During my interview with PAETEC's COO, E.J. Butler, at ITEXPO East last week, some of what we talked about was the Profitability Proforma. The Profitability Proforma is a toolkit for the PAETEC sales force to use to provide a price quote to the prospective customer while still being a profitable circuit sale for the carrier.
Most telecom sales people sell on price - agents too. Often I have seen bidding wars - agents versus direct sales of the same carrier - with the price getting lower and lower to the customer. This is not a profitable process. The carrier loses badly needed revenue in this process and the agent loses commission. Lose-lose!
Bad enough when it is a CLEC biding war with agent versus one or more direct salespeople of CLEC's. I see this often, especially from NuVox. Is there a winner here? Maybe the customer. But certainly not the carrier or the shareholders of the carrier.
Nuvox is known in the Southeast as selling everything T1 for $400 - sometimes as low as $375. Inter-connects love it because pricing PRI's and Integrated T1's is easy. $400. And the inter-connect (PBX vendor) gets commission - usually 15-18% - on that $400.
Here's the problem:
At $400, the agent gets $72 per month. The CLEC has ILEC costs that run between $22 and $300 depending on whether the serving wire center is a physical collocation or whether the loop is Special Access. Let's take the average of $150 per loop. Of the $400 more than half is gone before fixed costs and charges are even paid. For example, the colocation at the CO runs about $2500 per month. Transport into/out of CO has a cost. Bandwidth, SS7, inter-carrier compensation for voice minutes have a real cost. Porting the numbers has a charge. Loop installation has a charge. The install tech costs money as does the IAD or other device at the customer premise. And that doesn't take into account admin, payroll, taxes, billing, etc. -- all the costs associated with billing for a circuit before profit.
The Nuvox numbers are that the 90k customers brought in revenue of $561M which is ARPU of $520 per month. How did the $400 become $520? Well, taxes, fees, surcharges and some multi-location customers.
One of my clients pointed out that when Windstream takes over Nuvox something has to give. Windtream states to the FCC "that the proposed transaction will be seamless to subscribers and will not adversely affect the rates for service that customers currently experience. Applicants maintain that the proposed transaction will strengthen Windstream's position as a competitive LEC outside of its incumbent LEC footprint, giving it entry as a competitor to dominant incumbent LECs in new small and medium-sized markets. Applicants contend that the proposed transaction will result in efficiencies and economies of scale that will improve the combined company's economic viability, and thus, its ability to attract financing to invest in and offer new and innovative services.
NuVox has about 1,700 employees, and services 48 locations in 16 contiguous Southeastern and Midwestern states. Since Windstream just laid off, Nuvox is going to lose more than just its leadership. But they will need to cut expenses, so Agents may lose some points.
At the end of the day, agents should want their vendor to be profitable. Why? So you continue to get paid for one. Want another reason? Because the lower the price, the lower the commissions. Everyone in telecom should want the industry to be healthy. There's a lot of debt to pay off. You need profit to do that.