What I am Thankful For (In the Telecom Industry)

It’s the time of the year where people make lists of the things they are thankful for. Following is my list of things that I am grateful for in the telephone industry this year.

English: Original to File:Australian Brush-Tur...

English: Original to File:Australian Brush-Turkey Telephone.JPG. (Photo credit: Wikipedia)

The Large Incumbents. As a telecom consultant I am grateful for the large incumbent providers like Verizon, AT&T, Comcast and Time Warner. It is the behavior of these large companies that gets me a lot of my work. These companies continue to do things that annoy their residential customers, overcharge their larger customers and antagonize smaller carriers. So I get a lot of work helping people work around the big carriers.

The large telephone companies saw millions of subscribers leave their voice and DSL service and yet never fixed their customer service enough to keep customers happy. And now the large cable companies are seeing the same drop-off of customers and, if anything, they are annoying their customers even more than the telcos did.

The Regulators. Every year there seems to be more things that are deregulated and yet there seems to be a bigger regulatory burden each year. There are at least a half dozen major new regulatory burdens placed on the industry just in the past five years. Just like the large incumbents, the regulators make work for me. While I grateful for this, I also wish that this was not so.

The Growing Clamor for Broadband. More and more I see whole communities demanding that they get better broadband. Sometimes they are able to talk some provider into bringing better service, but more and more they are deciding to get it done themselves. I am a big believer that broadband is basic infrastructure, so it is nice to see this validated across the country in places large and small.

Over-the-Top Programming. I never liked the big cable packages. I finally feel empowered to not have cable in my house and to just seek out and watch the content I want to watch. I am thankful for the companies who have gathered the large libraries of OTT content and for the myriad devices that we can use to watch it.

The Push for Gigabit Bandwidth. I love the nationwide push for gigabit bandwidth. This is being led by Google but is now coming from many other places. I know today that supplying a gigabit is overkill, but we are quickly approaching a time when there will be billions of new networked devices and many new bandwidth-hungry apps that will use the bandwidth. I think the gigabit initiative is going to push us into areas that will benefit mankind as a whole.

The New Toys. I have been looking at making my new home into a smart home and I love all of the new toys that are available to that end. I am pretty sure that I don’t want a fridge that counts the eggs, but I love the fire alarm that talks to me. I know that at this point that a lot the Internet of Things are toys, but some of it, like being able to control my temperature, irrigation and other systems as well as enhanced security monitoring are not toys. And I know these are the precursor towards having a truly smart house, medical monitoring and yet undreamed of services that will make our lives better.

My Smart Phone. I thought I would never say that, but I now love and need my smart phone. I am able to keep up with emails and appointments at ease. I read a lot more news than I ever did with a computer. And I can keep up with friends through games and Facebook and other apps.

Public Private Partnerships

p-3Today’s blog is talking about public / private partnerships (PPPs). This is an area of the telecom world where I see the potential for significant growth in the next decade. Increasingly, rural towns and counties are looking at their inadequate bandwidth and are clamoring for something better. Generally such communities just want somebody to bring them bandwidth. But when nobody steps up to do that, many of them are now taking steps to do it themselves.

And there lies the opportunity. There are very few communities that want to be in the telecom business. Most of them are in the water and sewer business and some of them have municipal electric companies, but these are all monopoly businesses. Most cities are very uncomfortable when looking to enter a competitive business. Given a choice they want somebody else to be in the bandwidth business and will only take that path if they see no alternative.

It’s a natural reaction of a local cable or telecom company to look at communities that are building fiber systems as threats, when instead they are opportunities. You can’t blame them for wanting adequate broadband. They look around the country and see that rural America is becoming a world of broadband haves and have-nots. Most urban areas now have decent broadband, but many rural areas still no or slow broadband that putting their citizens and businesses behind the rest of the country. While the FCC may define broadband as starting at 4 Mbps download, this is totally inadequate for a household today and certainly doesn’t cut it for the business community. Communities that don’t get enough broadband are worried that they will become irrelevant. Their populace will slip away. Kids won’t stay in the area when they graduate. Being on the wrong side of the broadband divide is a scary place to sit today.

My advice to small telcos and cable companies is that you ought to be the first one in the door to these kind of nearby communities offering to help them to find a solution. And if these communities are in your own service territory you need to listen to them – because if you won’t help them they will find a way to get what they feel they need.

Communities that feel strongly enough about bandwidth are generally willing to contribute money to bring a solution, and that creates an opportunity. I know of one community that went to an ILEC and said that they would be willing to pay for a fiber network in their town, have the ILEC operate it, and then hand it to the ILEC for $1 when the financing was retired. Incredibly, the telco turned down this opportunity (which still has me scratching my head).

There are a number of successful business plans that I have seen for PPPs between cities and local ILECs. Consider the following:

  • Operator Only. The municipality can build a network and then hire somebody to operate it. Operating another network can create a good new long-term revenue opportunity for a telco because it lets you leverage your existing backoffice and technical staff and to turn some of their time into revenue.
  • Building a Project Jointly. Another option is for both parties to make an investment. This can be a tricky option to make work because this makes you a financial partner with a City. It is vital under this kind of arrangement that both parties fully understand the other’s goals and motivations for being in the business because it’s hard to maintain a partnership where the partners have different goals. This kind of arrangement also calls for some creative financing since you are likely marrying commercial loans and municipal bonds. But there are many examples of this kind of opportunity working.
  • City as an Anchor Tenant. Under this scenario the ILEC will build the network, but you would have the City, the schools and other key broadband customers sign on as long-term anchor tenants to help assure you of the revenue stream.

If you are in a rural area the chances are that these opportunities are all around you. Telcos tend to think about expansion in terms of how much money you are able to borrow to build new networks and grow. But by looking at PPPs you can leverage your borrowing power with the borrowing power of the municipality and together you can build more, and faster than either of you could have done on your own.

I have been in a number of partnerships myself and have seen some that work great and some not so great. But generally if partners are realistic about what they need to achieve it can be made to work well. Getting the financing and governance right are essential so as to head off future problems before they happen. At CCG we probably have more experience in creating these kinds of PPP arrangements as anybody in the industry and we can help you do this right.

My Comcast Story

XfinityAs I mentioned last week, I just moved to Florida. My options for broadband here are CenturyLink DSL or Comcast cable modem. I am in a smaller town and the only CenturyLink DSL product sold here is a speed of ‘up to 10 Mbps’. The CenturyLink product is priced attractively low with packages starting as cheap as $20. I had a faster product than that in the Virgin Islands, and so I looked at Comcast.

I talked to the neighbors around here and was surprised that almost nobody uses Comcast. They use satellite for cable and most of them use CenturyLink for DSL. They all told me that they thought Comcast was too hard to work with. But I’ve had Comcast before and their broadband product is clearly superior, so I gave them a call.

Comcast in this market has broadband products that range between 12 Mbps download and 105 Mbps download. My family is two adults and a teenager. We have multiple computers, a few Kindles, an iPad and smart phones. Right now we don’t have a TV although I’ll probably get around to buying one. I decided on the 50 Mbps product. This seemed like enough bandwidth for us to watch multiple video streams, surf the web and play games at the same time. Even though I would love more bandwidth, the 105 mbps product seems too expensive at well over $100 per month. But I am glad to live in a place where I have that faster option and I won’t be surprised to find myself needing to upgrade to it one day.

We first signed up with Comcast on line, But after a few days nothing happened and we tried it again. It finally took calling the local Comcast office because the online customer service people, who seemed to be overseas, were not getting our order into the queue right.

The first thing I found out is that Comcast in this market would not sell me naked cable modem, except for the 105 Mbps product. Every other cable modem product is only available when bundled with a cable TV product. So in order, to get the 50 Mbps product I wanted I was forced to buy the smallest basic cable package which is a dozen or so channels. I got a first-time customer special and am being charged $59 for six months and then it goes to $79 per month. At that point I’ll see if they let me drop the cable, which I do not want.

Once I order the bundle, the first thing I am told is that there is a $259 charge to ‘make sure that my property can be served by Comcast’. I tell them that there is a Comcast pedestal in my front yard and that this didn’t seem necessary. But I go ahead and authorize this and then find out that it’s going to take up to ten days to make the verification. We call every day and after five days finally convince somebody that we have the pedestal and that they don’t have to come out to verify. But I still get nailed with the charge.

After two weeks into the process it’s finally time to schedule the install. I am told there is a big backlog in the area and that it’s going to be a while. I get an appointment for five days later for late afternoon. Nobody shows up at the scheduled time and we finally get a call at 9:30 PM that day asking if they still want us to come over. Since I need a new drop I tell them we don’t want them doing that in the dark, and I get a new appointment for four days later. When the installer finally shows up he seems like a good guy and pretty competent. I’ve had Comcast installers in the past that didn’t seem well trained, but this guy seems to know his stuff. He is in a Comcast truck, not a contractor, which probably explains that.

I point out that I don’t have a TV and don’t want the settop box. But he says he has to connect it and activate it for my bundle. He also leaves the drop on the ground and tells me that in three weeks somebody will show up to bury it.

In summary it took over three weeks to get a cable modem. It took a dozen phone calls. It took three tries just to get in the queue. I had to buy a cable product I don’t want. I then had to wait to verify that I could get service even though I have one of their pedestals in the yard. The installer doesn’t show up when scheduled and doesn’t call until much later in the day and we have to reschedule. I now have a settop box sitting on my living room floor although I don’t have a TV. And I have a drop wire laying across my lawn and making me wonder how I am going to mow around it.

I see now that my neighbors were right and I can see why people less determined than me give up on Comcast. It was not a good experience and costly as well. But the cable modem is fast and as long as it stays connected I guess I will be happy with it. I’m not going to be thrilled when the price goes up and I start paying for a cable product I don’t want. And I am just hoping the drop will get buried without more phone calls.

This experience makes me wonder if the big cable companies are ever going to understand that customer service needs to be their first priority. Because they still are not doing it right. They provided me with several chances in this process to change my mind and give up on them. I saw last week that Comcast is thinking about growing by buying all or parts of other giant cable companies. Perhaps rather than do that they ought to spend some time figuring out how to do things right. After all, connecting a new customer who needs a 30 foot drop is not that complicated.

Privacy and the Internet

SpyVsSpyIn the last week I have seen a number of articles talking about privacy and the Internet. This has become a hot topic after it was leaked that the NSA is gathering Internet data and emails. But the articles I am reading are starting to look deeper, and they all come to the same fundamental conclusion: there is no personal privacy on the Internet. None. Zero. Nada.

For anybody to think otherwise is a convenient self-delusion that makes you feel better about your own behavior on the web. But since the web was founded your ISP has recorded every web site and every email and every comment on a blog that you have ever written. ISPs differ greatly in how long they keep your data and how willing they are to share it with outsiders like law enforcement. But they all record everything you do.

But as the revelations about the NSA have showed us, it doesn’t really matter if you have a ‘good’ or ‘bad’ ISP in terms of somebody who will protect the integrity of your data. The NSA set up data catch points at most of the major Internet POPs in the country, and in doing so snagged all of the data that comes through those chokepoint in the network.

If you are a normal person like me you probably are not that worried about the NSA having your information. After all, if you aren’t doing anything wrong what do you have to be afraid of? And the chances are, for now, that the answer is that there is nothing to be afraid of. It’s very unlikely that the NSA is processing the mountains of data that they have on average citizens. I feel somewhat certain that they are mostly sifting through that data looking for bad guys.

But there is still concern. I’ve seen stories about people who have had the police come to their house because they wrote emails with some key words that the government was looking for. The problem of living in a big brother world is that there are going to be a lot of false positives and many innocent people will be investigated unnecessarily. And that is the part when it starts getting scary if the one being investigated is you.

But the NSA aside, there are worse things on the Internet. The chances of the NSA creating a profile on you are near to zero. But the chances of Google and Amazon and a ton of other big information companies doing so is 100%. If you are on the web you are being profiled. Period. Over time they know a lot about you. Your name, address and, birthday. But also what you look at on the web, what you purchase, what you think of purchasing. What movies you watch and what web sites and books you read. But they also know more personal data like your political preferences, your health and medical issues, and whether you have any more private habits like looking at porn or visiting unsavory political sites.

Let’s face it. Over time these big companies probably know things about you that even your spouse might not know. I know that anybody who stops and thinks about everything they have ever done on the web has to be concerned.

And we all have suspicions that it goes a lot deeper than that. One of my engineers at CCG tells about typing in an email that he was thinking about buying a new pick-up truck. And within a day he started seeing pick-up truck ads everywhere he went on the web. And he can’t recall having seen them before that. You have to admit that if Google is somehow scanning your emails (something they deny) then they really know a lot about you.

But I told him that he can’t be surprised by this. Because there never was any promise of privacy on the web. And that is finally becoming apparent to many people.

The End of Carrier-of-Last Resort

Black phoneThe Louisiana Public Service Commission granted AT&T relief from carrier-of-last resort obligations on November 13 in Docket R-31889. This docket also allows AT&T to stop calculating price floors. Similar changes have been ordered in other states and AT&T has been asking for this everywhere they are regulated.

What might this change mean to the average consumer? Just sitting here I can picture a number of possible ways that AT&T can use this ruling:

  • They are no longer obligated to connect a new home to the copper network. In the past as carrier-of-last resort they were required to connect everybody within reason. And that meant everybody within some defined distance from the network. They were not required to connect people at the top of a mountain if their neighbors didn’t already have service, although they were required to offer for that mountaintop home to pay for the construction to reach the network. But AT&T can now say no to any new home and can instead tell a customer they only offer wireless service or no service at all.
  • AT&T could insist that every new home pay the cost of connecting to the network, and anybody who has ever seen such estimates knows they are heavily loaded with overheads and are very expensive.
  • AT&T could refuse to reconnect customers to the network. If somebody gets disconnected for late payment or puts their service on hold to go on vacation they could be told that they are not allowed to connect back to copper. Again, they could be told their only alternative is wireless or nothing at all.
  • This doesn’t yet give AT&T the ability to kick paying customers off the network, but they have already told the FCC that they want that authority in order to convert millions of lines from copper to wireless.

There are customers for whom this change might really matter. Certainly anybody who has several competitive alternatives is not going to care too much, but there are still millions of customers without alternatives. There are still many rural customers for whom a copper landline is still the only physical communications wire connected to their home. If they lose that, then satellite or wireless Internet become their only option, and many rural areas have really lousy cell phone / data coverage. It also matters because if AT&T is successful in converting people from copper to wireless the cost to customers will go way up. Cell phones cost a lot more than landlines and cellular data costs more than DSL and also has very severe caps.

The second provision of this ruling is just as disturbing. By getting rid of price floors AT&T has been given the permission to cut prices below costs. That might sound beneficial to consumers but it generally is not in the long run. Done in an extreme way, cutting prices below costs would be considered as predatory pricing. Unfortunately in this industry there is no reliable legal or regulatory definition of predatory pricing, and so any competitor claiming it would face a huge uphill battle to first define what predatory pricing means.

The ability to price below costs means that AT&T could engage in a price war in a market with competition and make up the profits from the surrounding markets. The consumers in the competitive market might benefit for a while, but AT&T’s goal with a price floor would be to put the competitor out of business.

Don’t think this doesn’t happen. In Monticello Minnesota the city built a fiber network to bring fast Internet to the City and to lower what looked to be the most expensive phone rates in the country. The incumbent provider in that City is TDS, a mid-sized telephone holding company. TDS, and then Charter Cable both responded to the City’s competition by offering special incentive packages that are half of their former price. When a telephone or cable company cuts prices in half they are either engaging in predatory pricing or they were making obscene profits before the price cuts. In Monticello I think that there was some of both going on.

In the long run the Louisiana Commission has given AT&T more tools to hurt customers and to stifle competition. AT&T certainly made the request for this change sound benign, but in the end it is really hard for a company of their size to not take advantages of the new rights they have been granted. It will be interesting to see what the LPSC does when they get complaints from customers and competitors who are harmed due to this ruling.

Goodbye St. Croix

Doug and JulieToday I am leaving my home in St. Croix in the US Virgin Islands and moving to Florida. The place I am moving to, Punta Gorda, Florida looks like a really nice place and I am sure that I will like living there.

Certainly I will be regaining many of the amenities that you give up when you live on an island. Shopping for many regular things is harder here and you often have to ship things and wait two weeks for them. Food shipped in from other places is often of poor quality, particularly dairy and other perishables. But I have more than made up for this by wholeheartedly adopting the amazing tropical fruits that grow here. I am going to miss the chocolate fruit, sugar apples, breadfruit, sour sops and malay apples. I’ll miss fresh mangoes that are to die for, which are so cheap that in season you can buy them for almost nothing. I will miss buying a gallon of fresh coconut water for $20. I even love the giant jackfruit, the size of watermelons that taste amazing  but looks like an alien inside (and which Julie says smells like dirty socks).

But there are things about living on a Caribbean island that are hard. I have lived up a dirt road that is hard to traverse for half of each year. They fix it annually, but two hard rains later it’s all ruts again. The truck I just sold had less than 50,000 miles and has already gone through several front ends. And electricity and gas here are expensive. Even without air conditioning my electric bill is over $500 per month to run lights, fans and a pool pump.

The island I am leaving is undergoing hard times. It lost a refinery that had a few thousand good paying jobs, and on a place that has 50,000 full-time residents this was devastating. It’s likely that well over 10,000 people have left the island recently and there is a sense of quiet despair here. People don’t want to leave here, but they need to feed their families. And as the people are leaving, businesses are closing and even doctors are leaving the island.

But there are many upsides to living here as well. The weather here is unbelievable. In the summer the highs are around 90 degrees with nights at 80 degrees. By peak of winter that has dropped to highs of 83 degrees and lows in the lower 70’s. Sunny is the normal condition and we often laugh at the weather man who reads through each day of the upcoming forecast saying, “High around 85 degrees, low in the 70’s”. But he is always right! I am so spoiled that I break out the hoodie now when it gets anywhere near to 70 degrees. I have some re-acclimation to do, for sure.

People always ask me about hurricanes? We have only had a few in ten years and only one of those was bad. Category 3 Otto hit me hard, particularly the tornado that followed the storm and that hit my house and knocked down a ton of my trees. That storm prompted me to put in a generator since I was without electricity (and Internet) for six weeks. But I live in a concrete fortress and never really sweated the hurricane itself.   

One of the biggest upsides is that it just feels different here. It feels more like what the US felt like when I was growing up in the fifties. It just feels simpler and freer. You are pretty much free to do anything here that doesn’t hurt anybody else. You can feel that freedom –it is a tangible thing – this is a place of live and let live.

But the main reason I am going to miss living here is that it feels like home to me. I think you all know that ‘home’ feeling. During your lives you live in many different places, but only one or two places ever feel like home. I love to just sit and look out the window, listen to the frogs and birds and watch the palm leaves blow in the wind. I love my feral cats, my mongooses and my iridescent green iguanas. Being at my island house has soothed my soul and made me happy. So goodbye St. Croix. You have captured my heart and my soul and a piece of me will always be here. But it’s now time to move on the next adventure. Look out Florida, here I come.

What’s on the Internet?

The InternetTwice a year Sandvine issues a report on the state of the Internet. Sandvine sells internet tools and is the leader in network policy control, selling products that help carriers with things like peer-to-peer caching and stateful traffic redirection. As usual the Sandvine report is interesting reading.

One of their more interesting observations this year is that they are seeing a leveling off of total Internet traffic in North America. This is a very different story than is told by Cisco and other companies that have continued to project double digit growth in traffic volumes. Sandvine is not sure if what they are seeing is an anomaly and they are looking forward to their next set of measurements to see if this is a trend or a one-time phenomenon.

One of the more interesting things that Sandvine reports is the components that make up web traffic in the US. They look at both landline and wireless web traffic and, as you would expect, the usage is very different for these two segments of the market.

Following is Sandvine’s list of the top usage for fixed access usage for North America. It’s obvious that downstream traffic is largely used for entertainment. Netflix and YouTube now account together for over 50% of the downloading on the web. But then there are iTunes, Amazon video, Facebook and Hulu. Uploading to the web is a different story and BitTorrent accounts for over 36% of uploads, but only 4% of downloads (demonstrating how much larger the download stream is).

Upstream Downstream
Rank Application PCT Application PCT
1 BitTorrent 36.35% Netflix 31.62%
2 HTTP 6.03% YouTube 18.69%
3 SSL 5.87% HTTP 9.74%
4 Netflix 4.44% BitTorrent 4.05%
5 YouTube 3.63% iTunes 3.27%
6 Skype 2.76% MPEG – Other 2.60%
7 QVoD 2.55% SSL 2.05%
8 Facebook 1.54% Amazon Video 1.61%
9 Facetime 1.44% Facebook 1.31%
10 DropBox 1.39% Hulu 1.29%

North American mobile access shows a very different story. It’s obvious that people are not using cell phones to watch video content, at least to the extent that they do with landline connections. This is certainly a function of the caps on many wireless data plans as well as a reluctance to watch content on a small screen. But with that said, the two largest sources of mobile data download usage are YouTube and Facebook. Much smaller than those two are things like Netflix, Pandora radio, Instagram and iTunes.

Upstream Downstream
Rank Application PCT Application PCT
1 Facebook 20.62% YouTube 17.69%
2 YouTube 13.20% Facebook 15.44%
3 HTTP 12.64% HTTP 14.07%
4 SSL 11.11% MPEG – Other 7.92%
5 Pandora Radio 5.19% SSL 7.84%
6 MPEG – Other 5.11% Google Market 5.99%
7 Google Market 4.95% Pandora Radio 5.03%
8 Instagram 3.52% Netflix 5.01%
9 Netflix 2.19% Instagram 3.53%
10 iTunes 1.59% iTunes 3.16%

Lifeline Accountability

USAC LogoUSAC, the group that administers the Universal Service Funds, has started testing a program that is designed to stop people from requesting multiple subsidies from the Lifeline program.

The lifeline program provides a discount of $9.95 from telephone bills for low-income consumers. A consumer is eligible for Lifeline if they a earn less than 135% of the federal poverty level or if somebody in the household participates in any of a number of assistance programs such as Medicaid, Food Stamps, Section 8 housing, low income home-energy assistance, Head Start and various tribal and state programs.

The way this works is that the telephone company providing the service gives the discount to the consumer and then collects the funds from USAC out of the Universal Service Fund.

A consumer can elect to get the discount from either a home telephone or a cellular phone account, but cannot collect from both. Apparently there is a lot of concern in Washington that people are collecting the discounts for both a landline and a cell phone, because the FCC has instructed USAC to put together a program to make certain that people don’t collect multiple benefits.

And so USAC is currently implementing the National Lifeline Accountability Database (NLAD). Carriers who participate in the lifeline program are required to input data about each lifeline customer including the last four digits of their social security number or their tribal ID and their date of birth. The carrier also has to provide the full address for each customer and this address will then be verified by USAC using the USPS database of valid addresses. Expect big problems in this area because rural addresses are often very erratic in the USPS databases.

As you might imagine, many carriers don’t ask for things like the date of birth when somebody gets telephone service, so they are now scrambling to get the needed information from their customers.

States are being added to the NLAD in groups. The first group of states now entering data includes Arkansas, Maryland, Louisiana, Oklahoma and Washington. Already some states have opted out of the NLAD database including Puerto Rico, Oregon, Texas, California and Vermont. Those states are going to have to come up with some version of this database of their own or else carriers in those states will lose Lifeline funding.

There is no fee to use the database, but use of it is mandatory if a carrier wants to collect from the Lifeline fund. The real cost is in the effort of each carrier to implement and keep this database current – another unfunded mandate.

I suppose that this process will turn up some cheaters and they will be asked to pare back to just one Lifeline subsidy. But one has to wonder how many customers might have been given the discount by multiple carriers without even knowing that this is not allowed? And one might suspect that there are somewhat shady carriers who are collecting the payments from the Lifeline fund without giving the discount to a customer, or possibly even having a customer. I would not be surprised to find some carriers collecting Lifeline for customers who died years ago.

I hope the FCC publishes the result of what they find through this database. As much as I hate waste and fraud, one has to wonder of the cost of implementing this kind of red-tape process is worth it compared to any savings that will be achieved through eliminating duplicate payments. These kind of processes end up becoming permanent new requirements for carriers and make it just that much harder to do business.

2014 Cyber Threats

Where the Internet is stored

Where the Internet is stored (Photo credit: debs)

Georgia Tech just released its annual Emerging Cyber Threats Report for 2014. They have been publishing reports for several years that looks ahead to security issues with data and devices connected to the Internet. As usual, they have summarized a number of threats that companies should be aware of.

Companies Assume the Cloud is Safer than it is. Most companies store their data in the cloud in exactly the same format as it would be stored on a local LAN. This means there is no additional security other than whatever is provided by the cloud provider.

While companies can add additional encryption to cloud-stored data, there is a trade-off between encryption and the accessibility of data by employees, so few firms add the additional encryption.

Unencrypted data can be compromised as has been seen by some of the attacks by the Chinese on companies like Google. But aside from national cyberwar threats, data in the cloud can be hacked in much easier ways, including the next threat which is

Employees are Accessing Corporate Data with Bring-Your-Own Devices. Many companies are allowing BYOD since it saves them a lot of money from buying every employee smart phones and tablets, and it also lets each employee use devices they are comfortable with meaning a lot less training.

BYO Devices create an easy path to hacking into corporate data. For example, somebody hacking, or just coming into the possession of a phone from an employee might have wide-open access to corporate data.

Very Little Security for the Internet of Things. Today we are already starting to see the proliferation of devices that connect wirelessly to networks. This first generation of devices has not paid a lot of attention to security. I am not sure that I care that much if my coffee maker or smoke alarm or sprinkler system are not encrypted. It’s unlikely that anybody would take the time to hack them, and if they did all I might get are some really wet fruit trees.

But the Internet of Things is advancing faster in areas of business automation than it is in the home. The Internet of Things in an industrial setting already includes things like security cameras, devices that sense the presence of various chemicals, thermostats and the equivalent timing devices used during the manufacturing process. And soon the Internet of Things is going to include medical devices and other things that none of us want to see hacked.

And I certainly care if somebody hacks into a heat sensor or water control valve at a nuclear reactor site or hacks into the manufacturing process at an oil refinery.

Mobile Devices Will Become the Focus of Hackers. Until now there has not been a lot of successful malware used against smart phones and other mobile-connected devices. However, these devices are no less susceptible to hacking than are PCs and network servers.

Georgia Tech sees an uptick in attempts to hack into cell phones in various ways. Obviously there be malware that will be distributed in the same manner as with computer spam. But more insidious is the idea of hacking directly into apps so that millions of users download malware with a normal update of a popular application.

And of course, as mentioned above, hacking into cell phones is a lot scarier when those phones have access to work and government networks.

Expect Cyber Attacks Meant to Ruin Corporate Reputations. One thing that has been seen with attacks by foreign governments is that these attacks aren’t always aimed at government sites, but instead at the biggest and most popular companies in the country. The goal is to breach the data and security at big US companies in order to make the general population lose trust in using them. So we have seen attacks leveled at US banks and big companies like Google and Facebook.

Where are the Verizon Profits?

Verizon Wireless "Rule the Air" Ad C...

Verizon Wireless “Rule the Air” Ad Campaign (Photo credit: Wikipedia)

I’ve been reading over the last few weeks about the controversy surrounding Verizon’s profitability in its wireless versus wireline business. Verizon has been claiming that it is not making very much money from its landline business while critics are charging that Verizon is cooking the books to make the wireline business look bad.

This link is a report on Verizon’s 3rd quarter earnings. In the third quarter Verizon had total revenues of $30.3 billion. This was comprised of $20.4 billion for the wireless segment and $9.7 billion for the wireline businesses. The profit story is quite skewed and they show profits of $6.9 billion for the wireless business but only $155 million for the total wireline business. If you take out depreciation to get operating margins, the wireless business made $8.9 billion for the quarter while the landline business made $2.2 billion.

In looking at these numbers as an outsider I ask myself if they make sense. I probably have more ability to judge these numbers than most people because I am privy to the books of hundreds of telecom companies that are in the same business lines as Verizon.

Verizon claims their losses for landline are so big because of all of their continuing losses of landlines. But all of my clients have been losing landlines and yet many of them are still quite profitable. Let’s look at some of the piece parts of the company to kick the tires on Verizon’s claim of low profitability:

  • Verizon has 5.2 million video subscribers. It’s a pretty well-known industry fact that these are low margin customers.
  • Verizon has 5.9 million FiOS data customers and another 3.0 million DSL customers. And 40% of the FiOS customers were buying the faster speeds of between 50 Mbps and 500 Mbps. Universally, data is a high margin business.
  • Verizon had 4.1 million voice customers on FiOS and 6.8 million voice customers on copper. While voice lines are dropping, and Verizon lost a net 432,000 customers over the last year, the margins on voice should be high.
  • Landline revenues include $3.6 billion in core and strategic services and another $1.7 billion in global wholesale. These product lines include what are the most profitable business lines for most telcos – such things as selling special access circuits, internet backbone connections and fiber connections to cell towers. Most of my clients report these business lines to be very highly profitable.

The overall operating margin for the landline business, at 23% ($2.2 billion of margin compared to $9.7 billion of costs) is very low compared to almost all of my customers. Much smaller telephone companies than Verizon have margins that are somewhere in the 30% – 40% range.

So, is Verizon just very inefficiently operated or are they cooking their books? I consider the following:

  • There is a lot of corporate leeway in assigning costs between operating divisions. I help my clients make these kinds of cost allocations all of the time and there is a wide variety of ways that you can allocate costs that will still fly with an external auditor. So Verizon has a lot of leeway to change the relative profits between the two operating divisions.
  • Verizon publicly has been trying to convince the FCC that they ought to be able to transition customers from copper to wireless. The most visible controversy has been about Fire Island off New York City that got devastated by hurricane Sandy. But Both Verizon and AT&T have made it clear that they would like to find a way to walk away from maintaining older copper.
  • On the surface the profits look too small. This either has to be the result of very inefficient operations or of allocating costs to slew profits. If the wireline business really only has a 20% margin then Verizon would be far better off to spin those businesses off to standalone regional companies who could probably double the margins within a few years.

It’s obviously very hard to know all of the facts within the books of a company as big as Verizon. But my gut tells me that they ought to be making more money on the wireline business. While Verizon claims the poor profitability is due to loss of landlines, that only comprises a small percentage of the landline business. A lot of that business comes from the very profitable business lines of supplying transport for the Internet and for cell sites.

So are they cooking the books? Probably.