TC2's David Rohde on Telecom
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.
By David Rohde Posted May 13, 2016
With all of the attention to the Verizon strike on the East Coast, it’s easy to miss another mess out on the West Coast. On April 1, Frontier took over the legacy GTE ILEC territories in Florida, Texas and California from Verizon. It’s been a rocky transition everywhere, but in Los Angeles it’s been close to a disaster.
I’d love to tell you whose fault this is – Frontier’s or Verizon’s – but to residential customers who literally can’t get dial tone or whose broadband terminal boxes stop working, it barely matters. In a day and age when newspapers are supposedly flailing, the Los Angeles Times has been on top of this story and tops it off today with a superbly detailed and balanced report that is a great read for this weekend.
Can you believe that Verizon might have handed off a corrupted database of residential CPE serial numbers, or that Frontier might have miscalculated that a Philippine call center could handle the customer inquiries? I can, which perhaps speaks to the jaundiced eye we all have to keep on the suppliers in this business.
In this environment the fact that a squirrel eating fiber (something that does happen quite a bit) just adds to Frontier’s bad press shows you how both real and perceived problems can cascade. Frontier’s fiber-loving squirrel unavoidably reminds me of Sprint’s ill-fated spokes-hamster, which perhaps suggests that telecom carriers should stop using rodents altogether as either all-purpose alibis or marketing experts.
Probably the Frontier mess has less direct effect on the enterprise than the now unmistakably impactful strike at Verizon. But there’s a larger issue at play here, which is how much focus a carrier like Frontier can pay to the enterprise future after ponying up not once but twice for unwanted Verizon ILEC territories.
Traditionally Frontier is considered something of a peer to carriers like CenturyLink and Windstream. All three are some form of roll-up of local exchange carriers that have boasted of their scale to try to entice enterprise customers with their national networks. But a Frontier tied down in merger migraines at the residential local exchange level can’t put forth any substantial energy in the national enterprise market. Particularly in a world of major technology transition, it’s not terribly rational for most customers to think that a Frontier can provide much competitive push at all against AT&T and Verizon in a contemporary RFP.
If only that meant that the other alternatives here were golden. But the Frontier story is only the most obvious of the challenges in making up a bid list. Even with the other carriers I’ve named, there’s an additional consideration in sight.
We’ve seen great competitive spirit from Windstream recently, but they seem to scale better for mid-sized customers than truly large enterprises. CenturyLink has been a solid option for years, but their strategic services wins have been very spotty as yet again reflected in the latest quarterly earnings report. And CenturyLink’s will-they-won’t-they story on selling their data centers has been going on for so long that it makes Verizon’s threatened about-face in this arena appear admirable and timely by comparison.
More broadly, this RFP bid list selection issue is both rife with trade-offs and ultimately custom to your own procurement situation. Just sticking with US carriers, Level 3 is getting to be a must-have in procurements, but knowing how their bid performance varies is critical in actually writing up your own requirements to goad them in the right way. And a real sleeper here, the Zayo Group, is on a tremendous network investment roll with its strategy of winning huge backhaul construction contracts from the big wireless carriers. The only problem is that Zayo couldn’t care less about the ordinary MPLS competitive RFP and only wants to hear about more advanced enterprise projects, while also favoring certain industry verticals.
Then there are the key carriers for major global regions, the managed and professional services providers like Accenture and NTT’s Dimension Data, and the irritating problem of whether there really are four US wireless carriers as a consumer sees it or only the Big 2 that now credibly serve enterprise.
Putting a structure around all of these considerations is such a key topic that we’re leading off an important upcoming enterprise conference with a session called “The Players – and Deciding Who to Include.” The setting is our own Negotiating Network & Infrastructure Deals conference on June 6-7 in Washington, and I will lead this key initial session along with my TC2 colleague Larry York and LB3’s Andrew Brown. I encourage you to look at the entire agenda and consider joining us in Washington before another mishandled merger, strategy shift or carrier financial bug upsets the playing field. It should be a great discussion!
By David Rohde Posted April 29, 2016
Yesterday Verizon issued its BAFO, or Best and Final Offer, to the CWA and IBEW to resolve their current strike. The proposal includes 7.5% in wage increases and some marginal-looking changes to Verizon’s outsourcing and employee-transfer policies.
As a consultant, naturally I now want to see Verizon’s BARFO. That would be its Best and Really Final Offer. The unions seem to feel the same way, which is no surprise. It’s kind of comical to see Verizon reach for an insincere piece of midgame negotiating terminology at a time when both sides have long-term goals that neither wants to paper over in an interim contract.
Verizon feels it absolutely must come out of this episode with flexibility to change its overall business model. Even they probably don’t know exactly what their business will look like in the year 2020, since so much depends on what other technology players and private equity investors are willing to pay to take things off Verizon’s hands. The one thing Verizon executives do know for sure is that they want up to half of America addicted to Verizon’s mobile devices and, increasingly, Verizon’s own content deals because, you know, “Better Matters.” That means keeping up their current wireless investments and winning the race to 5G.
To get there, Verizon absolutely must affordably raise the money for whatever new spectrum they grab from UHF TV broadcasters this year. That means either raising their credit rating from BBB+ to A-minus and/or finding more asset sales like their apparent snookering of Frontier to take over the old GTE ILEC territories. Frontier not only paid $10 billion for these businesses but is getting saddled with terrible headlines in the Los Angeles Times and elsewhere as thanks for its generosity. You gotta wonder what they were thinking in helping out Verizon so charitably.
With few other players as clueless as Frontier out there, Verizon now has to wait out much higher offers than anything currently on the table for the following businesses in something like the following order: 1) the Terremark cloud and data center operation; 2) the FiOS consumer business in the core Bell Atlantic area, and ultimately, just possibly 3) the enterprise business that originated as good old MCI. What’s obvious is that in the meantime, Verizon cannot let these businesses be cost drains or perceived hindrances to its credit profile while it continues operating them rather than sell them for a song.
There’s no other explanation for why, on the consumer landline side, Verizon is so set on moving FiOS technicians around so freely. If FiOS is so great, you’d think they’d just build it and maintain it everywhere they’re still an ILEC from Virginia to New England. Then there would be plenty of work for all their employees to do exactly where they’re stationed. But the company’s geographic selectivity – not just on where FiOS is at all but also where the most premium bandwidth options up to 100M are offered – represents their hedging of this bet. And there’s always continued cord-cutting to consider now that mobile broadband is more ubiquitous.
For their part, the landline unions (which is what they basically are) feel they absolutely must protect the interests of what are, to be honest, their primarily older memberships. Getting yanked around the East Coast to do jobs that it’s obvious that Verizon, despite its strike bravado, really doesn’t have other people trained to do is not proving appealing to this workforce. It’s not entirely clear what the CWA thinks its membership is going to look like 15 years from now, and those photos that John Legere posts on Twitter of insanely happy (or perhaps brainwashed) non-unionized T-Mobile store workers around the country aren’t helping the union cause. But now is now, and the unions want their people protected while Verizon decides what it wants to be when it grows up.
What gives in the meantime? Customers are asking their Verizon account teams for, you name it – an inventory of current services, a next response to a bid for new services, a network management request that can’t otherwise be handled automatically – and the answer is coming back very frequently that those people aren’t around right now so you’re going to have to wait.
And there’s the critical intersecting issue that Verizon has been trying to re-initialize and re-standardize terms and conditions but in their own favor, with the term “Verizon Rapid Delivery” taking on new and interesting irony. The important clawback to best-practices terms and conditions from the enterprise customer perspective also requires this critical back-and-forth with Verizon account relationships.
Slow-rolling any of this isn’t in either Verizon or the customers’ interest while we continue to see new players, whether a carrier like Level 3 or a different provider like Accenture, aggressively attack the transforming WAN marketplace. If Verizon thinks throwing around the term “Best and Final” will make the world stop spinning, it won’t. Real impacts are taking place. It will be fascinating to see where they go next, and how quickly.
By David Rohde Posted April 14, 2016
The current strike by 36,000 members of the Communications Workers of America and the IBEW is hardly going to sink Verizon. It’s less than one-quarter of Verizon’s total workforce even if certainly a concentrated number of people in their East Coast ILEC operations. One of the funniest things about Verizon’s response is that they say they can handle it precisely because these strikes happen so regularly. They make it sound like a routine fire drill. Move along briskly but no running!
Back in the real world it’s not all fun and games. There’s a diminishing amount of margin and tolerance for this kind of disruption in the wireline business. Each time that more senior, non-union people in the company are called upon to fill in tasks performed by missing employees, it becomes a slightly more critical and dicey situation. Senior account executives have sent messages to enterprise customers cautioning them that they may be out of pocket performing other duties with a “this time we really mean it” air.
Personally I relish the image of Verizon sales execs having to climb telephone poles or answer call center inquiries from testy retail customers. But think of what that kind of activity is replacing. We’re already in a period where Verizon customer commitments are getting scrambled by attempted forced marches to new contract paper. The savvier Verizon enterprise customers have worked hard to reinstate and reinforce proper terms and conditions, but much depends on follow-through within the Verizon organization. A deeper fall-off in that level of eyes on the critical details – everything from proper implementation of credits and measurement of service levels to back-billing issues and dispute resolution – is entirely possible.
All this is happening at a time when nobody fully trusts what Verizon’s long-term intentions are in the wireline field. We’ve been clear that Verizon remains a highly desirable competitor for the medium term even if the reasons are essentially circumstantial. CEO Lowell McAdam and CFO Francis Shammo have basically said that Verizon retains the WAN business because 1) nobody else would buy it from them for a decent price and besides 2) if they sold it, how would they get you to buy more Verizon wireless plans and devices at a time when the dastardly AT&T is cleverly integrating their wireline and wireless enterprise businesses? Such backhanded enthusiasm justifiably has people on edge.
The strike itself is really centered a bit more around the FiOS consumer wireline broadband business, with the company maintaining that it needs flexibility to move around trained FiOS technicians to new territories and the unions claiming that this is just a ruse to induce more experienced employees to leave. One of the additional risks for Verizon appearing to treat the eventuality of a strike with routine equanimity is that it gets sucked into current societal and political controversies. Just yesterday McAdam hauled off on Bernie Sanders for the way that Sanders expressed his solidarity for the strike. While I try to keep these commentaries non-partisan in the broader, non-telecom-specific sense, McAdam had a point about Sanders’ now-familiar generic rhetoric about American corporations and investments, given that Verizon really is one of the country’s biggest domestic re-investors in capital expenditures. Although they certainly turn around and try to charge for it – “Better Matters,” remember?
The point is that the entire industry is, consciously or otherwise, starting to ape John Legere’s engagement in current affairs and popular culture and often stepping into minefields, as Sprint’s Marcelo Claure did once again this week on a completely different matter of a pulled ad. Risk piles upon risk when images like striking workers hit both the traditional mass media and the Twittersphere.
However the strike turns out, Verizon remains in the mix in every RFP and a critical provider of the current and emerging network and IT communications services we deal with every day. The question is whether the cavalier, “we can ride it out, no big deal” manner that Verizon affects about things like a big workforce not showing up for work reveals important clues about the future. It’s not “no big deal” that this is happening just because something like it has happened before. All of us certainly have both eyes trained on it, whether we’re in Verizon’s ILEC territory or not.
By Joe Schmidt Posted March 1, 2016
The following is a guest post by TC2 Project Director Joe Schmidt.
It wasn’t long ago that BYOD was viewed by some as the new “best practice” for enabling mobility in the enterprise. BYOD was going to provide more choice, greater productivity, and happier users.
Unfortunately, BYOD hasn’t delivered the results most enterprises had hoped. So there is a renewed interest in maximizing the value of corporate-sponsored mobility programs. Mobile service providers have stepped up to support this renewed interest by introducing new rate plans, but they require a new way of thinking about mobile services.
If it’s been a while since you last looked at your mobile provider’s service offerings, one of the first things you’ll discover is that data is now the driver in corporate rate plans. The cost of Verizon’s Flexible Business Plans, for example, varies based on the data allowance a subscriber selects, and domestic voice and messaging are unlimited. Verizon also offers custom plans and, yes, you can still buy plans that are pay-as-you-go or have some amount of inclusive minutes, but the focus has switched to data because data consumption is growing … a lot.
Another change that’s benefited companies with a large number of data users is the ability to share (or pool) data across users and different devices. Pooling of voice minutes has been available for some time and corporate users in the past have been allowed to share data, but only across similar devices. Smartphone plans could share data with other smartphone plans, tablet plans could share data with other tablet plans, but smartphone plans couldn’t share data with tablet plans.
Today, mobile providers allow all data to be shared, regardless of the type of device using the data plan. So smartphones, tablets, MiFi devices, and data cards can all share the same data pool.
If you’re not into managing pools, Sprint and T-Mobile offer plans with unlimited data and come with the requisite unlimited voice and messaging. AT&T also offers an unlimited data plan, but it’s targeted at consumers (at least for now) and you need to have DIRECTV or U-verse TV service. A word of warning: Some of the mobile providers will slow down the connection speed of the unlimited data plan if the subscriber consumes too much data in a month.
Remember Vodafone, the UK mobile provider that sold its 45% stake in Verizon Wireless back in 2014 for $130 billion? Well, they’re back. Without a lot of fanfare Vodafone has again entered the US mobile market, but this time as an enterprise-focused Mobile Virtual Network Operator (MVNO) reselling T-Mobile.
Vodafone’s new enterprise plan for US multinationals was pioneered in the UK. Known as Vodafone Red, the plan is designed using a company’s unique usage profile and gives the enterprise a bundle of minutes, data and messages that are shared by all corporate users. The price of the plan is guaranteed not to change for the first six months of the contract, and any overage, if incurred, is not charged. Vodafone leverages its global reach and offers international roaming rates equivalent to domestic rates in 48 countries, if a user buys the daily add-on feature.
I’ve touched on a few of the changes taking place with mobile rate plans, but I have much more to share. I’ll be speaking on a panel at Enterprise Connect in Orlando next week where we’ll be discussing the new mobile rate plans and their potential gotchas, the new approaches for equipment funding, and how to decide which mobile provider and plans are best for your company. I hope to see you in Orlando.
By David Rohde Posted February 25, 2016
If you missed the news from earlier this week that Verizon is buying XO Communications, I could spin you a story as to why the lack of hype is a good thing. Nobody’s come out with the typically Orwellian bit about how “combining” companies “creates” a stronger carrier, skipping over the eternally painful business of supplier merger integration. In fact, I challenge you to go to XO’s website right now and see how far you have to dig even to know that your business is being sold out, or that anything at all is about to change.
But, of course, things are going to change and there’s going to be upheaval anyway. That’s being triggered by the weirdest M&A announcement I’ve ever seen in the industry, as XO and Verizon carefully crafted a brief statement on Tuesday that the bigger company was buying the smaller one’s “fiber-optic network business” for $1.8 billion.
For all the world that sounded to a lot of people, myself included, like a sale of XO’s wholesale carrier-to-carrier business … or maybe the underlying routes of the enterprise business but not the customer accounts … or maybe some special construction or custom-build division deal. But in fact this was XO owner Carl Icahn’s ham-handed way of saying he was selling XO complete as a business while simply keeping his wireless assets – some valuable spectrum in the LMDS (Local Multipoint Distribution Service) range of 26-29 GHz and up.
In a cue to what the real motivation was here, Icahn gave Verizon a 2-year lease on the LMDS spectrum with an option to buy at the end of the lease. No doubt taking the whole rest of the company off his hands, including XO’s customers, was something Icahn required of Verizon to get the deal done.
Icahn is really more a financial engineer than an industrial mogul, and he has all but called XO a giant pain in his rear end. Almost everyone had been amazed that XO hadn’t been sold long before now. But with Level 3 zooming ahead on metro buildouts nationally and the emergent Zayo Group winning huge backhaul contracts with the big wireless carriers and working dark fiber deals for fat bandwidth with very large enterprises and municipal governments, XO appeared to be falling behind. In short, it was probably now or never for Icahn to recognize some residual value out of an investment that dates back to the telecom crash at the start of this century.
On Verizon’s part, the acquisition probably says little one way or the other about its long-term prospects for unambiguously committing to wireline enterprise after last November’s panic over whether it would get out. I don’t mean to sneeze at an image of what 1.8 billion bucks would look like stacked up in cash, but the reality is that Verizon, with an annual capital expenditures budget of $17-$18 billion, probably considers this purchase price as simply substituting for other kinds of wireline capex.
In an era of Ethernet access, Level 3 has demonstrated that there actually is value today is building out according to the importance of metro areas nationally rather than resting on the laurels of an ILEC position, which tilts the U.S. map in one direction but leaves you fallow elsewhere. With XO, Verizon picks up about 4,000 last-mile building entrances nationally, although that’s about one-tenth of what Level 3 has. Verizon also presumably gets to substitute some newly owned backhaul fiber for what it would otherwise have to pay a wholesale provider to stay ahead of lurking congestion on the wireless multimedia broadband traffic that it relentlessly impels consumers to consume and pay for.
And that LMDS spectrum gets Verizon potentially major benefits for both its emerging 5G strategy as well as additional backhaul. It’s perfect for backhaul from cell towers as it delivers high bandwidth using small dishes the size of a plate. The direct pickup of XO’s “fiber” plus the lease of XO’s spectrum not only probably substitutes for other kinds of network investment but provides a help to both the wireless and wireline sides of Verizon’s direct sales to both consumers and enterprises. Whether Verizon ultimately tilts completely to the wireless business still depends far more on whether another huge player in the market eventually recognizes what the enterprise WAN business is really worth – hardly just the 5 times operating cash flow that a news service claimed was being bandied about last fall.
As for XO’s enterprise business itself, it’s too bad that the company’s occasional successes in selling MPLS, SIP Trunking and dedicated Internet as a competitive provider weren’t more consistently realized. They did often beat the pants off the larger carriers on price, and that benefited customers who knew to reach out in a tactical way. At the same time, XO was famous in industry circles for what must be the longest-running gripe session about employee layoffs in the form of a hilarious comment thread at Telecom Ramblings. And the real game now in enterprise is whether a strong and powerful No. 3 or No. 4 can emerge into the first tier of carriers at a time of fully strategic transformational procurements, not just tactical one-offs.
XO was never going to get there with the churlish backing of Icahn, who managed to bemoan the “bumpy road” of his XO investment over the course of 15 years in a final, rather irritable personal statement about his time in telecom and the sale to Verizon. Nice having you along for the ride, too, Carl, and good luck elsewhere.
By David Rohde Posted February 19, 2016
T-Mobile CEO John Legere had a bad day on Wednesday. RootMetrics, the carrier network evaluation firm, kind of ruined it for him. Actually it might be more correct to say that John let RootMetrics ruin his day. His overreaction was revealing.
Yes, in its now anticipated half-yearly report, RootMetrics placed T-Mobile last overall among the four U.S. national carriers. It must have been particularly galling for T-Mobile to see Sprint, a company that is perceived to be gasping for air, finish in third place. (Verizon was first and AT&T second, although I’m sure you already guessed that order.)
That evening Legere rushed out a statement blasting one particular part of RootMetrics’ methodology and literally saying RootMetrics should be “banned.” But all that did was to dramatically boost the publicity about the overall results. If he had taken a moment to even begin reading the report, he would have noted RootMetrics’ very careful and responsible qualitative remarks about T-Mobile’s results. Here’s the second paragraph of RootMetrics’ remarks:
T-Mobile offered fast speeds and strong data reliability in metropolitan markets. If you primarily use your smartphone in a major metropolitan area, T-Mobile remains a strong choice. Even though urban areas carry more weight in our results, it appears that T-Mobile currently lacks broad enough coverage to excel in our National or State RootScore studies.
Bingo. T-Mobile is doing just fine – indeed more than fine – in major metros. It helps explain the good earnings that T-Mobile reported on Tuesday. But it has the same problem it’s always had: it’s a lousy choice for smaller cities and rural areas.
Remember Legere’s profanity-laced tirade last year when he accused Verizon and AT&T of asking for special favors at the FCC for low-band spectrum when the truth was that it was T-Mobile who was asking for the special favor – a bigger block of spectrum in the next auction that the Big 2 would be prevented from bidding on? It was all about this issue – the foresight to corral relatively low-band spectrum for high-propagation signals in the North American continent’s sprawling diversity of geography and population.
Like a good politician, Legere at the time used a single throwaway line to try to slough off T-Mobile’s history of ignoring this need in order to present his favor-peddling as a white hat act. But regulators didn’t go for it and he dropped the routine. That is, until RootMetrics hit this same sore spot this week.
Why this matters now: Because that big low-band spectrum auction is almost upon us. Unless some last-minute complication derails it, on March 29, the government finally begins the giant “incentive auction” of formerly UHF television airwaves to U.S. wireless carriers. It’s a monstrously complicated procedure that may take several months to fully play out, first involving the government running an “incentive” or reverse auction for the TV station owners to give up their spectrum, and then the government auctioning back out the spectrum to carriers.
It’s also going to be a monstrously expensive proposition for the carriers. That’s probably the principal reason that now both Verizon and AT&T have been saying they’re laboring to restore their “A-minus” credit ratings (they’re both at BBB+) in preparation for the debt-raising they’re going to have to do to pay for their new spectrum.
This is also key in two related Big Questions about T-Mobile, now that it has supplanted Sprint as the No. 3 consumer wireless carrier: 1) Can it continue to finance its needs on its own, or will it opportunistically sell out to a bigger domestic player (such as a cable company) at a time when T-Mobile’s perceived brand value gives it leverage at the M&A negotiating table? 2) Can it finally become a highly relevant No. 3 in the enterprise wireless market? Consumers who buy T-Mobile can be mollified that they live in a metro area, not a rural village. But that equation is not so simple for enterprise deals where executives are assumed to be mobile and end-user populations are treating mobile broadband as mission-critical and not subject to excuses like “it’s just cellular.”
Indeed, T-Mobile’s capital needs in the face of the incentive auction and the way that possible industry consolidation is starting to line up are part of what I myself am discussing next Tuesday, February 23 in a special seminar in our Staying Connected webinar series. You’ve heard the scary stories about what Verizon might or might not do to dismember its business. And I’m sure you’re wondering what to expect from Level 3 (who desperately wants to be part of your next wireline procurement) and whether it’s worth putting the cable companies on the RFP bid list.
All of these issues fit into an interesting puzzle about both the wireline and wireless sides of the industry, including whether T-Mobile will mean more to enterprise customers in its current guise or a new one. Deep down I have to believe that even John Legere realizes it’s a no-win proposition to blast truth-tellers like RootMetrics. By yesterday he had dropped the whole subject, instead posting an entirely happy and energy-filled Periscope video of him visiting T-Mobile’s sales offices in Springfield, Missouri and – perfectly appropriately – lauding their high J.D. Power customer service scores.
Indeed I believe RootMetrics got his goat precisely because its measurements reveal the financial, market positioning and industry consolidation pressures that Legere and his bosses at Deutsche Telekom are currently facing. Hey, it’s at least as pressure-filled for all the other players as well, even if they control their day-to-day reactions better. The next steps will be fascinating to watch. Join me at the webinar next Tuesday for a nice deep dive on the subject.