replied. “I mean there’s a distinction between 5G in a fixed wireless environment versus a mobile environment. Those who are working on standards say mobile is more or like a 2020 phenomenon. Okay, I wouldn’t argue with that. [But] the use case for me that gets you over the hump on investing in the technology is the one that’s right in front of us right now, and that’s a fixed wireless play.”
McAdam then unraveled some of the mystery of Verizon’s pending purchase of XO Communications at a time when Verizon’s revenue growth and strategic emphasis is so largely on wireless. XO may be far from the champions on “last mile” with its building entrances total of merely 4,000 or so, representing less than 10% of Level 3’s (and now far less than the Zayo Group’s as well). But they certainly are present in metro markets nationally, with apparently deep enough penetration for McAdam to think that fixed wireless can complete the loop.
“That’s why we bought XO Communications here in the last quarter because they have 45 of the top 50 markets,” McAdam said. “They have metro fiber rings and that gives you the ability to be out into those markets and then you just run your extensions off of them.”
Now this may come as news to a player like Dish Network, which is petitioning to stop the Verizon/XO merger because Dish thinks (or fears) the real gold for Verizon is in a lease-and-purchase-option for XO’s 5G-worthy spectrum. But hey, it’s all grist for the mill – after all, Verizon is only spending $1.8 billion for XO. Rumors are they’re willing to pay up to five times that for Yahoo! of all people.
You can start to see how this may play out now. Will Verizon really eventually exit wireline completely, or enterprise wireline completely? Maybe not ever. But they seem to feel their current set-up, with an East Coast wireline ILEC unbalanced geographically against national and global wireline service at a time when national providers like Level 3 are being built directly according to customers’ footprints, is ultimately not optimal. And there’s that roaring consumer wireless business with its 50%+ operating margins and multimedia gold around every corner. Stepping up 5G can answer to both needs.
The future of Verizon is one of the key opening topics at our Negotiating Network & Infrastructure Deals conference two weeks from now in Washington. My colleagues Andrew Brown from LB3 and Larry York from TC2 are joining me on the first panel, an hour-long targeted discussion of “the players” across the entire range of needs in everyone’s upcoming transformational network procurements. Inviting the right players into the right phase or “silo” of your national or global network needs is as key a question as there is. The Verizon story, and the new revelations about the apparently accelerated reliance on 5G fixed wireless access, is front and center on this question. I look forward to continuing the discussion there.
By David Rohde Posted May 16, 2016
It’s lovely that Verizon said it would be business as usual during the now more than month-long CWA/IBEW strike. Nothing to see here, folks, we’ve got all day-to-day business covered.
So it may seem a little odd that business customers have received notices from Verizon alerting them that the strike “constitutes a Force Majeure event under our agreements and tariffs.”
Force Majeure is a French term that means “Everything is not our fault and there’s nothing you can do about it.” Just kidding … sort of. It literally means “superior force” and its message is that something’s happening that overrides the sense of give-and-take or quid-pro-quo built into the language of contractual clauses.
Merriam-Webster itself gives the primary examples of the uncontrollable or superior force events under Force Majeure as “war, labor stoppages, or extreme weather.” Gosh, if a labor strike is the No. 2 cause behind bombs and tanks but ahead of hurricanes and floods, then you’d think that Verizon, whose services came to a halt in 2012 with a foot of water in the basement of their Wall Street central office, never would have given any assurances about normal service during the current strike.
Now that Verizon business customers everywhere are finding it hard to get important provisioning and renegotiation issues moved along as the strike drags on, there’s obviously a lot more than fine print in play. Actually, for enterprise customers it’s important to understand the precise contractual context under which these Force Majeure notices have been going out.
It’s not exactly the case that Verizon was holding Force Majeure in its back pocket and the carrier’s attorneys are whipping it out while account executives are putting a happy face on the whole situation. Force Majeure is almost certainly in your carrier contract already. In fact, your contract may already state that labor stoppages are grounds for declaring it. On the surface, Verizon’s letters constitute a process to activate the categorization of service disruptions under the Force Majeure concept in the current environment.
But don’t feel helpless – it’s not the end of the story. What’s Force Majeure under your contract isn’t the same as somebody else’s, no matter how much Verizon may imply that it is with form letters cleverly addressed to “Our Customers” rather than individual customer names.
Certainly if your contract is nothing more than Verizon’s “standard paper,” then Verizon’s excuses for not performing due to the strike are very broad. But LB3 partner Deb Boehling advises that you should analyze your negotiated Verizon contract to see if your Force Majeure terms are better – for example, limiting their applicability to less broad categories.
It’s even possible that what you have in your deal actually does not excuse Verizon’s performance for labor problems unless Verizon truly had no power to end the strike by making another contract offer to the unions (whether they want to or not). Or your deal language may create an obligation the other way, allowing Verizon an excuse only if Verizon mitigates the customer impact of the very kind of Force Majeure declaration that they’re now making.
From there, it’s a strategy decision as to how much you want to call attention back to Verizon that you have rights too. After all, for all of the upset over the Verizon strike, Verizon account teams are not literally laying down on the job just because some fancy legal term might give them cover to do so. What you have in process now with Verizon all plays into the strategy. That includes everything from new orders to other contractual negotiations, many of them ironically impelled by the forced march to the subpar terms of “Verizon Rapid Delivery” and users’ attempts to win back originally negotiated enterprise-class terms and conditions.
There’s a broader point here. When the sun is shining, the smiles are flashing, and the deal handshakes are extending across the table, it can be hard to see how words in a contract dealing with contingency situations will matter over the course of the ensuing three to five years. This is one, but only one, of those eventual situations where all that hard work on contract details ends up mattering a lot. Look at the agenda for our upcoming Negotiating Network & Infrastructure Deals conference on June 6-7 in Washington. Day 1 sessions like “The Foundations of a Successful Deal” and “Key Commercial Concepts and Terms for Best in Class Deals” go directly to all these ideas.
Right now the obvious disconnect between Verizon’s initial assurance that nearly 40,000 striking workers wouldn’t dislocate normal business operations and the growing customer anguish of getting anything done at Verizon brilliantly illustrates the importance of this contract negotiation work. Making your best deal today means so much tomorrow and for the rest of the decade in terms of prices, service assurance and technology flexibility.
Turn that obnoxious notice of Force Majeure from Verizon to your advantage by redoubling your efforts for enterprise-class terms and conditions throughout your next contract term. It’ll be a very key discussion throughout our conference in Washington.