On Rad's Radar? - CLEC Archives

Will It Rain for EarthLink in the Cloud?

2012-05-24T04:32:20Z

EarthLink is really pulling out the umbrella to get it to rain in Cloud. EarthLink picked up XO's former CMO, Michael Toplisek, as EVP of IT Services. The press release says that he was President of Concentric Cloud, but that was for a hot minute, since XO only rolled out that brand 2 weeks ago. He's not a cloud guy - he worked at XO, Global Crossing, MCI and Frontier - all telcos. The only IT he got near was conferencing at GC. Why would you spin this resume? (Especially after the Yahoo resume-gate.)

EarthLink rolled out 4 cloud packages. "The Cloud Launch Pad, the Cloud Entry Bundle, and the Secure Email Bundle enable customers to economically partner with EarthLink to complement their internal IT resources by leveraging a comprehensive mix of IT Services and security experts in an enterprise class data center environment." [Source: PR Newswire] FYI, "Cloud Launch Pad is designed for organizations that want to leverage the benefits of a virtual environment or that currently run VMware® environments and need additional elastic computing capacity."

These products allow the business to keep things intact, but layer on Cloud Services from EarthLink to complement the current system or outsource extra capacity or services.

The Secure Email Bundle is with Zimbra, encryption and archiving.

The fourth package is Cloud Workspace, which is hosted virtual desktop.

An interesting play since it sounds like it requires MPLS. If so, then ELNK is tying their products to MPLS, probably to insure quality of service delivery.

Will they be able to sell these services against other MSP's and VMware partners? We'll see. It will depend on training - not just salespeople but the marketplace as well.

Watch this video where all the Master Agents talk about why they are choosing EarthLink.

The Incumbent Mindset

2012-05-10T18:02:28Z

I'm heading to NYC next week to attend Seth Godin's seminar. It is always worth the trip to me. From his Domino Project newsletter today, a little insight:

"It happens to just about every industry, from hard drives to furniture--the insurgents, coming up from the bottom of the market, had an incentive to refine their techniques, engage with their customers and innovate. The incumbents, saddled with much higher costs and less innovation, watched themselves go bankrupt, one by one."

Can you say China? HUAWEI? Vonage? 8x8?

Every market gets disrupted. The Internet has been the greatest tool of disruption. Think about Netflix and Google Apps.

"Instead of working hard to keep their share of a shrinking pie, or working even harder to make sure the industry stays as is, I think the most essential thing legacy ~~book industry~~ players can do is set up independent ventures with great people and little interference and work really hard to put themselves out of business by starting at the bottom, not by reinforcing the top."

Some ILEC's like Windstream, TDS and CenturyLink have used acquisitions as a way to counter-balance disruption that broadband and cellular have done to the market. M&A will only get you so far.

We are already seeing where Live365/Office suites have become a commodity. VoIP is certainly sold as a commodity. Hosted PBX is probably next. Any time you can automate it, someone will come along, with less costs, and undercut your price. The Incumbents will have to take the hit just to stay in the game. Look at CLEC's and the T1 market. The cablecos are disrupting the T1 market. Next it will be MPLS.

It will be skill set, human talent, integration, customer care, and WOM that will set your product offering apart from the rest of the crowd.

That Seth Godin always gets my mind going.

Transactional Agents Called Names

2012-05-04T15:56:44Z

Over at CP, the transactional agents are being called Prostitutes and Zombies in opinion pieces. I find that sad considering that the Zombie comment comes from a guy who whined because he couldn't make huge commissions off call centers any more.

The one thing that most of these opinions neglect is that the World of Telecom is all about Transactions. It is a business based solely on Arbitrage.

Going back to the Golden days of Long Distance, newcomers (the IXC's like MCI, Sprint and Qwest) entered the market by starting a price war. It continues to this day.

Every CLEC that enters a market does so by undercutting the ILEC. Rarely has this been done with any innovation. Even the DLEC's that launched the DSL market in 1999 - Covad, Rhythms and Northpoint - disrupted it with old Bell Labs technology. Bell Labs had discovered DSL technology in the sixties but did not introduce it until 1987. DSL wasn't standardized until 1998. Their whole schtick was to undercut the T1 market.

Hookflash pointed out today that not much has changed in telephone since 1876. Layer 1 may have changed from copper to fiber to radio spectrum, but voice is ultimately the same.

Even VoIP is just another example of arbitrage. Phone.com and other VoIP Providers - most notably MagicJack and Vonage - constantly talk about the cost savings of VoIP, using the technology as simply a replacement for the POTS line.

If you can sell it online, it is Transactional!

As a nation we might have been better off NOT breaking up AT&T. Bell Labs was a national treasure of research. And, look, the gang is back together. The Death Star still flies.

So when you jump on Transactional Agents, take a good look at your own business. You probably market on Saving Money. Where's the Value in that?

And don't give me the "It's how we get their attention" dribble. This industry is in a race to zero. It's the Wild West of prospectors looking for short-term gains -- and I don't just mean just the newer providers. Look in the C-Suite and the Board of Directors at any ILEC or CLEC. All they care about is short term gains.

So who is really the Prostitute here?

The CEO (and his other C-Staff) who lies to the FTC and FCC about a merger and cries about it later, because they didn't get their bonuses?

The Congressmen who take trips, meals and money to stay in office to maintain the status quo?

The CEO of a yet-another VoIP company, who is just out to grab some market share with an Asterisk-based switch?

Just because you sell some cloud services, doesn't make you a non-transactional agent. When you take a customer's telecom spend from $500 to $650 per month by upselling cloud, then you can say it. But if you take $500 per month in spend and shrink it, you are just as transactional as the Zombie - you just color it different.

Cable has come storming into this sector with nothing more than a price gouging grab at market share - which is strictly Transactional!!!

We are all going to suffer because of the Arbitrage mindset. Commissions will decline right along with price. It will be harder to make a living. It will be harder for the LEC's to hit revenue, so debt will cost more, eventually leading to BK.

We have too many players in this Industry and not nearly enough that are innovative or add any real value. And many that barely make ends meet. All of that just adds to the price war, which leads to more transactions.

So who are you calling names?

Is it Cloud versus Agents?

2012-05-02T16:45:52Z

Is it Cloud versus Agents?

As an Agent, I sell bandwidth and transport almost exclusively. I am learning that the Channel does not want that business. The carriers do, but on the wholesale/carrier side. No 10GB private lines. No 1GB ports. Nope. The Channel wants Multi-site multi-access customers. That's fine. Just stop talking about your fiber map then. It's irrelevant for that kind of sale.

The CLEC's also want Agents to sell Managed Services and anything Cloud. That's nice but who cares?

Cbeyond announced that they are "no longer recruiting traditional telecom agents". well, they already signed up the biggest masters - CMS, Telarus, Microcorp, TBI, etc. So what they are really saying is that traditional agents will have to use a master agent to get paid. That's becoming Normal in telecom. Carriers just want to deal with master Agents. I guess, they think that is more effective or efficient. I have no idea if it is either. We'll see, I guess.

Like so many other providers, Cbeyond thinks that the answer to its cloud strategy will be VAR's. That's not likely to happen.

VAR's don't trust telco. (Heck, I'm still waiting a month for an FOC from XO on an Internet T1, so I totally get the attitude.) VARs already have relationships with VAD's like Ingram and Tech Data, who can provide most of what Cbeyond is offering - or they can provide it themselves. Would you go to Rackspace or Cbeyond or EarthLink for hosting? That's basically what it comes down to: who is doing the hosting.

Right now Microsoft itself and carriers are getting into the traditional VAR space (offering hosted Microsoft products and data backup). Why would VAR's shift from a reseller model to a sales agent? It's kind of like, do you want white-label or straight resale?

The thing that most miss is that it is all about Control. In white-label, you can build a branded business that you have a decent amount of control over, especially in Hosted PBX. In straight resale, the bill, the brand, everything is in the carrier's name. No control at all.

My clients - CLEC, ISP and ITSP - want the illusion of control - or at least as much control as they can get. VAR's want the same thing. In the case of the ISP and the VAR, they like technology, but selling and marketing not-so-much. And you won't have much success forcing them into a sales+marketing shop - any more than you will trying to get T1 slingers become Consultative Sales people pitching cloud. Why? Motivation. Comfort Zone.

Robin Robbins has a very successful business offering turn-key marketing programs to VAR's. Cloud providers need to plug in to that kind of a system.

XO just re-launched its old hosting brand, Concentric, probably to get some space between the telco and its cloud services. (XO has to do something about its reputation in the telecom space and re-branding buys them time until someone buys them.)

Some Agents will obviously move into this space. Some already have making money on Cloud Comm like Hosted PBX, UC, IVR and conferencing. Some have sold collocation - although its a big leap to PAAS and IAAS from colo. But virtualization might be a nice tool in that box. It will come down to who you trust to deliver it.

I'm not saying Agents shouldn't be shifting their business. Lord knows that the way it is now, it is extremely tough to make the living we are used to while selling what we are used to. So a shift has to come. I just don't think it will be to the same carriers that make it in the future. When you look at things like commission adjustments, contract disputes, channel segmentation, and the like, Agents might want to try another silo of vendors to see if they get a better shake.

There is a tremendous amount of competition for the attention of Agents and VARs. That means that there will be price competition, commission shopping, and other things that the providers do not want to have to deal with right now.

The only providers who can afford to be exclusive right now are vertical cloud providers and cablecos - both have an almost exclusive product to offer.

Everyone else is selling the same stuff - MPLS, SIP, backup, managed network security, blah, blah, blah. That means the Channel can shop around. And as you can see from the ecosystem diagram, there are a lot of places to shop - VAD, Microsoft, Google, Amazon, ILEC, CLEC, Cableco, MSP, Rackspace, Web hosts, Parallels, ITSP's, and so much more. And Agents can just partner up with a VAR or MSP to sell their own services, leaving the CLEC's out to dry.

It's a matter of control. Do you want to build yourself a business with white-label partners (like VAR Dynamics) or do you want to trust that the telco that is having trouble delivering telecom services reliably will be able to provide you and your customers with unparallelled service delivery of cloud services?

We'll see. In the mean time, be nicer to the Agents. They may be all you have left.

What Competition?

2012-05-01T20:19:21Z

In this article about independent ISP's fading away, CenturyLink talks about competition of ILEC DSL - from cellular 3G/4G, muni Wi-Fi, and cable. There's also fixed wireless in some ares from independent ISP's, but that is mainly in areas without competition.

But competition is a myth today. VZ is co-marketing with cable now. The Duopoly isn't even competing any more!!!

According to Akamai's State of the Internet report, "The U.S.'s average connection speed is 5.8 Mbps -- a 14 percent increase from the previous year." That's thanks to FTTX and DOCSIS 3.0 mainly.

BTW, Customers prefer flat-rate pricing in study after study.

"In other words, the broadband cap may have less to do with managing congestion on Comcast's data network than with making over-the-top video services like Netflix and Hulu unattractive for heavy television users who are the most lucrative customers for Comcast's paid video services."

Would we even have a cap if we had true competition? Probably not.

With consolidation in the telecom industry, there aren't many players left. In many markets, it's ILEC versus cableco, except where they are co-marketing! Lots of OTT (over-the-top) but I'm not sure how much longer they are allowed to survive.

In the B2B space, lots of consolidation, but cablecos are buying up market share with cheap pricing. It's interesting, because I'm not sure how much longer the nationwide CLEC will be relevant. Everyone is competing for the same dollars: federal and state government, Fortune 5000 and Enterprise, and the multi-location customers. These are a limited supply - maybe 110,000 customers??? But in the small business space there are 5.2 million businesses with under 20 employees! Who services those accounts? That's where all the growth and opportunity is. Unfortunately, broadband and VoIP have cannibalized the pricing structure in this market. It will have to be a bundle of more than data and voice that wins here.

It's also expensive to market and sell to this space - and to support this space. That means it has to be more than voice and Internet, so that the monthly recurring is high enough to rate the work required. We'll see who steps up there.

What's With Wireline?

2012-04-27T18:32:20Z

Wireless replacement - now over 30% of households - is leading to the demise of landlines, but it is also hastening the regulation of ILEC's. Quite a few states have deregulated ILEC's and landline service.

This same decline is also affecting DSL. Naked DSL was supposed to help shore up broadband revenues by releasing the customers from having to purchase a POTS line, too. VZ is reversing course on that, just a year after offering Naked DSL for $25. Some of that offer had to do with the FCC asking the ILECs for a cheap broadband offer to bridge the Digital Divide. Now VZ is saying no DSL where FiOS is available. They need to make folks take FiOS service (to make the metrics look good for Wall Street).

The teclos have basically lost the broadband battle. They stopped rolling out FTTx - at least FiOS and U-Verse. 75% of broadband additions in 2011 went to cablecos.

What I can't explain is the 8.9% decline in wholesale landline revenue for VZ. Maybe CLEC's have been impacted by VZ's anti-competitive nature. Does that mean that resale CLEC's are seeing a decline too? Probably. Cablecos will own customers under $500, so that means a lot of T1 customers have become cable customers.

Two Other Things to Ponder

Cloud and Managed Services as the Next Big Thing and TV Cord Cutting

TV Cord Cutting is rising. Early adopters really like the TV anywhere anytime. They also dislike the huge cable TV bill, which is expected to rise to $200 by 2020. Cord cutting will speed up the price increase in TV because less subscribers means higher price. Content creators like Disney/ESPN pay more and more for sports and that is passed down. In this cycle, the higher the price, the more cord cutting - and around we go.

LEC's losing wireline revenue are looking to Cloud and Managed Services to make up for it. There are a few problems with that. One is that the sales process is so different for CMS. Two, the ILECs have tried e-Commerce and similar services before. (Didn't take.) Three, if the provider cannot deliver telecom services without problems, what makes them think that customers will trust them with more complicated and mission-critical services?

There was a period of time when CTO's would not consider Sprint or Qwest for MPLS because Sprint has an uncertain future and Qwest was for sale. The point is that if the CTO's don't trust your company, they won't buy from you.

It's a quandary.

As CLEC's once competed heavily on teh commodity Dynamic T1, they will now compete on MPLS services, which will (again) drive down revenue and margin. I don't see how this works out for most CLEC's - billion dollar companies or not. Paetec and Intermedia (ICI) were billion dollar CLEC's that had to be sold. It's about having a brand, differentiators, unique services, WOM and executing on a strategy flawlessly to counter the wireline revenue decline.

US Government Suing AT&T for Fraud

2012-04-26T14:49:58Z

Is Fraud rampant at Ma Bell?

ARS wrote an article titled, AT&T collected millions from taxpayers in fraudulent charges, US says. "AT&T improperly received millions of dollars from a government reimbursement fund by ignoring fraudulent use of the IP Relay call system provided free of charge to hearing- and speech-impaired US residents, the US government alleged this week."

Another item ripped from the headlines:

DOJ Sues AT&T For Not Keeping Scammers Off Deaf Phone Service

CRN reports, "The Justice Department this week filed a lawsuit against AT&T on the grounds that the carrier did not do enough to keep international swindlers from abusing a government-mandated service that allows deaf people to make free calls to hearing people via text message over the Web, Reuters reported this week.... The FCC reimburses carriers for the service, to the tune of $1.30 per minute. However, the Justice Department claims that the vast majority of callers using the service were fraudsters in other countries, and that AT&T did not take measures to stop this from happening."

"This claim was initially made in a whistle-blower lawsuit against AT&T brought by a former call center employee, according to Reuters".

Too big to fail also means too big to know what is going on.

This is but a symptom of how poorly managed these big companies are. It's all about the stock price. When you have $64 Billion in debt, you need to watch the stock price or your debt starts costing more. One percent is $640 million extra. But you can be a slave to it or everything else falls apart.

AT&T is facing competition from VZW and the cablecos. If the SpectrumCo deal gets approval from the FCC, VZW will be co-marketing (read colluding with) three MSO's to take revenue from AT&T. All the mass markets are flat: voice, TV, cellular and broadband. It's a game of take-away now. That's expensive. So customer acquisition costs increase. Subsidies on cell phones go up. Everything goes up except ARPU! Do you see the problem?

If any other cellco - T-Mobile, Sprint, MetroPCS or even Tracfone - could get its act together, it would add pressure. The MSo's have their act together and are winning the battle for the SMB space under $500. The CLEC's used to own this business, which meant wholesale revenue for the ILEC's (Qwest, VZ, ATT), but even that revenue will start to decline as less T1's are sold by the CLEC's.

Wireline revenues, especially DSL, are in decline. Where does the new revenue come from?

Windstream and CenturyLink made big moves to counter their wireline shortfalls. What have the RBOC's done? Mainly gone cellular including spectrum acquisitions. Comcast bought content (NBCU). It's a race.

Short note for CLEC's: if wireline is declining and the sub-$500 customer is going to cable, what are you going to do?

One last note: VZ already had a union strike and had to settle. ATT is in the midst of negotiating a CWA union contract. How does that help or hinder future growth? For VZ, VZW and FiOS are non-union shops.

Basic Math for TNCI

2012-04-26T14:47:36Z

TNCI (Trans National Communications International) filed for Bankruptcy in October of 2011, owing Sprint ($5M), AT&T ($1.66M), Verizon ($1M) and Qwest ($1.9M). VZ and AT&T have liquidated CLEC's before for less than $2M. I'm not trying to be pessimistic here, but realistic. Commpartners was liquidated for less than $2M and AstroTel was forced to sell for less than $1M.

Other debt includes Citizens Bank of Massachusetts with a secured claim of $4M and USAC for $1.3M (that's USF funds they collected and did not pay to the government).

TNCI filed a reorganization plan, according to Channel Partners. This is where Basic Math skills act like a fan to the smoke. "In financial statements filed with the court, TNCI projects 2012 total revenues of $73.3 million. Of its projected $60.2 million in total direct costs, TNCI anticipated that agent commissions will account for nearly $8.3 million in costs." First off, $73M - $60M - $8M = $5M left over to run the business and pay back debt. Payroll, benefits, rent, utilities for a CLEC for less than $5M per year in Boston. Out of that $5M they have to pay back the secured debt to the bank and the USF money to USAC - a total of $5.6M. That's lean. That's the kind of math skills that got them in BK to begin with.

There is also the question of the commissions. At a standard rate of 15% on $73.3M, the commission payments should be $11M not $8M.

I just don't see how this works out for the 600+ agents. The customers will be fine either by going direct to the underlying carrier (who wants to recoup losses and maintain revenue streams) or moving to another carrier. Hopefully, agents are working on that now.

Why PR Is Important

2012-04-20T14:51:54Z

On a call today talking about the value of different CLEC's and ILEC's and why some are trading so low and some so high. For the most part, it comes down to Wall Street's perception of the business. Actually, a large part is what the stock traders think the business is.

For example, Cincinnati Bell is an ILEC with declining wireline revenues like Frontier, Fairpoint and TDS. Like TDS, CinBell has been buying up data centers. Via acquisitions and the public relations that goes with those actions, CinBell is changing the way Wall Street looks at their firm.

Public relations plays a big part in stock price, especially when you consider that most people have very little idea about the World of Telecom. Throw in cable and cloud and you have confused not just Wall Street, but even people in our own Industry.

When I work with master agencies and service providers on their online marketing strategy, the discussion is generally around, "How do we make what you do concrete and easy to understand?" or "How do we tell a story that describes it picture perfect so that it can be repeated?"

To take that another step, PR is about who your clients are, who your employees are, and who the company is (in terms of the marketplace). With so many CLEC's, VoIP Providers and Cloud companies, PR is one way to differentiate yourself. For example, if you close a deal with a school system, a government agency, a retail chain, you want to describe that sale - who, what they bought, the benefits of the purchase, and maybe why they bought from you. Like a mini case study.

If you look at something like a softswitch manufacturer, you can tell from analyst calls that Wall Street doesn't really have a handle on what they do - mainly software licensing. And because of all the hype with Cloud, cloud stocks are doing well despite most folks not knowing what the heck the cloud is! Amazing isn't it?

One last point: PR helps telcos out because the PR machine props up the stock price which in turn lowers their debt payments which can be tied to a stock price (or other financial metric).

There are a few avenues for PR: press releases, case studies, social media, executives speaking at conferences, media interviews, and more. So many ways to get the message out and yet so few do it (well).

USTelecom Wants Forbearance for all ILECs

2012-04-09T18:36:04Z

We once fancifully debated if the ILEC's would LET the cablecos get ahead just so they could get out from under regulations. This was 2006. Apparently, that was the plan.

USTelecom is an organization made up of ILEC's. The org has filed for forbearance at the FCC on behalf of its members. Not certain THAT is legal.

The petition [pdf] comes from the ILEC executives "essentially telling the FCC that it's time to wake up and smell the coffee--"many rules were adopted in a different era, long before the advent of broadband networks or the creation of the public Internet."," as JSI describes it. JSI continues with, "it might be time for a new regulatory regime as even the 96 Act is becoming less and less relevant with each new cord cutter and cross-platform conglomerate. The petition is also in line with the White House and Congress' push to get the FCC to clean house, and "the Commission's commitment to eliminate unnecessary regulatory requirements.""

The petition states, "Forbearance is warranted because the rules have been rendered obsolete by technological and market changes. From a technological standpoint, the Commission's legacy telecommunications regulations are ill-suited to facilitating, and in fact hamper, broadband deployment." I'm not sure that's true. It hasn't hampered DSL; the LEC's have by not deploying, switching to fiber and, quite frankly, arrogantly thinking that they were still a Monopoly. In every respect, the trouble with ILEC's is NOT the federal (or dwindling state) regulations. The trouble with the ILEC's is a Monopoly Mindset.

They don't choose the best technology nor do the deploy technology well. Mismanaged spectrum just being a symptom.

FiOS failed because the numbers forecast was wrong. Basing it on 50% penetration was a mistake. Not considering that it would take 2 techs all day (or longer) to install triple-play FiOS. Thinking that the CPE - all 4 pieces of equipment - would be cheap to install.

Let's also look at three bigger problems for ILEC's Pensions, Unions, and USF. By shifting to a cellular and entertainment companies, the RBOCs - AT&T and Verizon - are moving toward a non-union shop. AT&T is dealing with CWA union contracts right now - and VZ had to deal with them last year (along with a strike). They want to eliminate the union. Cellular, entertainment, cloud and outsourced services mean less Union liability - and less pension liability. The ILEC's - Embarq, VZ, ATT, Qwest - are sitting on a chunk of pension payments. It's just another example of bad planning by the executives running these corporations. I know in my life time I will see one of these companies file BK papers. With all the debt they have - $109B just for the Big 2 - mixed with declining revenues, pension payments, probably healthcare costs, union troubles and hyper-competition, the C-Suites at the ILEC's - all of them - are as ill-suited to run them as Hesse is to turn Sprint around.

A Forbearance petition is nice, but it won't solve any of their problems.

With USF Reform, the RLEC's - and even some ILEC's (FFW+C) - will be in even more trouble. Not just competition and dwindling access lines, but decreasing government subsidies for those access lines PLUS a requirement to build out broadband, which means CAPEX! It is not a pretty horizon.

As I read this paragraph all I can think is: Monopoly MIndset is the problem, not FCC regulations. And claiming that it is regs that have created the current quagmire is sticking your head in the sand.

"Indeed, the most recent survey by the Center for Disease Control (which has been relied upon previously by the Commission) has found that more than 32 percent of households have completely "cut the cord" and have abandoned their wireline phone altogether. .... At the same time, incumbent carriers compete against a host of providers, including cable companies that offer service to at least 93 percent of American households, already serve approximately 20 percent of the residential voice market, and are the primary provider of residential broadband. Under these competitive circumstances, the current outdated regulatory regime imposes unnecessary costs on a limited subset of competitors to the detriment of these competitors and consumers alike." Plus it's a Duopoly. There isn't much competition in the Broadband space. It's DSL, cable or 3G.

Comments or Oppositions Due: April 9, 2012 TODAY>

And of course COMPTEL has filed opposition.

Category 10 (Service Discontinuance Approval Requirements); Category 9 (Rules Governing Notices of Network Changes); and Category 2: (Open Network Architecture and Comparably Efficient Interconnection Requirements, All-Carrier Computer Inquiry Rules and the Structural Separation Rule) would really make CLEC life miserable.

Think about this when thinking about regulations being the issue: "According to the Telecommunications Industry Association, wireless has become the preferred voice-services option. Wireless revenue in 2012 is forecast at $335 billion, while all other forms of fixed network voice revenue will only total $176 billion ($132 billion for wireline, $38 billion for broadband access and $6 billion in cable/television revenue)." Is it regulations doing this or our mobile culture? De-regulating ILECs will mostly hurt SMB who are the profit center of ITSP and CLEC businesses.

One last point: voice is being replaced by Skype, G+, Facebook, IM, chat, SMS, and other types of communications. These innovations were NOT brought to you by the telcos NOR will any innovation because they have a Monopoly Mindset. And that mindset screams: "We want to make more money off our old plumbing without having to morph, change or innovate!"

There's no fixing that.

The Telecom Ecosystem is Shifting Rapidly

2012-04-02T21:02:47Z

The telecom ecosystem consists of a number of pieces: RBOC, ILEC, RLEC, CLEC, ISP, MSO, IXC, ITSP, MSP, data centers, Master Agents, Agents, VAR's. It is shifting.

As carriers migrate from a commodity access business, so too must the master agents, who - more and more - are tying their business models to the preferred carriers.

Master Agents have morphed into a supermarket of services: CLEC, ILEC, MSO, VoIP, MSP and even hardware (like Shoretel). In some respects, the master agents become the fabric for a quote machine. Basically, the machine churns out quotes from a number of carriers. This approach makes busy work for agents, masters, channel managers. It's only necessary because of a lack of value proposition. There is no clear delineation of specialties for the service providers. Not even from their preferred partners.

More and more masters look like Tech Data.

The Masters are going to have figure out their value proposition to the Channel soon too.

So are the CLEC's. All the mergers are just about complete, so before we start another round of M&A (or worse a round of Bankruptcy filings), could we just hear you clearly tell the Channel what your sweet spot is going to be?

Clearly and concisely - not in 71 slides over 2+ hours - but in one sentence (or a tweet), tell the Channel what we should go to you for?

Tech Data offers 3 of the 4 cellcos services and XO services, through TDMobility. It is a small step to become a Master Agent and add 50 carriers. The difference is that TD offers hardware. It's a one stop shop. And the commission reconciliation is done by TD, not me! YEAH!

SYNNEX and Ingram are in Cloud. (No idea the details because the PR reads like someone swallowed a buzz word infographic.) But if these two VAD's start brokering SAAS services, it makes for an interesting day. In fact, if they acquired or partnered with VAR Dynamics, they would hit a SAAS home run.

Next up is Dell. Dell bought SonicWall and WYSE. It clearly has a strategy. My guess is that Dell will want to be the whole distribution system for VAR's in an MSP world. In other words, hardware, devices, cloud services and managed services will all be sold by the VAR channel with Dell providing the back office and the engine. Dell will become a Managed Services provider Enabler.

Transactional Agents will just ride it out. I hear it in their voice. Some will sell Hosted VoIP and some other services, but the comfort zone is on replacement services. It is very difficult to go from selling replacement services to basically selling insurance (or the invisible).

VAR's are the goal of everyone right now: Carriers, Agents, Cisco, etc. Are they the holy grail? Unlikely. VAR's deal with hardware and delivering their own services. Autotask and Connectwise are a platform to allow them to bill, schedule, monitor, etc. That competes with the carriers.

VAR's, like CLEC's, like control (or more accurately the illusion of control). Telco services with fluid port dates, demarc issues, and other unstable moving pieces are not what they are looking to add.

To be honest, I don't think that the telcos will win the managed services game. They can barely deliver on telco services these days, so how are they going to deliver on software, apps, security and other managed, hands-on, skilled services? Not to mention, the CAPEX of delivering on these services. What CLEC is flush with cash? Most are flush with debt and price pressures are resulting in flat or declining revenue.

Moreover, with the way Agents have been treated as of late (in quite a few noteworthy instances), I'm not certain VAR's will not be enticed to come join that party of MRR.

There are many reasons why I think that cablecos will become the new ILECs and LECs will flounder outside of telco.

IDC SVP & Chief Analyst Frank Gens said, "Volume is going way, way up and price is going way, way down. If [technology companies are] going to drive large-enough volumes to support the revenue levels they're used to, they're going to have to drive the number of customers way up. You'll need millions of customers in order to compete." Gens was talking about software, but it is the same for ISP services, cellular, TV, and voice.

Take conferencing as an example. Why don't the IXC's own that market? It's just a bridge and minutes. Instead Skype, Vidyp and other start-ups have picked that market apart. Even Webex owned by Cisco didn't innovate and own that market. Conferencing is an example of Cloud Communications and SAAS, right? But telcos don't own it. Software companies do. Layer 7 companies. Not Layer 1 companies.

Hosted PBX is another example. ILEC's owned Centrex. Many of them had installed Broadsoft boxes (but were only using it for SIP Trunking). So that market is about 1000+ strong of tiny players picking off low hanging fruit - disrupting the whole sector. Again, telcos did not dominate this segment. Sure there are a lot of reasons for this, but excuses are just excuses. Comcast will probably be the largest player in the Hosted PBX space.

How about data center? ILEC's had space and were colo landlords early, but just didn't want that game. Until now.

And Master Agents just follow the carriers. It's not like they are straying far from the center either. A couple of Masters have TEM platforms. It's a start. But none (that I know of) jumped on the SAAS game early. It's just an example of an ecosystem that follows each other and navel gazes. The main reason is due to the compensation system. Quota is a stern parent.

When I look at what Parallels is pulling together - 350+ apps to API through their portal layer - I see them leapfrogging ahead of the game - or more precisely, creating their own game.

VAR Dynamics does something similar by white-labeling SAAS for anyone to sell. This is the next piece of the puzzle. Network Access, then Apps. Agents already sell some network access. The key is to sell all kinds of network access and a ton of value-adds (like storage, backup, security, compliance). Think like Apple or Google: it's all about the Apps store! Whether that store is run by VAR Dynamics, Parallels, SYNNEX or Ingram, Agents have to find a way to get a piece of that. Why? Because transactional sales is producing less and less revenue and commissions. Last year a GigE port in 56 Marietta in Atlanta was going for $1500 on the low end. Now it's $500. The high end last year was $20K for a GigE; today it is $8K. Revenue is declining; thus, commissions are declining. Agents have to chase more and more deals to make a living.

I propose that Agents have to learn to vacuum. By that I mean, voice, broadband, mobility, security, apps, and other add-ons. Get the whole pie!

The Ecosystem of Telecom is shifting - for everyone. Either shift with it or not.

What is the Market Expecting?

2012-04-01T17:46:30Z

Tuesday I was in Vegas at the Channel Partners Conference mainly for the TCA events. At the TCA Channel Chief Summit, Tiffani Bova of Gartner and Rauline Ochs of IPED Market Bridge Alliance presented research. The take away for me was in perspective.

No one buys the way most service providers sell. That's why we are always searching for Consultative Sales Professionals. Because the whole industry sells what they want - and it is followed up by a series of me-too.

Just because one CLEC is selling Managed Security does not mean that the marketplace wants it or will buy it or that it will want it delivered that exact way. It also doesn't mean that the next eight CLEC's or service providers need to market that same offering.

The market is consuming technology differently. It enters the business via the consumer. About 70% of devices are owned by the consumer in the business environment. Only about 30% are paid for by the business. That means support for devices either isn't available or is imposed on the IT staff by the employees. That's a confusing (and expensive) way to handle it. Don't you agree?

Most of what Bova and Ochs presented had to do with mobility and Cloud. Mobility is a huge problem for most CLEC's as the model for cellular sales is unprofitable - whether they sign a wholesale, agent or MVNO contract - the margin on cellular is thin to none.

And what is prompting Cloud? Two things: ubiquitous broadband and a mobile workforce.

Ubiquitous is really hyperbole because even with 3G, 4G and wi-fi, you can't get bandwidth everywhere and even when it is available it is shoddy (like at tech conference hotels).

Mobile workforce means a couple of things. One that more businesses have accepted remote workers - whether at home locally, across the country or across the globe. The economic downturn (and all the consolidation) has translated into businesses having less workers but expecting more work. This means working at home, while on the road, etc. Hence, not just email, but the application data has to be available from any authorized, connected device. That is the beauty of Cloud.

Cloud changes the way business is done.

Read that again, because that means it has to be sold that way.

It's easier to sell email, because everyone has email and it is almost a requirement. Selling unified messaging gets more complicated. Unified Communications and Collaboration is just too complex of a sale, of an explanation, of an implementation, of a deployment. That's where the service providers want to go, but they neglect the challenge of the sale. There is a lack of the story, the sales triggers, the value proposition, the WHY, and of course the on-boarding.

One thing Bova pointed out was that VDI (virtual desktop) sales have grown in EMEA (Africa and Mid-East) while have stagnated in North America. One reason: VAR's have too big a quota with HP or Dell to take a 500 desktop refresh to VDI instead of selling 500 desktops. Not just the quota for the discount, but to sustain Gold level service. It's the same with Cisco, Microsoft, etc. VAR's will keep selling what they sell for 2 reasons: First, to maintain the current level of vendor support to continue to service current clients in the manner that is expected (or even contracted). Second, making the changes to shift business to an MSP or all service model is complicated and expensive. Bova suggested firing clients and employees to create the business you will need in 5 years, but that's easy to say from a consulting seat. Not so easy from a business owner perspective.

When EarthLink told its channel partners in Tampa that it only wanted Multi-Site multi-access opportunities, it didn't come right out and say that it would stop selling T1's, but that was the underlying message. (And ELNK did tell me that 1GB and 10GB private line, even ON-net, was not what they wanted to sell.) That's one way to start planning for where you want to be. Say no while being specific about what you are looking to offer.

As a whole I don't think the service providers have any idea what buyers are buying or why. Just because you WANT to sell MPLS with security or Hosted UC&C or whatever, doesn't mean that prospects will actually BUY it (that way).

When does something become a commodity? When the customer buys it directly online.

For non-commodity services, you need a well trained sales force that understands the brand, the value proposition, and the target. As an industry we aren't there yet.

I'm going to leave you with that.

Coming soon two posts: (1) Master Agents are like Pharma Reps. (2) Tech Data versus Master Agents.

Zayo Buys AboveNet

2012-03-19T15:31:01Z

It was a big surprise this morning to hear that Zayo bought AboveNet for $2.2B. My first thought was "Where did Zayo get the money?" I mean, the Dealbook writes, "As of Dec. 31, Zayo had about $25.9 million in cash and short-term investments, along with $682.7 million in long-term debt. It currently has a credit rating of B2." Apparently, Zayo backers and bankers went into their reserves to buy AboveNet. I guess the heady days of Bain LBO is back, thanks Mitt! (LBO is leveraged buy out).

AboveNet was one of the few fiber shops that had its act together. They know where their fiber is. They can quote it fast. They can deliver on what's quoted. And they knew their sweet spot. Except for US Carrier and FiberLight, no other fiber CLEC's that I have dealt with can say that. (I'm waiting over 6 weeks for quotes and maps from IFN and L3.)

This will be Zayo's 21st acquisition. I hope the integration goes well, because in the past Zayo has had issues with their knowledge of fiber assets. It has improved. Google earth!!

Zayo doesn't sell via the Channel - direct sales only. Via email from Dan Caruso, when asked about the Channel this morning, "I am sure we will be supportive of efforts Abovenet has underway."

Rob Powell likes this deal, even at 9.2x projected 2012 EBITDA. I think scale for scales sake is the problem with telecom. Mounting debt combined with shrinking prices does not make for a healthy business. Zayo and Level3 are buying up a lot of the competition, but that hasn't really increased pricing because Cogent and resellers are still there dropping their pants to win any revenue. And the ILECs are in a price war with the cablecos.

I mainly sell transit and transport. Fiber companies are my bread and butter. It is certainly easier to just check a single fiber map, as opposed to a number of them. Here's hoping for a smooth integration.

DEBT

The debt in this industry is crazy. AT&T and VZ combined have $105 Billion in debt. The top 5 MSO's have about $100B with Comcast at $40B. Level3 is at $8.5B. WIND has $9B. CenturyLink has $22B. When you are paying 7.75% on those notes, that's big bucks! Zayo already had $682.7 million in long-term debt; now it will have about $2.9 Billion in debt on approximately $900 million in annual revenue.

I still think that taking Cogent out would be a good move for L3 or someone. You get fiber, revenue, lit buildings and take the low priced carrier out of the market. It did take almost a year for AboveNet's investors to sell, so maybe in 3Q or 4Q. Most buyers - L3, CTL, WIND - have already bought something and are still refinancing debt as well as integrating what they bought.

For the Channel, this mounting debt is scary. Why? Because the CFO looks at the line item for commissions that grows every quarter. He wonders why he has to keep paying it, The CFO thinks, "If I wipe that line item out, our books look great." That's the scary part.

EarthLink's Sweet Spot

2012-03-14T19:53:22Z

I learned a few things at the EarthLink training today in Tampa. EarthLink has 175K business customers and about 3 Million consumers, most of them dial-up customers, providing $20M in free cash flow per month. So of the $1.3B in annual revenue, about $500M is dial-up. ELNK has 4 data centers - Columbia, SC; Rochester, NY; Marlborough, MA; and 55 Marietta.)

The first (or 70+ slides) shows that Pipe is the foundation for Managed Security and other services. However, despite having 28,000 miles of fiber, they don't want to sell transport on it. Even On-Net gets the response that "This is not our sweet spot".

What is the Sweet Spot? As I wrote here, Multi-Location Multi-Access type across LEC's or cablecos.

The partner portal is in development. The customer portal, called myLink, seems cool they way that you can drill done on customer locations in Google Earth and open a trouble ticket.

Agents in the room, called T1 Slingers, asked about DSL, since EarthLink resells ADSL out of 10K end offices through 12 providers. As a resell service, a 1FB is required. And since neither RBOC is really supporting their copper plant and especially not DSL, it leaves the business DSL customer hanging for days when there is an outage. [See my post about Is DSL Done?] 3G/4G wireless backup is my answer for that. There are cool routers that even do it automatically.

The other question centered around T1. "You just are not going to make a living slinging T1's at $400 any more." PRI's are available east of the Mississippi still, which actually IS an advantage for ELNK. TDM PRI's are still the preferred reliable way to deliver voice to a PBX, especially with alarms, faxes, and elevators.

It was an hour on MPLS. I still find it amazing that almost 9 years after my first MPLS class, we are still presenting the Fundamentals of MPLS. For Agents, it will be about layering on services to the MPLS network. The sticky stuff is value added services.

Retail needs a voice line, some Internet, credit card processing, payroll and data backup. That should actually be a bundle that someone offers. ELNK has the old New Edge AX platform that connects payroll and cc processing to the MPLS Network. Add on a VoIP line and some data backup and there's a bundle. Want to make it stickier? Add network DVR to the service so that those IP surveillance cameras can be viewed from anywhere (and can't be erased locally). Bingo! (Do you have an opening in Product Management? My resume is here.)

The team mentioned POS, Inventory, HR and Loyalty programs. Do you have those on the AX platform? Those would make some excellent sticky add-ons.

"So we have an Internet T1 service that connects you securely to one of 4 data centers, Mr. Prospect. Do you currently have a payroll service? Are you looking to upgrade your POS? Are you worried about security on your credit card data (PCI compliance)?"

That's where the conversation has to go. Even though the customers just want the access - as cheap as possible - Agents will have to steer the conversation to: applications on top of that access (AOTTA).

So back to MPLS with Type II access. Ethernet is delivered over a Type II DS3 from the LEC. T1 is delivered over the ILEC copper pair. DSL is a resell of the ILEC product offering. Then for outliers to attach to the MPLS network, there is an IPSec GRE tunnel with BYOB (bring your own broadband). Blended Access.

EarthLink is a Sprint MVNO, but it is more for 3G access where there isn't DSL to attached to the MPLS. Also, for the MPLS customers that want to have one bill that included cellular.

Something else I learned: ELNK bought STS because Rolla knew the Mark Amarant, CEO of STS, and STS had a reputation for best practices in on-boarding customers in the Hosted PBX realm. That's smart, because Hosted PBX (like VDI, another product that ELNK is rolling out), requires a detailed on-boarding process from pre-sales through post-sale, including mapping extensions to desktops, extension attributes, handset type, employee training and some on-site installation. EarthLink is not selling Hosted PBX as a stand-alone. You have to buy access from ELNK.

So in summary word of the day: "Blended Access".

Key association: Multi-location multi-access MPLS.

Are Telcos Outside Their Delivery Zone?

2012-03-12T13:52:44Z

The ILEC's were really good at delivering a monopoly TDM-based dial-tone product. And later got very good at T1 and T3. Was that the extent of the research that the old AT&T Labs could provide? DSL, while slower than cable modem service, does provide for good, cheap broadband, despite its limitations in distance and speed.

Now the ILEC's are going Cloud with Terremark, Savvis, and roll your own. This is shocking to me, since I was there in 2001 when BellSouth (and other ILEC's) first attempted data center and e-Commerce. At the time, BellSouth had partners like EMC to deliver the managed servcies and IBM for the data center. But this isn't something they knew how to sell or how to market. Certainly, the market has changed to make it easier to sell, but are the ILEC's the right partner for Cloud?

I look at how they are struggling with declining wireline revenue (and mounting debt). They have been grasping at TV for consumer triple-play; tech support for broadband customers; and managed services. A managed router from AT&T is configured and managed in Singapore! The slight time difference affects support. Plus it is by email mainly.

Is that what Enterprise customers want?

Then I look at the Telecom Subpanel talks on Cybersecurity, in which reps from AT&T, Comcast, Century Link and MetroPCS were featured speakers in front of The House Energy and Commerce Subcommittee on Communications and Technology hearing Wednesday morning on the cybersecurity threat to the nation's communications networks. The hearings are about regulation of security of the communications infrastructure - who will have oversight, what will be required, and the like, to be added to a bill. Like that will help. Sheesh!

And, of course, the carriers do NOT want to be regulated. In fact, CenturyLink is petitioning the FCC to forbear from "dominant carrier regulation and the Computer Inquiry tariffing requirement with respect to its packet-switched and optical transmission services" for those services subject to the regulations. "CenturyLink states that, because of recent mergers, its enterprise broadband services are subject to different regulations depending on which CenturyLink affiliate - Qwest, Embarq, or CenturyTel - previously provided (or didn't provide) those services." Whatever. They do what they want anyway. There isn't any FCC enforcement (of merger conditions or forbearance conditions).

That sentiment brings me back to cybersecurity and regulations. It would be kind of joke really. The FCC took over 10 years to come to grips with VoIP, how would it ever regulate something as fluid as security? And what would enforcement look like? Would it be something like CPNI?

There are over 1000 VoIP providers in the US plus the numerous LEC's, cablecos and cellcos. Does anyone really think that enforcement is a priority at the FCC?

So back to telco cloud services.

On the one hand, I like that Savvis is still Savvis and Terremark is still Terremark (without any telco infection, no offense). In fact, "Savvis is poised to lead in Gartner's Magic Quadrant for Public Cloud Infrastructure as a Service in addition to Gartner's Magic Quadrant for Cloud Infrastructure as a Service and Web Hosting," according to Seeking Alpha. Given that every data center company from TELX to QTS have launched Cloud services, not to mention every CLEC, TWC (via Navisite) and most VAR's, would you rather sell IT services from an IT company or IT services from a telco?

The whole "I don't want to be regulated, I don't want to be a common carrier" is fine if you understand that to stop being a monopoly, you have to stop acting like one! You HAVE to provide customer service. You can't finger point when handling Managed Services or Cloud Services. You have to ANSWERS to solve problems for your customers.

I think that Cloud is going to be a bust for telcos, in general. They have been the pipe, the plumbers, for so long -- and even if you want to reach up to Layer 7 (to grab the money) doesn't mean you have the ability or will be able to deliver on it. Going into cellular was just another Layer 1 project.

Let me point out a few things. Many fiber companies (or divisions) can't find or price out their fiber. A cellco has mismanaged its network to the point of disrupting users and its 4G future. An ILEC has done such a poor job planning Metro Ethernet that it has run out of VLAN's in two major metros!

Cloud may turn out like FTTH and Telco TV: an investment that didn't work out. Or it may work out despite what I think will be glaring holes.