TC2's David Rohde on Telecom
By Ben Fox Posted November 8, 2013
The following is a guest post by TC2 managing director Ben Fox.
T-Mobile is pitching itself as the “Uncarrier” – behaving differently from the traditional
carrier model and claiming that it is on the same side as its customers, and by proxy suggesting that its competitors are all on the opposite side of their customers.
The Uncarrier approach that is currently receiving the most attention from enterprise customers is the potentially mold-breaking approach to the costs of using wireless devices while travelling outside of the US – i.e., international roaming. International roaming has long been a sore point for all wireless users, consumers and enterprises alike. The cost of making voice calls, sending text messages and using data services while roaming internationally can be prohibitive, and is viewed as a cash cow for the carriers.
All companies have experienced the bill shock from the ill-informed user who did not realize that using their US aircard to watch TV via their home sling box while in a hotel in Europe can result in thousand-dollar-plus data roaming charges, or that sitting on a conference call while in Asia costs over $1 a minute.
Hence T-Mobile’s offer to charge an extremely attractive international roaming rate
of $0.20 per minute, and to include unlimited data and texts at no charge across a significant number of countries, is getting a lot of attention from enterprise users. And indeed T-Mobile’s enterprise account teams are vigorously pushing this pricing initiative.
The key question for T-Mobile would appear to be whether this (and some of the other Uncarrier initiatives they are running with) can help them to become relevant again for US enterprises. T-Mobile has never been much more than a bit player in US enterprise deals, and when AT&T announced its attempt to acquire T-Mobile US, most enterprise customers switched off from T-Mobile completely. But T-Mobile is taking radical steps to up the ante in the US wireless market, and clearly has Sprint in its sights.
But as with all of these things, the devil is in the details. The unlimited data roaming allowance is only for 2G data usage – a.k.a. GPRS. That’s two technology generations behind LTE. Clearly, limiting the offer to lower-speed technologies is what allows T-Mobile to make this generous offer – no one will be watching video, or indeed consuming huge data volumes when they are limited to such slow and dated technology. But giving executives that are used to LTE data speeds in the US a service that is limited to GPRS when they leave the country could just disillusion them all over again as to T-Mobile’s place in the enterprise market.
In some ways this international roaming pricing initiative also brings T-Mobile full circle. In the early days of enterprise wireless deals, companies often defaulted to T-Mobile for those users who travelled internationally because T-Mobile was regarded as having more comprehensive roaming agreements with international wireless carriers than the other US carriers. That perception/reality long since passed. Yet with this new international roaming pricing structure, and despite the 2G data limitation, will enterprises again start to consider T-Mobile as the preferred carrier for users that travel internationally? For T-Mobile it may be a big enough win that this international roaming pricing structure is even providing enterprise customers a reason to reach out and speak to their T-Mobile account teams again.
By David Rohde Posted October 9, 2013
For a company that once sold off its business telecom division, Time Warner Cable is acting awfully interested in the enterprise market again.
On Monday Time Warner Cable ponied up $600 million to buy DukeNet, a Southeastern metro fiber provider and regional broadband carrier. DukeNet had been openly up for sale by electric and gas utility Duke Energy (ironically in another industry that has dabbled in telecom) along with a private equity firm that also owns a stake in DukeNet.
Not many enterprises outside of DukeNet’s direct physical footprint have dealings with it yet. But there’s a bigger picture to Time Warner Cable’s purchase. Like a recent precedent-setting acquisition in Tulsa, Oklahoma, the TWC-DukeNet deal represents one of the first cases of a cable company making an acquisition of a telecom carrier that isn’t constrained by the cable company’s “franchises,” which are the territories originally granted to it by counties and municipalities for cable TV service.
DukeNet has a broader reach than Tulsa’s EasyTel, the first carrier acquired under this new merger authority that the FCC gave cable companies last year. DukeNet is centered in the Carolinas, as you might guess from its name, but just like its soon-to-be former parent Duke Energy it has expanded south and west for a total of 9,000 route-miles. Many of these areas are obviously outside of Time Warner Cable’s own franchised territories, which like all big cable companies are scattered like polka dots across the landscape. And it’s really Time Warner Cable’s activity on its own leading up to the acquisition that suggests the true underlying significance of the DukeNet purchase.
Many enterprises have learned that they can add competitive juice to their procurements by inviting in cable companies and seeing what happens – not least because some of these enterprises have seen their own locations go rogue and buy Internet access from those cablecos. These procurement results can be mixed, depending on which big cable company you engage, what vertical industry you’re in, and how granular your network is. But TWC has appeared happy to provide a bid for every possible location where it currently provides service. Just as important, TWC tends to be a key underlying last-mile provider in bids from managed services providers like MegaPath that act as specialized virtual network operators on top of key partners’ physical Layer 1 infrastructure.
Actions like the DukeNet acquisition signal that TWC knows that to take its own enterprise telecom business to the next level, it needs to break out of the franchise territory trap and learn telecom interconnection and regulatory processes for more contiguous geographic offerings that match real enterprises’ footprints.
So what of “TW Telecom,” the years-ago spinoff that is usually frantic to disclaim its historic connection to Time Warner, going so far as to make its official name the all-lower-case “tw telecom” as if that fools anyone? It has also been admirably expanding its footprint of business locations where it has last-mile building entrances. And, being a telecom rather than cable provider, it has not been constrained by “franchise territories” and instead has been building out in whatever metro areas it feels make sense.
Then consider the fact that TW Telecom and XO Communications are the two second-tier telecom carriers most often said to the candidates for sale. Could Time Warner Cable actually wind up buying TWT back for an essentially national collection of facilities-based alternatives to the Big 2 duopoly? For that matter, could another cable company like Cox or Comcast get the same idea, making TWT a company that started out in one entertainment and cable TV empire and ended up in another?
Let’s put it this way: There’s something about your business as an enterprise – especially if you have a large number of branch offices, stores, franchises or distribution partners – that is getting very enticing for competitive players out there. The FCC’s rule change to allow cable companies to make this kind of acquisition may not have been the most exciting news story of 2012, but it’s now having an impact precisely because your business, which increasingly calls for multimegabit broadband access at many locations that used to get by with T-1 (or 56K), is attractive to so many players. So keep your eye on these developments, and don’t sell yourself short in procurements. The fact that a cable company that once disclaimed telecom is now giving multiple indications that it wants back in pretty much tells you all you need to know.
By David Rohde Posted October 8, 2013
The Zayo Group is a name that should be on many enterprises’ contact lists. It’s part of a group of carriers variously tagged as metro fiber providers and national long-haul broadband providers, but really different from the old style of CLECs and “second-tier” national carriers.
From the beginning these newer carriers have been facilities-based, large enterprise-focused, and – for lack of a better term – competent. Zayo is the most acquisitive of the bunch and gains a lot of its reputation from its June 2012 acquisition of AboveNet, a highly regarded alternative to Verizon for Ethernet and other high-bandwidth services in New York and other northeastern and mid-Atlantic markets.
Yesterday Zayo made another significant acquisition. It picked up FiberLink, a dark fiber provider in markets ranging from Chicago to Denver. Slicing into the middle of country is important for Zayo as it becomes more of a national brand. True, the 1,200 route-miles it picks up with FiberLink are dark fiber, so they’ll have to be lit to mean a lot to enterprises. But FiberLink has a significant presence in Des Moines, an important locale for financial institutions and other large enterprises that like to place their data centers there.
And here’s a detail worth noting: Telecom Ramblings says this isn’t one of those acquisitions where there’s a lot of waiting around (a time vacuum that merging companies usually fill up with hype and blather). Zayo is “drawing a bit of its $250 million revolver to make it happen,” which sounds like something out of an old Western until you recognize the financial jargon about a revolving line of credit.
Acquisitions are hard enough on everyone – how nice is it to see a company simply have a bank loan ready to cut a check and close the deal. You can take that as some indication of the relative financial stability of the metro fiber specialists compared to the older CLEC model, whose business case tended to rest on the small business market, difficult regulatory fights, and, many times, copycat offerings.
The players in this metro and intercity fiber field aren’t always the easiest to keep track of. There are any number of both dark fiber and network-services-ready carriers with various combinations of the words “light,” “link,” and “fiber” in their names. Enterprise focus is always something to keep a close eye on, because there’s no question that some of these carriers also see gold in wireless backhaul for other carriers. Not that there’s anything wrong with that, to quote an old Seinfeld catch phrase. But longstanding experience teaches that only carriers who mean it about large enterprise in terms of scalability and customer service have the staying power to deserve a place on enterprise network supplier bid lists.
For those carriers that fit the mold, consolidation is helping to form the core of a compelling alternative to the AT&T-Verizon duopoly on the wireline side. I’m sure there will be more to come.
By David Rohde Posted October 4, 2013
Choice is good, right? Too much of it, or the wrong kind of choice, really isn’t very good.
See if this scenario rings a bell. You’re expecting an offer from a carrier in any sort of procurement, whether in competition with another supplier or not. The carrier’s account manager contacts you and says they have good news! You’re getting two or three offers to choose from.
Let’s say the first offer is for your current demand set at okay prices. The second offer is for the same stuff at better prices, but for a year longer term. The third offer is for all you were bidding out and a bunch of services on another contract plus maybe some managed services the carriers thinks you need (or suspects you hold with a different supplier), all with smoking-hot prices – and a 5-year term with a combined term commitment wrapping the whole package together.
Which is the best offer? More to the point, which is the real offer? The sad truth is that, in a certain sense, none of the offers is real. Oh, you can take one and they’ll have to give it to you, but don’t expect everyone to be happy the day after (or, alternatively, expect all of your team to go into paralysis about a decision). You’re left with the prospect of no flexibility to go with another supplier for anything, or the sinking feeling that somebody else out there is getting better prices than you, because now you’ve seen them.
Guess what? You’re right. Somebody else is getting a better deal – it was presented to them with full conviction by the supplier without the competing quid pro quos of your situation of multiple “choice.”
When a supplier comes back to you with different pricing options, it may be a red flag that you’ve gone into the procurement without having your negotiating leverage truly lined up. It may also be a sign that you’ve overplayed your hand in showing the supplier your “shadow spend” or uncommitted traffic, whether it’s in your current inventory or expected growth. In particular, there’s something about doing this in any kind of single-source procurement – such as a rate review, “RFP avoidance” offer situation, or standalone request for bid – that potentially puts you in the worst of both worlds.
Why is this especially important right now? Because we’re entering the era of what I called the Bear Hug Offer. One of the principal impacts of Verizon’s buyout of Vodafone’s share in Verizon Wireless will be the ability of Verizon to do whatever it wants with VzW. It’s no secret to Verizon that AT&T has been out there for some time with Bear Hug Offers tying up wireline, wireless and “local telecom” spend. (Actually, so has Sprint – except they have no real local landline network anymore, and their combined wireline/wireless offers haven’t done them much good.)
Verizon is almost certain to take up the Bear Hug practice itself. The company already is giving more power over entire customer relationships to Verizon Wireless account managers, who are less practiced in competitive bidding than the legacy national wireline people and their MCI heritage. You can project that whether the increasingly monolithic Verizon makes its best pricing offer to you up front, or keeps that offer behind “Door Number 3,” will depend on how much leverage you hold and how much savvy you apply in modeling your demand set.
Here’s where the basics of leverage come in. You want a substantial cushion between your current total current commitment and your total current spend, as well as a minimum of effective subcommitments such as long-term Minimum Payment Periods for individual circuits. After all, the Bear Hug isn’t necessarily bad – as long as it has a reasonable commitment you can rapidly fulfill without any tricks, and best-practices terms and conditions. Same with the offer that sticks to your initial scope, as long as it doesn’t withhold the best pricing!
AT&T and Verizon are both ready to pounce on any little mistake you make in this arena. You certainly don’t want the ultimate frustration of seeing smoking pricing without having any practical ability to actually contract for it, or a long-term deal with pricing that will rapidly turn out to be outdated. A little planning goes a long way here.
By David Rohde Posted September 27, 2013
It’s been a game of leapfrog for AT&T and Verizon as they’ve been introducing fixed-wireless residential services over LTE.
Verizon has had a data service like this for some time, but over the summer AT&T rolled out a service that emphasized it included a home voice telephone line in addition to broadband data. This week Verizon added voice to its existing broadband data service, introducing what’s now called Verizon 4G LTE Broadband Router with Voice.
Of course it’s nice that LTE is or will be national, and that neither AT&T nor Verizon get to dominate a “territory” as in traditional telephony dating from the RBOCs. But thinking that these two services will therefore go head-to-head is probably not quite the way to look at this. Nor is a question I’ve seen come up among tech writers this week expressing amazement that Verizon would introduce a voice and data home service that appears to compete with FiOS.
Tactical use of these services is probably more like it. Each can go into the other’s ILEC territories and promote these services. I daresay Verizon is capable of shifting its ad dollars to make sure that LTE Broadband Router with Voice gets more play in Atlanta, Chicago, and L.A. (all AT&T incumbent territories for “local” telecom) than the Northeast and mid-Atlantic. Meanwhile, I’ve heard radio ads for AT&T’s Wireless Home Phone and Internet service here in the Washington, D.C. market, which is legacy Verizon turf.
But there’s a another, subtler play these carriers can make in their own home markets. Given the carriers’ drive to end their obligations to maintain copper plant, cannibalization of their own remaining DSL lines is something they clearly wouldn’t mind, if they can accurately target those customers. And there’s something to be said for getting LTE routers out to people’s homes regardless. Five years from now that box may present more of a baked-in “incumbency” to a consumer or small business office than anything else.
For Verizon, under “Share Everything” the usage on this service also gooses those eye-popping statistics I mentioned yesterday for Average Revenue Per Account. It’s not like any household members are going to give up their smartphones just because they have a new type of “home telephone line.”
The effect here on enterprise developments in fixed wireless as a backup or even primary access line is indirect, especially with the less-than-thrilling initial pricing of these SOHO-type services. But it’s interesting to note that as of this week, both of the Big 2 have what they at least represent as a full voice and data service that constitutes a home telephone line and oodles of data bandwidth. Watch for LTE to continue its massive impact on all segments of telecom and network communications.
By David Rohde Posted September 26, 2013
When President Obama said on Tuesday that the insurance exchanges due to start next week would provide “high-quality health insurance for less than the cost of your cell phone bill,” was it a revealing statement about Obamacare, or a revealing statement about the telecommunications industry?
This being a strictly non-partisan blog, I’m going leave the discussion of healthcare reform to others (and I only call it “Obamacare” because that now appears to be the universally accepted name for the Patient Protection and Affordable Care Act of 2010). What I do know is that the president’s statement reflects a key cultural change in the way that Americans look at the assumed value of telephony, multimedia and the reach of the Internet. In an age of consumerization and BYOD, this remarkable shift deeply affects enterprises in their network deployment and purchasing decisions.
For a number of years, “cell phone” providers felt stuck in a rut where the industry metric of the Average Revenue Per User, or ARPU, held steady between $40 and $50, and they tried mightily to get the figure to rise. Even this level was considered scandalous by many watchdogs who feared that the popularity of cell phones might be defeating the main effort of “telecom reform,” which was to get first long distance, and then hopefully local phone lines, to dramatically drop in price via competition.
Then something changed. Although the carriers eventually had to pay equipment subsidies to get users to take up the type of smartphones that would cause them to dramatically deepen their engagement with minutes and data, the strategy basically worked. ARPU climbed above $50 to past $60 and $70, depending on the carrier, time of year, and of course their policies on things like overage and messaging charges.
Then, with the end of many carriers’ unlimited data plans and the rise of combination schemes like Verizon Wireless’ “Share Everything” plan, the entire metric shifted. Verizon Wireless started reporting the Average Revenue Per Account, or ARPA. With very low rates of churn, ARPA, although it might take several device purchases to generate, represents a form of substantial, virtually guaranteed, and repetitive revenue for the carrier. Verizon Wireless’ ARPA in the second quarter of 2013 was – are you ready for this? – $152.50.
These are the kinds of numbers that would stun – indeed, appall – the FCC commissioners of the 1990s who promoted, shepherded and implemented the Telecommunications Act of 1996. Similar figures that represent wireline spend per household are a little harder to fit into this box because many such “telecom” services, like Verizon’s FiOS, partly represent entertainment and television. Oh but wait, TV is in the FCC’s purview, too. If you had told such past FCC chairmen as Reed Hundt and Bill Kennard in the Clinton administration and Michael Powell in the early years of the George W. Bush administration that, in 2013, carriers like Verizon and AT&T would be reporting consumer wireline ARPU generally above $100 per month, I’m sure they’d be horrified.
What’s happened, of course, is not a rise in the cost of like-for-like technology – to the contrary, the price per bit of data continues to drop dramatically and the actual cost of a landline voice minute is crumbling toward the sub-cent range – but rather an expansion of the pie by the carriers. In essence, they have baked all-network-access all-the-time into consumers’ psyche, and they have the rewards to show for it.
This is important to remember as the third quarter of the year comes to a close and the big carriers prepare their next earnings reports. Statements to be wary of are the ones where they whine about the cost of subsidies, and particularly reports from news media that “all of the profits” for given carriers come from wireless and none from wireline. Much of that is based on a lumping together of dissimilar wireline structures – what tends to hurt carriers is simply that they have one product in inventory they really don’t want to sell and that nobody really wants to buy anymore: the traditional, standalone, copper-based residential telephone line. Dig a little deeper and you’ll see that AT&T some years ago, and more recently Verizon, has developed a statistic that essentially represents all the wireline services that enterprises now buy – basically every transport and managed service that came after frame relay. I’ll be highlighting this category in the carrier earnings and you’ll see how healthy it is for them.
And as we’ve noted several times, wireline and wireless do feed one another in symbiotic fashion as the carriers compete for the big enterprise deals with increasingly common bear-hug offers that combine all of their services. That factor alone was worth part of the $130 billion Verizon is paying Vodafone just to make sure it can do whatever it wants with Verizon Wireless.
You know the expectations that have arisen among your end-user base, and how that creates cost counter-pressures against the general trend of technology and telecom cost deflation (and with the wrong kind of deal can also force you to pay too much for low-usage individuals). Don’t think all this hasn’t devolved to the benefit of the big carriers. Knowing how to unpack their financial numbers and really see their profits is part of knowing how to go for the gold in your own telecom deals in this new environment. Look for this continuing guidance here, and now on Twitter where you can join me @RohdeTelecom. It’s a fascinating new environment for everyone combining technology savvy, rigorous financial analysis, and people management skills.
By David Rohde Posted September 24, 2013
BlackBerry’s quarterly loss of nearly $1 billion and impending layoff of 4,500 employees announced late last week pretty much puts a wrap on the company’s chances of being a strategic vendor of smartphone devices going forward.
Enterprises simply do not appear to be interested in upgrading to BlackBerry Enterprise Service 10. That’s something that I presume that the Canadian investment firm Fairfax Financial Holdings realized in making a $4.7 billion offer yesterday to buy out the firm. Or at least I hope that they realize it.
Fairfax Financial is a Canadian insurance and diversified holding company that already held about 10% of BlackBerry’s shares. Fairfax’s sub-$5 billion offer would have looked like a cheapskate buyout for BlackBerry at far less than its stock market value until BlackBerry’s latest losses were announced and the stock went into another skid. The company was worth considerably more just a week ago.
Fairfax’s offer is an unusual sort of “preliminary” bid that may be being used to scare up other offers, and gives Fairfax itself unusual freedom to back out. But the prospects for speculation on BlackBerry by other big-money investors are slim. Some enterprise customers do still have a substantial base of BlackBerry users, but even some of those companies are reporting trouble getting their hands on inventory of the older BlackBerry devices in their existing contracts, with the newer Z10 smartphone having barely made a dent. One of BlackBerry’s main problems is a huge inventory of unsold devices. Apparently they’re all the wrong devices for what the market will actually buy right now.
Officially, BlackBerry is pulling out of the “consumer” business and sticking to “business and professional” markets, playing to its original strengths. That would be an admirable approach were it not for the fact that such a categorization has a clunky sound in the fall of 2013. Enterprises everywhere – even in the financial and government sectors where BlackBerry still has substantial presence – are under the pressure of the consumerization and BYOD trends that helped slice BlackBerry apart.
BES 10 could have and should have been a player in mobile device management and security services. Problem is, BYOD cracked open the BlackBerry franchise in the corporate world, and other MDM platforms also comprehensively provide management consoles for an entire range of Android, Apple and BlackBerry devices, even including the Z10.
Like some other network-related suppliers, BlackBerry could make security-conscious vertical markets like healthcare as well as banking and government its pure focus going forward. But a layoff of 40% of a vendor’s workforce essentially freezes enterprise buyers who do not want to take on a strategic vendor that cannot guarantee that the assigned primary point of contact will still be sitting at the same desk in two weeks. Against that problem, the fact that BES 10 in return has rolled out support for iOS is little incentive for enterprises to turn to this platform.
Whether Fairfax Financial will be able to harvest BlackBerry’s patents is of relatively little importance for enterprises seeking stable vendors. One silver lining: If you have a stash of BlackBerry users who may eventually want to move on, they could be real catnip to carriers when you discuss equipment funding approaches in your next wireless contract. But it’s one thing for a Motorola to go into the hands of Google and Nokia into Microsoft’s – at least Google and Motorola are IT companies. BlackBerry’s likely descent into the arms of a pure investment company is unlikely to put your needs at the top of the agenda for that company going forward.
By David Rohde Posted September 23, 2013
Are all the prices stabilized in your contract? Likely all but one – surcharges. Here we go again: the contribution factor for the Universal Service Fund is going back up on Oct. 1 to 15.6%. It’s currently 15.1%.
That straightforward half-percentage-point increase provides a nice way of framing the correct way at looking at surcharges right now: It’s a 0.5% surcharge increase on WHAT, exactly? That’s actually the key question, with no longer an obvious answer.
It’s a given that percentage-based surcharges are outrageous, especially since over the summer there were also nonsensical increases by both Verizon and AT&T in what I’ve termed the WSTSLIRTARC (the Wireline Surcharge That Sounds Like It Recovers Their Actual Regulatory Costs). As IP data and voice take over the world of enterprise networking, with frame relay now fully considered a legacy service and POTS voice yielding to “transformed” networks with SIP trunking and unified communications, the question of whether each dollar of spend gets these surcharges or not is now as important as the level of surcharges.
Here are four factors that may give you a surprising result on surcharge applicability:
- Whether the rate element in question is a port, a subscription charge, or a dedicated access circuit. (Not to be coy, some IP data services where carriers typically do not impose the USF and other surcharges will still see the surcharge imposed on the interstate access line, T-1 or otherwise.)
- Whether a service is on one kind of contract platform from a large vendor or a different one. (There’s not much variability on the USF applicability here, but there may be on the other charges.)
- Whether the carrier who wins the contract likes to “compound” charges by calculating USF on the other surcharges as well as on the transport rate element itself.
- Whether the charge in question involves a “safe harbor” or invokes an “if it quacks like a duck, it’s a duck” sensation in terms of the historic question of whether a given service is a basic telecommunications service or not.
Confusing? That’s certainly understandable. In the early days of SIP Trunking rollouts, my colleague Janis Stephens gave us a glimpse of how many of these factors start to play out in what was then a relatively new service. But this field continues to evolve. The bottom line is that as enterprises move heavily into “network transformation,” where they take advantage of the opportunity to put their next-generation IP voice and data network out to bid, surcharge application becomes an inherent part of the calculation between and among suppliers, not an automatic add-on to everyone’s bid.
If you need consolation over the fact that mid-year 2013 has now seen official increases in almost every kind of interstate percentage surcharge, you can take it in the fact that there are interesting surcharge discoveries to be made when you put your next network out to bid. But that requires preparation and action on your part in the form of effective RFPs. Just think of the latest USF move as a half-percentage-point further increase in the motivation for this kind of planning.