Recently in economy Category

Yesterday was a big day for The Channel. Two separate acquisitions occurred with both takeover companies expressing interest in the Channel of the company being bought.

First, we have GTT buying WBS Connect. WBSC is just a reseller of Transit and Transport with about $28M in revenue. It was bought for about $1.8M in cash and notes plus $600K in stock. A spreadout payment over 18 months. WBS Connect had 900 customers  (ARPU calculated at $2600 per month). Lots of hype about POP's and lit buildings touched but at the end of the day WBS Connect was just a reseller pushing IP pricing lower (i.e., in my experience, they sold on price. Get your best deal and I will beat it by $1/MB). If that's the sales approach, what value is that? I won't rant here. I'll let it speak for itself.

Second, ILEC Windstream (formerly Alltel combined with Valor) bought Nuvox. Nuvox was a combo of FDN, NewSouth and Nuvox. Apparently, Nuvox had $180M in debt with 90,000 customers bringing in $500M in revenue (ARPU of about $500 per month). Windstream will issue stock valued at $183M and pay $280 million in cash for $500M in revenue and access to business cutomers outside its footprint. With cellular assets an ILEC like Windstream would be swimming in the EarthLink pool: declining revenue from a declining customer base. The only way to attract new customers is to go outside its own region - or buy a cellular company or a cable outfit (both of which cost way more than $500M).

Nuvox pays out between 12 and 18 points to its Channel agents. Many people call me wondering how they do that when they sell PRI's in many markets for $400. I have no idea. One thing that stands out is that the $95M loan in 2006 grew to $180M in 2009, some it from its FDN acquisition in 2007, but how much because they sell underwater? Nuvox burned through nearly $500M in VC funding as well. 

It sounds funny but on the same day the two companies famous for driving the price of telecom down are acquired - and the Channel is given as a reason. Is this just a bunch of order-takers or is the state of the economy the reason that price is the main object (instead of value and reliability)?

The WSJ has an article titled, "AT&T, Verizon Still Pouring Billions Into Mobile Networks". It notes that cellcos have already spent billions upgrading their networks to 2.5G and 3G -- and now will spend billions more on 4G.

In addition, both companies are also dumping billions into International routes, domestic broadband networks, and their respective triple play networks, U-Verse and FiOS. 

On top of that, both companies have been acquiring companies, like Alltel and Centennial. Ummm, how are they not toppled over in debt? 

These companies have felt intense pricing pressure from cable companies as well as T-Mobile and Sprint. Customer Acquisition and Retention costs have to be high, even as ARPU remains about the same. Debt costs more right now. Wireline income has been declining for at least 4 years.

Where's the money coming from?

If your model is free, how do you pay the bills? How do you pay for the infrastructure - the servers, switches, collocation, bandwidth, labor, etc.? How do you pay developers and engineers to scale it and keep it up?

Twitter is still free and so is Facebook. Popular too. But both have issues with keeping it running. 

The funny part is that the longer it is free, the harder it will be to charge for it. 

The only app I can think of that transitioned to paid was Google Apps and Gmail for Business.

Recently, a Twitter app for Blackberry, UberTwitter, (that is free) decided to try ads with its update. OOPS! (Read it here). Was it the way the ads were presented ( with no lead up or announcement)? Or is it the Entlitlement mentality of most Internet users? 

There's a group on Facebook literally with the name We Won't pay for FB. I was told recently that FB's revenue is about $550M. How? There aren't that many ads running. And how much do you think it costs to keep Facebook and its CDN running? I would image over $1 million per month for bandwidth, gear, salaries, collocation, and the like. 

Advertising doesn't even bring in that much. The online advertising spend is much less than what marketers pay offline (like for print or billboards). So how will all these free apps survive?

After dumping New England on Fairpoint and cashing in on that garage sale, Verizon bought Alltel. Now it is dumping more rural lines on Frontier. All of this is just Verizon's way of shoring up its stock report. Without the kickers from the Fairpoint transaction and the spurt from Alltel, my bet is that the company would be showing a loss. CNET reports that its profits are down.

It's pouring money into M&A, FiOS, LTE, 3G, International backbone, and Advertising. Especially Advertising. I get something everyday from Verizon. Even at 50 cents per mailer, that's almost $10 per month on one prospect. 

It's about to dump big bucks in a conversion to LTE for its VZW network to keep saying its the best network. But that is after it integrates the Alltel network. Oh, and after it settles things with the rural cellular companies who are tired of VZW squeezing them. Remember that they just built the 3G network, so that debt isn't paid up yet. And cell phone subsidies are increasing to compete with the fact that folks want the iPhone or the Android. 

The FiOS build out is costly. I read that VZ claims it is under $900 per home passed. No one else in the industry has a number that low. Most are closer to $2000 per home passed. Customer take rate is about 21-22%. How many of those are just upgraded DSL subs? 2.5M FiOS TV subs now - some from cable but some from DISH Network, I'll bet. (Still no mention of the 500K voice lines Bright House took from VZ in greater Tampa Bay).

Lots of M&A activity to hide the fact that its growth is stalled and that it has to be taking on huge debt from Alltel, upgrades and Customer Acquisition.

I talk with many CLEC's and ISP's that are looking at the BTOP and BIP programs to see if there is opportunity for them. As I said in the podcast with Occam Networks, most of the funds are earmarked for companies already collecting USF funds. Why do I think that? Because it is a safe bet and politics is about safe bets.

I'm attending Tech Data's Technology Solutions Tour. This morning started with TD SVP Pete Peterson discussing how to translate the stimulus spending into technology opportunity. The ARRA (aka the Stimulus bill) will spend about $787B, of which, according to the counter at Recovery.gov, over $75B has been spent. One percent of the ARRA is the Broadband Stimulus spend at $7.2B spread over 3 agencies and 3 different awards. Did you know that $50-60B of the ARRA is earmarked for IT Spending for Education, Healthcare, Energy and Government? That money will go for smart grid, green IT, virtualization, EMR (electronic medical records), video surveillance, Business Intelligience tools and more. It's a bigger pie than BTOP/BIP.

Did you know that the largest spender right now is Uncle Sam? Or as many people like to say - the taxpayer.

Anyway, Peterson told us that some cities and at least one state (Cali) does not allow the deployment of servers on-premise. It's a Green initiative and they are pushing Hosted servers or virtualization. I haven't heard that but it certainly interesting. (Also of note: No on has said Cloud since I have been here).

Another stat: there are 1 million doctor offices. Only 8% have EMR. The government wants it closer to 90%. There are funds and tax credits for that. Funny story: Nortel was pitching their Healthcare Management Programs yesterday, but didn't want to discuss the Bankruptcy nor the way the company is being sold off in slices. Um, tough to sell a solution that may not be there by the time the deal closes. When a VAR or Agent presents a solution, they are lending their reputation out to that vendor. If that vendor fails to deliver, it's a black eye for the VAR/Agent. (Psst: our most valuable asset is our reputation).

B.I. tools are important. Why? It adds productivity and efficiency to the organization that can correctly deploy and integrate it. (It's challenging).

Education will be spending on Broadband, IT infrastructure, Video surveillance, and digital signage. Go get you some From Tech Data, of course. They have SME's (subject matter experts), product specialists, marketing funds and other assistance available to help you take advantage of the current ARRA opportunities. (Including Wireless and other communications infrastructure projects).

Peterson concluded with a few insights:

- This is a Call to Action for service providers and VAR's
- (It is unprecedented in my lifetime and we likely won't see this again. It is a magnitude larger than Y2K and closer to what the US spent on NASA going to the Moon in the 60's).
- Recovery.gov is a great resource.
- Great companies are made in tough times.
- The flexible survive.

NOFA Reactions

July 16, 2009
Speakers: Peter Radizeski, Marketing and Sales Consultant at RAD-INFO, Inc. and  Juan Vela, Occam Networks

Juan and Peter discuss their reactions to the BIP/BTOP NOFA in the second in our series of Broadband Stimulus related podcasts.  (The NOFA is the notice of funds availability for the Broadband Stimulus package. BTOP and BIP are separate programs that both the RUS and the NTIA are in charge of. Each agency will be administering grants and loans for delivery of broadband to unserved and underserved areas).

Click here to listen.

Former SBC chief Ed Whitacre is going to be the next Chairman of GM. Huh? According to Bloomberg, Whitacre is doing his patriotic duty and loves the challenge. Rich Tehrani thinks that Whitacre was a strategist. He dismantled the regulatory landscape, fought off (and then ate) is competitors, and turned a local Bell back into Ma Bell after numerous acquisitions that have never been integrated. (AT&T still acts like 7 different companies to anyone that has to work with them).

So how successful will an insider monopolist from SBC be at a dying auto maker? Well, less debt to deal with. Inside political track, which is the only way he plays the game. He didn't really understand the Internet and probably doesn't understand the auto industry either. 

His "partners" at SBC (authorized sales agents) are much like dealerships, who should expect the worse, since every company SBC bought tightened the screws to the agents. 

Rich writes, "For too many years GM had lousy management and created cars that for lack of a better word sucked. Americans ran away from Detroit automobiles like AT&T ran away from VoIP in the nineties." Rich, SBC (now called the new AT&T) isn't exactly known for being innovative either. No VoIP. Compete on price. Long installation intervals. Bad billing. What exactly is Whitacre going to bring to the new GM? From what I can see having dealt with all the Bell companies over the last 10 years, he was a lousy cheif exec except that he could put deals together. So what? GM is selling parts and Whitacre knew as much about internal organization and integration as Level3 execs. 

This is also the guy whose company allegedly helped the NSA wiretap the nation. I guess this is his thanks, since Crazy Ivan at VZ is still busy.

Who is my choice? How Elon Musk? How about someone from P&G or Unilever? 

Success is measured a number of different ways, but make a big, hulking, inflexible, non-innovative tech company isn't what I would consider a success. GM needs fast, flexible thinking; innovation; reach out to dealers and workers; and a huge re-branding campaign (which might be the only thing Whitacre is capable of: re-branding GM as the new GM with the same crap as before).

SUMMARY:

GM needs a creative thinker that is flexible and industry knowledgeable. Someone who can bring new partners and ideas to execution quickly, because mergers and acquisitions are not going to be the solution for GM.

GM has two prime missions: convincing people to buy its cars; making cars people want to buy despite the state of GM.

Unfortunately, the government once again shows that change has not come to Washington as they pick a crony instead of the right person - something we have seen too much of during these times of re-invention and government intervention.

The financial activity in the ITSP sector that I am seeing leads me to believe that the ITSP sector is taking off.

• Cypress buying up Reignmaker assets.
• Telesphere got $15M for expansion.
• XCast collecting a $2.7M investment.
• Forbes publishes an article titled The Value of VoIP.

Although there have been analysts who think that IP Lines will slow down, I have to think that in the economic reality we are facing, the distributed workforce, the tele-worker, and the mobility of employees, more and more lines will move to VoIP. For cost savings as well as productivity reasons. 

If lines do slow down it will be due to the following reasons:

• layoffs - less employees = less lines needed
• mobility means less landlines needed
• email, social networks, IM/chat, texting is replacing phone calls.
• over all trend for less phone calls.

There are so many reasons for small and medium businesses (and self-employed persons) to migrate to VoIP that I don't see it being stagnant for long. 

Who to go with?
The one issue is the share number of VoIP Providers (with little differentiation) makes the decision difficult for the business owner. 

Premise versus Hosted
The premise hardware guys are selling their gear as if it was hosted at your site. Many business owners aren't familiar with having such a significant communication service outsourced (off property). It's a strange concept to wrap your head around. Plus there may be changes like cabling and handsets that go with the move that represents too much change for the business owner in today's hectic marketplace.

Blinking Light Syndrome
For productivity to be affected positively at the office by VoIP, the way workers answer and use the phone might have to change. Call park being the biggest one. (But some providers have this solved). Still change is tough.

VoIP Providers Themselves
Many of the people selling VoIP pitch the cost savings. Wrong! There will be changes, so it needs to start with a conversation about how the business operates and uses the current phone system. It takes longer but it is the best approach. Looking at the bill and shaving points off it hasn't been highly successful for CLEC's, who have spent billions to make millions. 

The other side of the ITSP coin is the unclear marketing message. So many companies in the VOIP space do not have an elevator pitch, a positioning statement, or a dumbed-down way of explaining what they do/provide. It makes it hard to market.

And lastly the confusion over what an ITSP is. Here in Tampa I have listened as one ITSP knocks another. That doesn't help at all, especially when the sales person doing it has clue none anyway. The ocean has to be raised witha discussion about why buying Voice over FiOS is not as advantageous for the business owner as Hosted PBX. 

Case studies like Forbes' article will certainly help sell more lines.

When selling VoIP, the conversation should be about productivity, reliability, and security not cost savings. In a poll, VZB "was the surprise top finisher in Infonetics Research's first North America Business VoIP Services Leadership Matrix in both IP Centrex (hosted IP services) and IP connectivity, Infonetics said today."  Main factor: reliability and financial security of VZ. NGT, 8x8, and Cbeyond were next in the poll. "Comcast is moving up fast on hosted VoIP (IP Centrex) services." ITSP need to get a move on.

Speaking with some industry channel folks today, we got to discussing Level3. Rob Powell says it best, "The Economy Takes a Big Bite Out of Level 3". This is a company with $6B in debt compared to $4B in revenue and negative free cash flow. Everyone wondered when the BK filing woud happen.

Level3 is as much at fault as Cogent and Hurricane Electric in leading the way to pricing underwater. Plus with operational challenges they aren't creating happy customers or agents. And with the new round of layoffs, not making happy employees either.

Level 3 has posted a profit only once since 1999. With pricing dropping and economy stalled, should Jim Crowe consider filing for bankruptcy? How do they even put a dent in the debt load with revenues dropping? Operational issues are still a factor which also act as a hurdle to sales. 

As an agent, I would lose revenue if they do file BK, but the truth is, I don't see how they get out from under the mountain of debt. 

I think that broadband has made some people "too connected". Between twitter, Facebook, LinkedIn, email, text messages, etc. When do you get a recess? But for those that can in fact walk away from the tech and live a normal life, broadband allows for increased productivity.

If you think I am making this up, Broadband Properties magazine has a nice article with supporting facts. BBP wrote about a study done in Iowa between one city that built out a FTTx network and the neighboring town that did not.  Fiber city wins in taxes, jobs, and home values in 3 years. Now, BBP is disclosing that, "A 2005 study in rural West Virginia found that firms with broadband were 14 to 17 percent more productive than firms of the same age without access to broadband."  (I guess you would have to define productive.)

We hear a lot about Virtual Office. But tele-work saves companies money.  BBP writes, "IBM, a third of whose employees work from home, reports annual savings of $110 million from telework. AT&T estimated $180 million yearly savings with about 30 percent of managers in virtual offices." Furthermore, "Study after study shows that telework saves money for the corporation. A survey last year by the Yankee Group found that "employees rated working from home the number one thing their employers could do to make them more productive."  Why? "About one-fifth of AT&T's documented savings came from reduced real estate costs. But beyond reducing the need for office space, telecommuting also reduces losses from employee absenteeism. With a telecommuting setup, employees can still do some work while they are at home sick or caring for a sick child. More importantly, they aren't tempted to come to the office while they are ill and spread germs to their coworkers."  Which, during a pandemic scare like swine and bird flus, would seem like Reason # 1 for Virtual Offices.  However, not every employee will flourish at home full-time. There is a social aspect to going to the office that many thrive on. Others need the supervision and the environmental pressure to get work done. Many managers do not have the skills to supervise virtual workers.

"Telecommuting is also an important part of a business continuity strategy." A distributed workforce means that your business can continue. And many employees stoire files locally not on the server, so you will have incidental back-ups. But if designed correctly with redundant data centers and full back-ups, your business would continue unabated in a disaster or pandemic.

Then there's the word that always comes up in a productivity talk: Collaboration. "Workers must now be prepared to collaborate with remote offices, suppliers and customers all across the globe."  Web 2.0, broadband, social networks, and VoIP have enabled this nexus point for businesses. America has a service economy, which means bricks-and-mortar offices aren't needed. This also means that even small businesses can compete for top talent anywhere in the world.

The final piece of the puzzle is Tele-Presence. "A new report by the Aberdeen Group, "Being in Two Places at Once," advises enterprises to look at video as a business tool, not just a communications tool." The BBP sidebar continues, "The collaboration promoted by telepresence makes companies more agile in the marketplace.....  Telepresence doesn't automatically lead to these kinds of productivity enhancements. Aberdeen found that companies were more likely to reap the benefits of telepresence when it became a prominent feature of their corporate culture." In other words, the technology is just a tool. It will be used or ignored depending on its availability, ease of use, and corporate role.