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What Enterprise Customers Need to Know about Avaya’s Bankruptcy

By Posted January 23, 2017

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

On January 19 Avaya filed for Chapter 11 bankruptcy protection.  While hugely significant, news of Avaya’s bankruptcy proceeding hardly comes as a surprise.  Reports of the company’s plan to declare bankruptcy had been circulating in the financial media for over a month.  For the last decade, it had been carrying an unsustainable debt burden dating back to when the company was taken private by equity investors in 2007.  The decision to proceed through bankruptcy proceedings also looks carefully planned:  the well-placed rumors of its impending filing suddenly appearing in reputable financial publications, the decision to file for bankruptcy in the middle of a news cycle fully loaded with coverage of a presidential inauguration—both moves almost certainly were part of a well-developed plan to prepare its customers and signal the private equity market for the announcement while avoiding too much press attention that would be focused on other news.

If you are an enterprise customer that uses Avaya products and services, you should plan your next moves with just as much care.  Working with a vendor in bankruptcy is challenging and can be complicated, especially a vendor that provides mission critical infrastructure, software and support.  By developing and implementing a thoughtful strategy, enterprise customers can minimize significant disruptions to their current environment caused by Avaya’s bankruptcy status and avoid locking themselves into a long term relationship if Avaya’s reorganization falters.  Most importantly, enterprises should stop repeating the tired maxim that they are an “Avaya shop” with products and services that are “too sticky” to move to another provider.  Instead, they need to position their companies to transition to other companies’ next generation technologies in the event that Avaya doesn’t fulfill its current obligations to its customers in the short term or fails to release new products and software releases that allow customers to keep pace with their network innovation strategies over the medium and longer term.

First, let’s dispense with a common misconception.  Avaya is not going out of business or ceasing to provide service and support to its customers as a result of its bankruptcy filing.  At least not right now. The purpose of bankruptcy protection is to give Avaya some breathing room from its creditors so that it can reorganize its balance sheet and emerge as a viable enterprise while at the same time continuing to conduct its normal revenue generating business activities.  Inevitably, entities that hold Avaya debt will be taking significant losses.  For enterprise customers, Avaya’s bankruptcy will probably cause few immediate and direct effects.  Over the long term, however, it could be very consequential.

So, what should you do?

First, check your contract.  Your contract will continue to govern your relationship with Avaya during its period of bankruptcy.  Review your agreement, including all your amendments and statements of work for particular provisions you may have negotiated that will be particularly useful in dealing with a financially distressed vendor.  These include:  any objective performance measurements (and their remedies) that you will expect Avaya to (continue to) satisfy; staffing/key personnel/account support/contract stewardship requirements; commitments to buy minimum amounts of service or number of products/licenses; the length of term remaining on any of your support contracts, equipment purchase or financing agreements; software licenses, or managed service statements of work; and responsibilities regarding Avaya’s transfer of assets or sale of affiliate companies/product divisions.  You want to establish the baseline of your rights and Avaya’s obligations to continue providing you service during its reorganization, including any resulting spinoff or divestiture.

It’s worth pointing out that termination rights in situations like this are not nearly as important or useful as some customers think.  In the short term, customers’ primary concern almost always relates to Avaya’s continued support and innovation of their existing infrastructure, not the customer’s ability to walk away from Avaya on 30 days’ notice, which is impractical in every sense.  For reasons that go beyond the scope of this post, even if your agreement contains a provision allowing you to terminate for cause as a result of Avaya’s bankruptcy filing, such a provision is likely to be unenforceable.  So focusing on how to manage the relationship you have for its actual lifecycle under your agreed upon terms is a better strategy than looking for ways to prematurely end it.

Arrange to Sit Down with Your Account Team/Account Support.  One of the biggest short term threats to the stability of your Avaya relationship is the departure of the key people that support your account and execute the terms of your deal.  A company in bankruptcy inevitably struggles to hold on to its best people and to attract top talent in its hiring.  You should be proactive, when Avaya is trying hardest to engage with its nervous customer base, to sit down with the team that supports you and their leadership to set your expectations about the support levels you expect, what they expect to deliver, and to lock down any additional measures Avaya will agree to undertake to satisfy your concerns.  Listen to what the team and leadership is saying about what’s going on—they may be more open than you’d expect and, if not, you may find reading between the lines is not that difficult.  Get your leadership engaged to improve the dialog.  You should insist that anything agreed upon should be reduced to writing and included in your agreement if it’s not already in there.  Avaya will first resist then struggle to comply with this request, but be persistent.

Show Extreme Caution in Signing New Deals/Extensions/Lock-ins.  If you are currently negotiating with Avaya on substantial new projects or investing in new infrastructure, take time to consider the longer term implications of your decision.  Contracting with Avaya while it is undergoing bankruptcy proceedings will almost certainly be more challenging than dealing with Avaya pre-bankruptcy (if you can imagine that…).  New procedures will be put in place on their side for the approval of new deals, third parties will be required to approve new terms especially those with any kind of creative financing arrangements, and you will find them slower to respond when their attention may be focused elsewhere.  To the extent possible, if you must go forward with new projects or purchases, take a second look at long term commitments to specific equipment purchases or software platforms.  Build flexibility into your deal to allow you to consider other options at a later date, so that whatever Avaya becomes you have as many options as possible if it does not meet your organization’s needs.

Coordinate with your Third Party Avaya Support Provider.   Many enterprises use a third party provider to maintain and support their legacy Avaya equipment.  If your maintenance provider is supporting end of life or near end of life equipment, you need to nail down what kind of support, and at what price, you will continue to receive such third party support if Avaya significantly reduces or terminates production of spares or service/support of its legacy equipment.  You may face the risk that Avaya’s reorganization reduces the availability of components needed to support legacy equipment, results in a higher cost to your third party provider to obtain parts and maintain equipment, and potentially forces obsolescence in your infrastructure sooner than you had planned.  Review your maintenance contract to see what price increases will be flowed through to you and start coordinating with your third party provider now before a significant change in Avaya’s production or support of legacy equipment affects your network.

Develop a “Non-Avaya” Plan B.  Now for the heavy lift:  you need to start thinking about a post Avaya world and developing an executable and implementable technology and UC strategy for your company that uses vendors other than Avaya.  Avaya’s bankruptcy has belatedly focused enterprise customers’ attention on the reality that there are alternatives to being an “Avaya shop.”  Getting there, for entrenched Avaya customers, requires an analysis of your existing environment and a comprehensive migration and sourcing plan.  This is readily achievable, but it won’t happen accidentally; and if you do proceed with development of a plan, it can’t and won’t happen overnight.  Focus the resources available within your organization and give yourself a reasonable amount of time to develop such a plan.

If the Avaya reorganization goes well, you may not want or need to move to another provider.  But if, as was widely reported, Avaya was shopping around its call center business unit, the company’s reorganization may result in a completely transformed company that addresses its own financial problems but does not serve your company’s technology requirements.  In the press release announcing its bankruptcy filing, Avaya specifically stated it was holding on to the call center business and intended to include it as part of its long term strategy.  But take that with a grain of salt—reports indicate that it simply couldn’t reach agreement with the buyer on the price and terms.  It may find a company with which it can.

How Much is your Benchmarking Clause Worth?

By Posted December 2, 2016

In the ever spinning merry-go-round of tactics that vendors use to claw back contract benefits that they have previously agreed to, we’ve seen a recent trend of vendors seeking to remove benchmarking language (also referred to as “rate review language”) from contracts by purporting to trade the benchmarking clause for additional pricing concessions (typically as part of a contract extension negotiation, or even, ironically, as part of a contract benchmark process).  This isn’t a particularly new tactic, but has been coming up a lot recently.

Trading future potential savings for actual savings now can be a very tempting proposition.  But robust benchmarking language is a critical contractual component of a best in class vendor contract.

Benchmarking language provides a right for the customer to open their deal part way through the contract term to review and update their pricing (and possible service levels and other terms) via a defined process that the customer and vendor negotiate into the contract.  The purpose of the process is to keep the pricing in the contract competitive over the life of the deal in light of wider market pricing trends and improvements.  Telecommunications and network services price points continually change, and as is true in most technology sectors operating in competitive markets, they decline over time.  Accordingly, if a contract does not contain a contractual mechanism to re-set pricing in-line with such market pricing on a regular basis, then the contract pricing will rapidly become out-of-market, and the customer will be over-paying for its services.  The predetermined interval for a formal rate review is typically annual, or may occur at some fixed midpoint such as halfway into a 36-month contract.

Rate review clauses and processes are also a crucial tool because your consumption of services can grow unexpectedly over the course of a contract, or the mix of services can significantly change (such as migration from TDM voice to SIP trunking).  Thus services, or particular circuit bandwidth price points or countries which were not heavily used at the beginning of the contract, are now mainstream and are suddenly consuming a much larger portion of the budget than anticipated.  The ability to leverage the benchmark process to re-negotiate market pricing that may not have been heavily negotiated at the start of the contract (because at that time those services were not heavily consumed) is an invaluable tool for optimizing your costs in-line with the market.

Of course the vendors dislike conducting rate reviews as the vast majority of the time they result in price-downs for existing services.   You will never have a sales team remind you of the availability of a rate review during the life-cycle of the contract when the interval is upon them!   Never mind that fact that your bandwidth capacity has grown by 50% over the same period resulting in healthy revenue growth, or that in some cases, certain administrative fees have been raised to increase their margins.  In fact, with the ever increasing pressure on the sales forces to increase net revenue, we are even seeing vendors providing ‘proactive’ offers addressing issues such as technology migration, but in exchange, requiring (amongst other things) that rate review clauses be eliminated.

Rate reviews are a standard component of almost all large enterprise contracts, and, as discussed, a critical tool for clients to ‘right-size’ their pricing based on their ever changing consumption needs and market dynamics.  Thus accepting a vendor’s forecast of future needs (and pricing) at the beginning of a contract, over the opportunity to evaluate your actual needs and the market place once you are under contract, is rarely, if ever, recommended.

Furthermore, in our experience, if a vendor works hard to try and get rid of your rate review provision, then that is a clear sign that you have strong benchmarking language, and even more reason not to agree to its removal.  It will be far harder to get back later.

And the big secret?  Most of the time, despite your vendor’s protestations to the contrary, you can have your cake and eat it too – with good negotiating leverage (which of course strong benchmarking language provides) and by taking a stand with the vendor regarding your unwillingness to remove the benchmarking language, we find that ultimately the vendor will agree to whatever deal it has put on the table, and also keep your benchmarking provision.

Minimalism won’t cut it in your next procurement

By 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.

Cult of personality is not going to alter the future of spectrum or the industry

By 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.

Hordes of spectrum: Better together if the buildout won’t happen otherwise?

By 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.

SD-WANs and Hybrid WANs are an opportunity to upgrade, reprice or replace Cisco

By 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.

Wholesale telecom makes money again, and why that matters to you

By 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.

Verizon’s strike settlement: Accommodation for now, good riddance for later?

By 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.