Net Neutrality – Time to Reassure Your Customers

The recent net neutrality decision by the FCC has created an amazing amount of fear for broadband subscribers who are worried that they will be losing access to popular aspects of the Internet. There is also general confusion in the public from numerous rumors circulating on social media – some potentially true and many others false.

And I think this worry and confusion creates a good opportunity for smaller ISPs to let customers know that you will continue to uphold net neutrality, even if it is no longer required. This is an easy pledge for small ISPs to make because it’s difficult for small ISPs to violate net neutrality rules even if they want to. The net neutrality rules were aimed at the largest ISPs, the ones that have enough market power to put pressure on web content providers, or ones that might implement intrusive requirements on customers.

It’s also a good time to tell customers of plans to continue to protect their privacy – something that the public probably associates with the net neutrality headlines. While the two topics are not the same, I am sure that many people equate net neutrality and privacy.

In the short run I recommend contacting customers and making a big splash about the topic. Perhaps send a heartfelt email or even mail a paper letter to customers that pledges a continuation of net neutrality and respect for customer privacy.

Small ISPs that are competing directly with the big ISPs also ought to consider making this one of the highlights of any sales or marketing campaign. This is a differentiation from the big ISPs that customers will value that really doesn’t cost a small ISP anything. It should be easy to promise not to block Internet traffic, throttle customer broadband speeds or force paid prioritization of Internet traffic. It also should be easy to pledge to not share customer data.

If the current reversal of the net neutrality rules lasts for a while (something I am doubtful about) this could get a little more complicated. I am positive, for example, that at some point over the next few years that bigger ISPs or data brokers are going to offer to pay small ISPs for access to customer data. Small ISPs ought to reject such offers because the benefit of maintaining customer privacy is worth more than payments from selling customer data.

I also suspect that small ISPs will eventually get offers to take part in programs or products that would violate net neutrality rules. You might be offered software that will create bundles of Internet products, like the ones likely offered by the big ISPs. You might be offered cheaper backhaul bandwidth that includes some blocking and prioritization of traffic. Again, my guess is that maintaining a totally open Internet product is worth more than can be gained by implementing such future products.

The big ISPs are unwittingly handing their competitors a chance to take the high road and it would be silly not to take advantage of this opportunity. I know that if I had an option to buy broadband from a small ISP I would jump at the opportunity as long as they were making this pledge. I currently have broadband from Charter. They haven’t said what they might have in mind due to the end of net neutrality, but I find it impossible to believe that they won’t copy things done by the other big ISPs that prove to be profitable. As a consumer my real fear about the end of net neutrality is that the public won’t be told what their ISP is doing. For example, you might experience slowdowns of some kinds of web traffic and not know that you were being throttled. The big ISPs are already quietly monetizing customer data.

Even if some of the net neutrality rules should be put back in place I think any marketing advantage from the topic will still favor small ISPs. Small ISPs will be able to claim for many years that you never lobbied to end net neutrality and you never violated customer trust, even after the net neutrality rules were killed.

Why Not More Collaboration?

I recently was working with some electric cooperatives that collaborate to perform many of the routine functions for operating their companies. This is a fairly common business model for small electric companies, and many cooperatives and municipal electric companies collaborate together.

I’ve always wondered why smaller telcos and ISPs don’t work together more with their neighbors. I know of a few telco cooperatives that work together. There are also small holding companies around that own multiple small telcos that effectively force this structure on their companies. There is some small degree of collaboration for companies that belong to statewide fiber network groups, but this is usually fairly limited in scope.

What do I mean by collaboration? It means sharing the cost of performing the routine functions of operating an ISP to achieve efficiencies and savings. When I look at the companies that collaborate I see some of the following functions being done together:

  • Accounting. Collaboration means hiring fewer accountants and also saving money on accounting software.
  • Benefits Administration. Assuming that benefits can be aligned it’s far more efficient to share the cost of acquiring, monitoring and administering benefits.
  • ISP Functions. For companies that do ISP functions in house there are significant savings from sharing email platforms, security monitoring, spam filters, etc.
  • Legal. Some of the routine legal costs such as negotiating interconnection agreements, pole agreements, vendor contracts, etc. can be less costly when done for several companies at the same time.
  • Software Sharing. There can be significant savings on software licensing fees for companies acting as one entity.

There are also possible economy of scale savings from collaboration, where looking like a larger company can save money. Almost everything larger ISPs do is cheaper per customer than for smaller ISPs, so collaboration can let a group of companies look like one larger entity. Possible collaborative functions include:

  • Billing. Larger ISPs are able to perform billing functions in house at a lower cost than outsourced services.
  • Engineering. Smaller companies working together can probably hire an engineer or two for a lower cost than each of them outsourcing the function.
  • NOC Monitoring. Companies working together might be able to afford 24/7 NOC coverage for less than what they are paying today for partial coverage.
  • Help Desk. Collaborating on a shared help desk can also mean better coverage hours for a lower cost per customer.
  • Purchasing. Collaborating can mean using a full-time buyer, which is more efficient that using mainline employees to do the purchasing function. There are also economy of scale savings from buying some network components and other supplies together.
  • Dispatch / Fleet Management. Again, looking like a larger company should equate to savings on vehicle maintenance and insurance. There is also the opportunity to afford a better fleet management tool to reduce windshield time for technicians.
  • Customer Service. I don’t know many telcos that share the customer service function, but I see electric companies with significant savings from operating one group for multiple companies.

Finally, there are significant savings of the collaborating companies that have physically interconnected networks:

  • Voice Switch. The savings per customer are significant for sharing one voice switch for multiple companies. There is also a significant potential savings for switch functions like SS7, database management, interconnection trunks, wholesale long distance, etc.
  • Cable TV Headend. There is also significant savings from sharing one cable headend.
  • Major Network Routers. The major core electronics used to power FTTP or other kinds of networks can be used to support multiple companies if all are on the same network using the same technology.
  • Internet Backbone. Companies acting as one can buy a larger broadband data pipe for a lower cost per gigabyte and well as more easily establishing redundant routes to the Internet.

Neighboring ISPs can gain some of these savings by simply working together. But many of the savings (such as the economy of scale savings) probably require a more formal corporate structure. A common structure in the electric world is to create a service corporation that is owned by, and works for all of the owner / partners. With margins tightening across the small ISP industry this is something that any small ISP ought to think about.  Even if you don’t jump in and share everything, starting with a few functions can make a significant difference to bottom line.

How Do You Plan?

Today’s blog is not specifically about a telecom topic, but is something that affects every one of my clients. Today I ask the question: how do you plan for the future of your business? I ask this question because it’s something I see many of my clients struggle with.

What do I mean by planning? To me it means having a process for identifying and setting goals and then having a process for implementing the goals. Goals can be anything, but most of the goals that my clients identify are either to fix existing problems or else to implement something new in their broadband business.

I know this is a problem for many broadband companies because I see them facing the same problems year after year or I see them taking a really long time to implement a new product or build into a new market. I have many clients that are frustrated by this.

It’s usually fairly easy to diagnosis the reasons why plans don’t get implemented. One of the major reasons that plans go awry is that companies get wrapped up in the day-to-day operation of the business and taking the time to make planned changes slips to the bottom of the priority list. I also often see that companies try to tackle too many changes at the same time. I have clients who hold an annual strategy session and then try to implement a dozen changes in the company. This rarely works and half of the changes fall to the floor and end up on the to-do list the following year. And for some companies, plans don’t get implemented because the company doesn’t have any real planning process and good ideas just hang in the air.

I will be the first to tell you that planning is hard. I am sometimes as guilty of not taking the time to plan as my clients and it’s easy to fall into the trap of reacting to fires every day rather than taking the time to plan for the future. But I have a few clients who are really good at the planning process, and interestingly. In observing companies who are good at planning, I notice the following similarities:

  • The planning process is formal. There are scheduled planning sessions that are a top priority for the company. There are planning or implementation meetings held regularly to help set goals and then to make sure that the goals are being met.
  • The planning process is mandatory. I’ve seen companies set planning meetings only to have half of the planned attendees beg off to take care of daily fires. If planning is not mandatory then the planning process tends to fizzle out over time.
  • It includes the whole company. This is not just something that the top few guys in a company should do. Since it generally takes all parts of the company to implement new ideas or to fix problems, then every group ought to have some input to the process. The top people night have the biggest role in choosing the direction of the business, but if the whole company doesn’t feel vested in the process then plans tend to slip in importance to the daily work routine.
  • Goals are published. Everybody in the company ought to know what the short and long-term goals are, and they should understand their role in implementing solutions.
  • The process needs to be organized. Companies that are good at planning keep a running list of tasks they want to accomplish. This is essentially a company to-do list. They list will include both major and minor goals. A major goal might be something like entering a new market or implementing a new product. Minor goals might include things like developing a needed new management report or finding a way to streamline a specific process.
  • Plan for successes. The best way to keep a formal planning process going is by getting wins. Just like it feels good to cross something off your personal to-do list, a company benefits organization-wide if there are constant small wins by crossing things off the company to-do list. This means setting quarterly goals for minor tasks along with longer time frames for major tasks.

As a matter of disclosure, this blog is not intended to drum up work. While I often help companies set goals and priorities, our firm does not offer a formal product for establishing a planning process. There are plenty of firms I know who offer this service and I’d be glad to make a recommendation. I’ve seen that bringing in an outsider to help create a formal process can be money well spent. If your company struggles with setting and implementing goals then seeking help might be one of the best investments you can make – it’s really investing in yourself.

 

 

Broadband Speeds are a Local Issue

You might think that the big ISPs deliver the same broadband products everywhere. But I’ve been seeing evidence that broadband speeds are definitely a local issue. One of the products that we’ve been using to help clients assess a new market is to get a lot of people in the potential market to take speed test. We’ve mostly been using the Ookla speed test, but probably any speed test is sufficient as long as everybody in a market takes the same test.

The results of these speed tests surprised me a bit because they showed a wide variance in the products of the major ISPs. For example, I’ve seen markets where Comcast is delivering a little more download speed than they are advertising. But I also saw tests results from a Comcast market where the speeds were about 20% less than advertised. I’ve seen the same thing with AT&T where there are markets that get only half of the advertised speeds and other markets where they were mostly delivering what they are promising. I’m not sure if there is any better demonstration that speeds are a local issue than by seeing that the big ISPs don’t deliver the same speeds in every market.

There is a long list of reasons that can account for the differences in speeds. A big one is the age and quality of the network cables. Older telco copper and older coaxial cables can cause a lot of problems with quality. The size of customer nodes is always an issue. If everything else is equal, a cable company node serving 100 customers is going to have better broadband speeds than one serving 200 customers.

The other big issue that affects customer performance is what I call network choke points. A chokepoint is any place in a broadband network that restricts the flow of data to and from customers. There can be a choke point directly within a neighborhood if the nodes are too large. There can be a chokepoint between a node and the core network if the electronics for the connection are undersized. There can be a chokepoint on local network rings if they don’t provide enough bandwidth. There can be electronics chokepoints at a headend if a router or other major piece of electronics is overwhelmed. And finally, there can be an overall chokepoint in a network if the data pipe going to the Internet is too small.

Chokepoints don’t have to always be a problem. Many chokepoints only appear during the busiest hours of usage on the network, but don’t impede data speeds when data traffic volumes are smaller. And this means that chokepoints are often hyper-local. They might affect one neighborhood but not the one next door, and only at some times of the day. I’m guessing that the slowest results I saw in the big ISP speed tests were during the peak evening hours.

These chokepoints obviously don’t only affect the large ISPs and plenty of smaller ISP networks have chokepoints. I’ve seen numerous network chokepoints appear in recent years due to the explosive growth of the use of broadband. A network that may have been functioning perfectly a few years ago will develop chokepoints as the amount of total bandwidth on networks overwhelm some portion of a network.

ISPs often are challenged to keep up with the upgrades needed to avoid chokepoints, because generally the only ways to relieve chokepoints is to replace cables or to upgrade electronics, which can be expensive. Smaller ISPs often don’t have the immediate capital available to fix chokepoints as they appear. The big ISPs tend to ignore chokepoints as they appear and to make large fork-lift upgrades periodically instead of making the constant small upgrades needed to keep the network working perfectly.

I always advice my clients to keep a running list of all of their chokepoints. With good network engineering and monitoring practices a company can see chokepoints coming long before they materialize and hopefully can plan to make the needed upgrades before they degrade the customer experience.

 

FCC’s Recommendations to Avoid Network Outages

The FCC’s Public Safety and Homeland Security Bureau just released a list of recommended network practices. These recommendations are not a comprehensive list of good network practices, but rather are compiled by analyzing the actual network outages reported to the FCC over the last five years. Telcos are required to notify the FCC of significant network outages and every item on this list represents multiple actual network outages. It’s easy to look at some of the items on the list as think they are common sense, but there obviously there are regulated telcos that triggered had outages due to ignoring each of these network practices.

Following are some of the more interesting recommendations on the list:

Network Operators, Service Providers and Property Managers together with the Power Company and other tenants in the location, should verify that aerial power lines are not in conflict with hazards that could produce a loss of service during high winds or icy conditions. This speaks to having a regular inspection and tree trimming process to minimize damage from bad storms.

Network Operators and Property Managers should consider pre-arranging contact information and access to restoral information with local power companies. This seems like common sense, but I’ve been involved in outages where the technicians did not know how to immediately contact other utilities.

Network Operators, Service Providers and Public Safety should establish a routing plan so that in the case of lost connectivity or disaster impact affecting a Public Safety Answering Point (PSAP), 9-1-1 calls are routed to an alternate PSAP answering point. A lot of the recommendations on the FCC’s list involve 9-1-1 and involve having contingency plans in place to keep 9-1-1 working in the case of network failures.

Network Operators, Public Safety, and Property Managers should consider conducting physical site audits after a major event (e.g., weather, earthquake, auto wreck) to ensure the physical integrity and orientation of hardware has not been compromised. It’s easy to assume that sites that look undamaged after big storms are okay. But damage often doesn’t manifest as outages until days, weeks or months later.

Network Operators and Service Providers should verify both local and remote alarms and remote network element maintenance access on all new critical equipment installed in the network, before it is placed into service. I’ve seen outages where equipment was installed but the alarms were not tested. You don’t want to find out that an alarm isn’t working when it’s needed.

Network Operators, Service Providers, Public Safety and Property Managers should engage in preventative maintenance programs for network site support systems including emergency power generators, UPS, DC plant (including batteries), HVAC units, and fire suppression systems. This might easily be the biggest cause of network outages. ISPs get busy and don’t test all of the components critical to maintaining systems. A lot of outages I’ve been involved with were due to failures of minor components like fans or air conditioning compressors.

Network Operators, Service Providers, Public Safety, and Equipment Suppliers should consider the development of a vital records program to protect vital records that may be critical to restoration efforts. Today there is often software, databases and other vital records that must be restored in order first to get equipment up and functioning. Electronics records of this type need to be kept in a secure system that is separate and doesn’t rely on the network to be functioning, but that also can be accessed easily when needed.

Network Operators, Service Providers, Public Safety and Property Managers should take appropriate precautions to ensure that fuel supplies and alternate sources of power are available for critical installations in the event of major disruptions in a geographic area (e.g., hurricane, earthquake, pipeline disruption). Consider contingency contracts in advance with clear terms and conditions (e.g., Delivery time commitments, T&Cs). This is a lesson most recently experienced after the recent hurricanes where local gasoline supplies dried up and several utilities without their own private fuel supply were stranded along with the rest of the public.

This FCC list is a great reminder that it’s always a good idea to periodically assess your disaster and outage readiness. You don’t want to discover gaps in your processes during the middle of an outage.

When a Consultant Says ‘No’

Doug Dawson, 2017

One of my competitors recently held a webinar where they told a group of municipalities that they should never accept ‘no’ from a consultant who is evaluating fiber business plans. This is about the worst advice I think I have ever heard for many reasons. I think perhaps this consultant meant that one shouldn’t be afraid to be creative and to look at alternative ideas if your first ideas don’t pan out. But that’s not what they said.

Building and operating a fiber network is like any other new business venture and sometimes a new business venture is just not a good idea. This is why anybody launching a new business of any type does their homework and kicks the tires on their ideas to quantify the opportunity. A feasibility study means going through the process of gathering as many facts as possible in order to make an informed decision about a new opportunity.

The advice in this webinar was given to municipalities. Somebody giving this same advice to for-profit ISPs would be laughed out of the room. Established commercial ISPs all understand that they have natural limitations. They are limited in the amount of money they can borrow. They understand that there are natural limits on how far they can stretch existing staff without harming their business. They understand that if they expand into a new market and fail that they might jeopardize their existing company. My experience in building business plans for existing ISPs is that they are as skeptical of a good answer as a bad one and they dig and dig until they understand the nuances of a business plan before ever giving it any real consideration.

But municipalities build fiber networks for different reasons than for-profit ISPs. Existing ISPs want to make money. They also undertake expansion to gain economy of scale, because in the ISP world being larger generally means better margins. But cities have a whole other list of motivations for building fiber. They might want to solve the digital divide. They might want to lower prices in their market and foster competition. They might want to promote economic development by opening their communities to the opportunities created by good broadband.

These are all great goals, but I have rarely talked with a municipality that also doesn’t want a broadband business to at least break even. I say rarely, because there are small communities with zero broadband that are willing to spend tax dollars to subsidize getting broadband. But most communities only want a fiber business if the revenues from the venture will cover the cost of operations.

Sometimes a strong ‘no’ is the best and only answer to give to a client. Clients often come to me determined to make one specific business plan idea work. For example, many communities don’t just want a fiber network, but they want a fiber network operating under a specific business model like open access. That’s a business model where multiple ISPs use the network to compete for customers. Open access is an extremely hard business plan to make work. I’ve often had to show municipalities that this specific idea won’t work for them.

Or a commercial ISP might want to enter a new market and want to make it work without having to hire new employees. My advice to them might be that such an expectation is unrealistic and that over time they will have to hire the extra people.

My advice to clients is that they should be just as leery of a ‘yes’ answer as a ‘no’ answer. For example, every one of the big open access networks has an original business plan on the shelf that shows that they were going to make a lot of money – and those business plans were obviously flawed. If they had challenged some of the flawed assumptions in those business plans they probably would not have entered the business in the way they did. It’s a shame their original consultant didn’t say ‘no’.

I’ve always said that ‘dollars speak’ and any new business has to make financial sense before you can think about meeting other goals. Every business plan contains hundreds of assumptions and it’s always possible to ‘cook’ the assumptions to find a scenario that looks positive. I have created business plans many times for commercial and municipal clients where an honest look at the numbers just doesn’t add up. I’ve had a few clients ask me to create a more rosy forecast and I’ve always refused to do this.

I personally would be leery of a consultant that doesn’t think that ‘no’ can be the right answer for doing something as expensive as launching a fiber venture. Sometimes ‘no’ is the right answer, and if somebody tells you ‘no’ you ought to listen hard to them. It makes sense to kick the tires on all of the assumptions when you hear ‘no’ and to get a second opinion, if needed. But it’s important to kick the tires just as hard when you get ‘yes for an answer.

Are You Texting Your Customers?

In the last year I’ve found all sorts of my outside interactions now involve texting. I get texts from the dentist affirming an appointment, texts from a furniture company making sure I was home during a delivery, and texts from AT&T wireless for my cellular billing. All these various businesses have found that texting saves them money. Yet I have only a few ISP clients that make wide use of texting. I find that a bit surprising because I can think of a number of ways that texting can be a big money saver for an ISP.

The most obvious one is that it can save from making unneeded truck rolls. Every ISP I know says that truck rolls are expensive, and there is nothing more wasteful than making a truck roll to a customer who is not at home. I’m sure that is why the furniture company made the text and they would not have tried to deliver if I wasn’t at home. Better yet, texting puts a technician into direct contact with the customer and allows them to work out a plan if a customer isn’t home.

But there is probably even a bigger savings in the way that AT&T uses texting. They send me a text each month when they bill me and invite me to view my bill online. This saves them from having to mail a paper bill – something that makes no sense to somebody like me that uses autopay to pay my cellular bill. I can’t imagine I would ever open an AT&T paper bill and they would be spending money and margin to send me one. Many of my clients tell me that today that over half of their customers pay by bank debit or credit card and there is a huge savings from not mailing paper bills to these customers.

I do have a few clients that use texting and they report some other significant savings. For example, they say that texting has greatly reduced their uncollectible billing. They say that it’s far more effective to prompt customers immediately if they are late in paying their bills, and that most customers promptly pay when reminded. That’s particularly effective if you give them an immediate opportunity to pay the bill by credit card.

But the savings that surprised me a bit is the fact that companies that allow interactive texting with customers report that they have significantly reduced the number of calls to customer service. There are a two primary issues that prompt the majority of calls to customer service – outages and billing inquiries.

I have a client who uses texts to inform customers about outages. Customers can get quickly frustrated if they don’t know what’s happening and when service will be restored. This client has tied texting into their OSS and network mapping system and can send texts to only those customers that have outages. And they can inform customers proactively of planned maintenance outages. They say this largely eliminates calls about outages and particularly works great after hours when they are not answering the phones.

Texting can also be a good way to answer a lot of billing inquiries. Texting can be a great tool for answering simple customer questions like their outstanding balance or the due date of their payment. It takes a lot less time for both the customer and the company to answer a simple question by text. This is a great way to communicate with customers (like me) who would always choose an option other than making a call and getting into a customer service queue.

There are a few issues with texting to be aware of. There are some archaic FCC rules that define requirements for when customers text you. This harkens back to the day when many people paid for each text message – something that barely exists any longer. But the rules are still in place and are something to be aware of. There are also rules about using texting as a form of marketing – again, something that can be done in a way that doesn’t violate the FCC rules.

There are a wide range of texting solutions. At one end of the spectrum your technicians can text customers from their cellphones. But in order to get all of the advantages listed above you will want a fully interactive texting platform that’s integrated into your OSS/BSS. Feel free to contact me and I can describe the best solutions on the market.

Developing Customer Broadband Profiles

Last week I was the moderator of an IoT panel at NTCA’s IP Vision 2017 conference. The panel discussion took an interesting turn when the conversation turned to how small ISPs can monetize the IoT.

Customer demand for connecting devices is contributing to the need for bigger broadband pipes. Today there are about 6.6 billion IoT devices connected in the world. This is expected to grow to 22.5 billion by 2021. Obviously not all of these devices will be going into homes since there is a big growth also with industrial and agricultural IoT. But households will be steadily adding more connected devices.

One of the panelists works at a western telco and his company recently started considering the idea of profiling data customers to help them right-size broadband. The company first profiled employees to see how the idea would work. When the panelist was profiled he guessed that his household had 15 connected devices. But then he went home and did an inventory and was surprised to find that he actually had 55 devices. His household is probably a little unusual in that he has five kids and he loves technology, but he said that every telco employee had the same experience in that they underestimated how many connected devices they had in their home. It turns out for most households that the Internet of Things is already here to some degree.

His company has gone on the monetize this idea. They offer customers the chance to sit with a technician and to create a profile of how they use broadband. The goal is to determine if the customer has enough broadband to do everything they want to do. They immediately found the same thing I hear everywhere – most customers have no idea of how much broadband they really need. It turns out that most customers almost reflexively buy the lowest cost and lowest bandwidth data product and are then unhappy with some aspect of its performance.

Telcos everywhere are telling me that customer complaints about poor performance of broadband are becoming commonplace. It’s been easy to assume that problems are mostly due to issues associated with WiFi. But the experience of this particular telco shows that the problem is often that a customer has not purchased enough broadband to satisfy their needs. After the consultation, if they need a faster connection this telco gives the customer the larger data pipe free for a month – and so far not one customer has reverted to their old slower connection.

The telco also offers a second related product that is getting good traction. They sell what they call managed WiFi. The product starts with making sure that customers have placed WiFi routers in the most effective places. But the real benefit to customers is that they can call the company when they are trying to connect a new IoT device to their network. This is something that often frustrates customers. When customers find out that the telco can easily connect new devices and can help them manage their devices a large percentage of customers are buying this new product.

Within the industry we all understand that customer demand for broadband continues to grow at the torrid rate of doubling every three or four years. This kind of exponential growth surprises almost everybody. Customers that have been happy with a 10 Mbps broadband product invariably are going to need to move to something faster within only a few years. But customers are slow to realize that degraded service is due to their own increased usage and they often blame the ISP for broadband issues.

The broadband profiling has shown this telco that the customer experience varies widely. For example, not everybody needs faster download. They have a number of seasonal homes that are starting to install remote cameras that exceed the upload capacity of the broadband products, and the company can make sure there is enough broadband to satisfy the upload needs. The telco says their customers really appreciate this custom approach.

What’s Your Brand?

advertiseherebillboardmedA recent blog I wrote reminded me of this basic question that I have always asked clients, “What’s your brand?” Every business has a brand whether it’s explicit or implicit. People living in your service areas either knew you by what others say about you or by what you tell them about yourself.

So what does it mean to have a brand? It means that when people think of your company that they think about you in a certain way. – it’s the images, emotions, and decisions they associate with you in their mind. If you don’t work to create your own brand then you might just be ‘that telephone company’ or ‘those wireless guys.’ I guess there is nothing wrong with that, but it might mean that a new person to the area has to make a bunch of phone calls to figure out who you are, or that existing customers are more easily swayed by competitors with a better brand.

Having a brand is a lot more important if you are competing for customers, which most small carriers do these days. It’s important to have a brand when you are trying to sell to people who don’t know you, or to keep customers you already have.

So what do I mean by a brand? A brand can be almost anything that you want to have customers remember about you. I’ve seen hundreds of different types of brands in telecom. Some are very simple, such as ‘your local telecommunications company’. Others tell more what it’s like working with a company such as ‘making broadband easy,’ or ‘total business broadband solutions.’

But I am still surprised about how many small carriers don’t have a brand. I can understand this for a carrier who is a monopoly telephone company where customers have no other options. But it mystifies me why somebody who is not a monopoly doesn’t want an easy way for customers to understand who you are.

Some kinds of branding are obvious. For example, cooperatives and municipal broadband companies often remind customers that the business belongs to them. That can be an effective brand if done well. But I see a surprising number of these entities that don’t do a very good job at reminding people of this.

Probably the most common branding I see is companies claiming to be the ‘local telecom provider’ or ‘your local ISP.’ But unless there is something more to the story behind that claim to tell people why this is a good thing, then it can be somewhat shallow. After all, any company that will send a technician to somebody’s door is also local.

The one thing I know about branding is that whatever you tell the public had better be true. You don’t want to tout yourself as the ‘broadband company’ if you are still delivering slow DSL to a lot of your customers. That kind of branding can work against you and will remind your customers every day about how bad their broadband is. And such customers will leap to another carrier with better broadband if they ever have the chance.

If you don’t have a brand, it can be surprisingly challenging to pick one. But if you put a bunch of your employees in a room they can probably come up with a few good ideas. Here are some of the more common ones I see that I think are effective: ‘bringing gigabit broadband to X’; ‘telecom solutions since 1915’; ‘making broadband easy’; ‘21st century solutions for rural America.’

The chances are that you already have a brand but that you haven’t thought about it for a long time. If that’s the case then ask yourself. “Does my brand still tell the public what I want them to know about me?” Also ask, “Is this brand really who we are?” You might be surprised by the answer to those two questions, and if so, it’s time to update your brand.

Economic Lives of Fiber Assets

outdoor-indoor-cable-161One thing that anybody who builds a fiber network needs to deal with at some point is depreciation expense. Fiber networks are expensive and depreciation expense is a key component for measuring profitability and success. This is even true for non-taxable entities if you still create financial reports that include depreciation.

Companies differ in their approach to depreciating their assets. If the owner is a taxable corporation or cooperative they may prefer higher depreciation expense in the early years to shield the business from income taxes. But other owners care a lot about what their financial reports say and I know some fiber network owners that like lower depreciation. Accountants all understand that depreciation is a non-cash expense, but this is a nuance that is often lost on the public or the non-sophisticated reader of financial statements.

My job allows me see the books of a lot of different kinds of telecom entities and I see that depreciation rates used for telecom assets vary widely. There was a time when the FCC and state commissions set depreciation rates for big companies, and the rest of industry usually followed. But today a fiber provider is free to set depreciation lives within a surprisingly wide range.

There is only one authoritative source for depreciation lives which is from a bulletin published by the IRS in 2015.  That bulletin establishes a baseline for depreciation for tax purposes for fiber networks that assumes a conservative and short life for fiber assets. For example, the IRS life for fiber cable is 24 years. At the other end of the scale, I have clients who are using a 40-year life on fiber. From an accounting perspective this wide range is like night and day.

In my experience the economic lives suggested by the IRS are ridiculously short. There was a time in the 1980s when a 20 to 25-year life for fiber was probably reasonable. The early generations of fiber cable had manufacturing flaws that allowed small cracks to develop over time that eventually cause the fiber to become opaque and lose usefulness. Most of the fiber built in those days has deteriorated over the years and has been retired or is of limited use today.

But the manufacturing process for fiber cables has improved drastically in each succeeding decade. I’ve talked to engineers at the fiber manufacturers who estimate that today’s fiber cables might easily last for 50 to 75 years as long as it’s installed properly and not unduly stressed. And there is speculation that fiber might last even longer – we’ll just have to wait and see.

The same thing is true for fiber electronics. Thirty years ago electronics in general were not as well made or as robust as today. There were large clunky circuit cards that expanded and shrunk in outside use and then eventually went bad. And these cards were full of individual components that could fail. But today a lot of the brains of electronics is embedded in chips that can last for a long time.

I can remember back in the 1990s when the engineering mantra was that you designed electronics to last from 7 to 10 years. Within that time frame the equipment would either start having operational issues or else the manufacturer would stop supporting it. But today’s electronics are much hardier and more reliable. I have several clients that still operate the first generation BPON fiber network networks. The electronics on these networks were made 12 – 15 years ago and are still going strong, and during that time they have had almost no failures. But most companies used depreciation lives for the BPON electronics of between 7 to 10 years. The same thing is true with the electronics used to power backbone networks. I have clients still operating networks built 15 years ago at twice the expected economic life.

So my advice to clients is that if they they are not stuck with whatever deprecation rates they are using. If they have reasons to might want shorter or longer depreciation lives there might be a justification for changing the depreciation rates. When I first got into the industry everybody used rates within a narrow range, but today there is a huge amount of flexibility in settling depreciation rates.

If your financial statements are audited then your auditor might want a professional opion of why it’s okay to change rates. But there is a huge amount of empirical data to support using longer lives for both fiber and electronics. And if you want to shorten lives it’s fairly easy to point to the IRS rules.

Accounting is not supposed to be this flexible and one would expect the industry to have a more consistent range of depreciation practices. But once the regulators stepped out of the business of regulating depreciation lives it’s been the wild west from an accounting perspective. So if you don’t like what depreciation expense is doing for you, contact me and I can help you find a better answer.