Recently in wireline 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 New York Times has an article explaining "traffic pumping" here. This practice largely centers around Iowa Independent phone companies who are partnering with phone service companies like chat lines and free conferencing companies. AT&T has been complaining to the FCC about it for a while Many of these companies are in litigation to get paid by the IXC's.  What it really comes down to is that the "new" FCC has to take a stand on Inter-Carrier Compensation soon. It has been "studying" the issue for years. It's a political hot potato. Bill-and-keep is the system most pundits see as the quick fix. I'm sure its deeper than that.

UPDATE: NPR has a couple of articles about Google Voice and Traffic Pumping. One here about the 100 numbers that GV is blocking and the other here about the blocking.  BTW, GV has over 1M users now.

Jerry James, CEO of COMPTEL, updated the CLEC's and ISP's at FISPA about the major issues on the Hill and at the FCC. Besides, the National broadband Policy that is due by February 2010, the FCC has to make major decisions on the following issues: USF Reform, Forbearance petitions galore (Qwest in Phoenix, Verizon on the East Coast, AT&T wherever they can get it), Inter-Carrier Compensation, and Net Neutrality.  Worrisome for CLEC's to say the least. There's also a bill about criminalizing Caller ID Spoofing. Ouch!

I moderated a panel on Telecom Billing Issues at Channel Partners this week. It was a full room. Apparently, one or two people thought it was too hard on the carriers (or I was too hard on a carrier). 

If you have been in telecom for more than a year (and have any voice customers) then you know that there are billing issues. Heck, even on simple IP or transport bills there are errors and surprises. And by surprises I mean line items that aren't obvious.

One carrier in the audience to offense to some of the panel discussion, but what it boils down to is that they don't charge what it costs to deliver a minute of service. The numerous extra line items (other than legitimate federal, state, county and city taxes and USF fees) are just ways to make a profit - but confusing the customer. As I said on the panel, if it actually costs 4 cents to deliver a call, why not just charge 4 cents instead of quoting 1 cent then adding $80 in additional charges? 

Airlines are the only ones nickel and diming the consumer.

I look at the new IP Phones and wonder: Are they morphing into a cell phone?

I like cordless handsets, mainly because I walk when I am talking. It helps me think and it sounds better for the caller. And I use a corded headset.

So when I look at the newest DECT phones like Aastra 600D series, Cisco WIP310, and others, they are so small, lightweight and are starting to resemble a cell phone. Right? A perfect example is the UniData Wi-Fi phones. These look just like a cell handset and come with video capabilities and cameras. No other handset has that yet.

Broadsoft extended Web 2.0 services to the mobile device. So has Mitel. Blackberry wants to mobilize your PBX - to make your cell phone an extension on the office PBX system. So does Mitel. So does Broadsoft. Oh, and so do the cell carriers because they want you to spend those minutes.

It looks like only difference between your IP phone and your cell phone will be signaling technology (Wi-Fi, CDMA, GSM, DECT). When we get a phone with half those chips in there, will the desktop phone become obsolete? Are we really that mobile? I sit at my desk at least 40 hours per week when I am in town. I can't see getting rid of my cell phone even with those home phone systems that jack into your cell phone. For me the call quality on the cell is inferior to either my VoIP line (most times) and my POTS line.

I think that battery life will always save the desktop phone. I wish it could do more: like updates and texts or IM or something. After all the desktop IP phone by Polycom or Aastra (the ones I am familiar with) are mini-computers. Broadsoft and Aastra have XML marketplaces for apps for them, but I have not heard (or seen) anyone taking advantage yet. (Anyone?)

As more minutes move away from the PSTN to VoIP Networks and Cellular systems, what happens to the PSTN? Where's the Tipping Point when the telcos can't or won't maintain it anymore?

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.

Doug Mohney tweeted this morning that Verizon has a 7-day repair window which may be why they are losing landlines. I would suggest that the RBOC have been lobbying since 282 Relief for Forbearance relief as well - at both the state and federal level. For the most part they have won. 

Gone is the regulation for most telecom services in most states, which means the state PUC cannot deem that POTS lines be fixed in 24 hours (the old standard), especially when Digital Voice (VOIP) is dependent on broadband that does not have an SLA or mean-time-to-repair.

After VZ's 6-city forbearance petition was struck down in 2007, VZ legal took it to the court system and won a review by the FCC.

By letting landlines go, the majority of the existing POTS type service will go to cable or other providers, which would almost insure that VZ would get forbearance on a new review. Slick and devious.

In a recent conversation with a buddy of mine at a state PUC, we were discussing small rural ILEC's. Many are cash strapped which makes providing advanced services difficult - no cash to buy a head-end (half a million or more). 

RLEC's can get RUS loans for the upgrade to fiber, but OPEX and labor for installation are not covered by the loan. That creates a quandry.

Why are the RLEC's cash strapped? They get all that Universal Service funding (both state and federal). But they are losing the best clients to cellular and satellite (and in some cases cable).

I have a couple of clients that are small MSO's who are in a similar situation. They are losing customers to DirecTV.  It costs big money to replace an MSO (cable) system in the ground. (Verizon started at $2000 per home passed and supposedly has it down to under $900 per home passed). There are other costs besides the fiber, optics, conduit and labor - the head-end, the softswitch for Voice, and the set-top boxes. The set-top boxes used to cost $400 each but supposedly are dropping towards sub-$200. But at $5 per month rental fee, even the $200 can't be capitalized. 

With Verizon dumping its unprofitable landline regions onto companies that have no hope of deploying broadband to their regions, the question becomes what are we to do about American Broadband Deployment in Rural America?

At some point, if you want really fast broadband, you will have to move to an area with it.  However, with our current housing situation, how will you do that? If you live in an area without broadband, your economic options are slim. Communities with fiber add more jobs, have higher income, a broader tax base - than communities without fiber. 

My friend says that maybe Broadband isn't a right for everyone. It's just too expensive. Even the $7.2B BTOP funding is a drop in the bucket when you spread it out to 50 states. Can we bridge that Digital Divide?

We talked about how the FCC policy has not helped to further broadband deployment in the US in the last 8 years. Revenues at the RBOC's go up, but we haven't done anything about the Tipping Point of the PSTN. At what point does the PSTN become endangered because too many ILEC's can afford to keep it working? Or the disparate VoIP Providers and Cable Companies can't deliver dependable E-911 or inter-connect efficiently. (Inter-Carrier Compensation Reform anyone?)

The new FCC as well as the RUS and NTIA are managing a lot of funds. USF contribution factor is now 12.9%, but the contributions are dropping as landlines decline. So the thing they need to look at is Going forward what do we do to preserve E-911 service in America as well as spread the availability of true Broadband for economic diversity.
 

We see the consolidation in the rural landline business. Verizon has dumped unwanted regions on Hawaii Telecom, Fairport (New England), Alltel (old GTE areas like Eastern KY), and soon the Frontier deal.  

Centurytel and Embarq just merger. It was May, 2006 that Sprint spun off its wireline business into Embarq. Alltel followed suit with a spin-off of its landline business to Windstream which was a merger of Valor and Alltel. 

The RBOC's have tried to staunch the landline slide, but I think now that they have declared themselves wireless companies, have given up the ghost. Verizon is now advertising to consumers to cut the cord. VZ has been selling Naked DSL longer than AT&T, but not as long as Qwest. I think VZ is betting entirely on FiOS and cellular.  We'll see because Comcast is now bundling Clearwire and Sprint 3G with its triple plays.

I'm not the brightest guy in the world. Yet over and over I see politicians and regulators make decisions that the other 99% of the US knows will be bad news. One such decision: approving the sale of Verizon's New England region to Fairpoint.

For one thing, agents can no longer sell in that region because Fairpoint thinks they can sell better than a telecom agent can. Ha! I'd put any agent I know up against any W-2 from a telco.

Two, even VZ knew that it would become too expensive to maintain the copper plant in New England; nevermind deliver broadband to most of it. But for some reason the regulators in 3 states and the folks at Martin's FCC approved the deal. Buying into the story that while a giant like VZ can't, an elfin telco like Fairpoint could, while saddled with the debt from the $2.3B deal. 

The customers in New England are not happy either. As much as 12% of its customers have bailed out. (To cellular and cable probably). But it could get worse as Fairpoint hinted back in March that it could file bankruptcy because of its debt. Verizon still owns about 60% of Fairpoint (I think).

The only happy camper was VZ who took a huge one time credit, released $1.7B in debt, and dumped a rural liability. And smiled the whole time.

In a similar deal, Hawaii Telecom went BK - that was a former VZ area. I know when Alltel (now Windstream) took over Eastern KY, it was like buying a termite infested house. VZ doesn't leave its assets in a state that anyone can work with apparently. Hence, the WSJ suggesting that Frontier learn its lesson from the Fairpoint deal.