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.

It’s Okay to Fire a Customer

angry-smilieAs a telecom consulting firm we’ve had a lot of clients over the years. The last time I counted we have worked with over 800 companies. I was just thinking the other day about something that happened after we had been in business for a few years.

I had a client who had always been a pain to work with personally. He was irascible and constantly argued with me over work product. But that never bothered me too much because sometimes in his grumpy way he made very good points – and he always paid his bills on time.

But one day I walked into the office and he was on the phone with my office manager and he was yelling at her over the phone in a very abusive way. She put the call on the speaker and I heard him cursing and ranting and screaming at her. I had the call transferred into my office and I told him he was fired. This stunned him and he asked what this meant for the work we were doing for him, and my response was that we wouldn’t bill him for anything we had done but we were also not going to finish what we were working on.

I think I leapt up four notches that day on the boss scale because nobody in the office liked working with this particular client and they were thrilled to find out that I had their backs. But that day taught me a valuable lesson – that sometimes it’s okay sometimes to fire a customer. Sometimes the money they pay you is just not worth the aggravation. Over the years I’ve fired a few more clients, but luckily most of my clients are a pleasure to work with.

I’ve carried that same message to my clients. When I ask, almost every one of my clients has a few customers that nobody at the company likes to work with. These customers may be abusive, or impossible to please, or are the ones that always want adjustments to their billing for some perceived wrong.

It’s generally a novel concept to my clients when I tell them that it’s okay to fire such customers. A few of them have gone to their staffs after I put the idea in their head to ask how many customers they perceive to be hard to work with. It’s generally a small number, but universally every customer service rep and field technician will make the same short list of problem customers.

Some of my clients have then fired these customers. Others have taken the approach of calling these customers and warning them that their behavior will no longer be tolerated. In both cases I’ve been told that this has resulted in a huge morale booster at the company. Contrary to the popular maxim, the customer is not always right. Your employees should not have to take abuse as part of their job and they will greatly appreciate you making their life easier.

This is not an easy decision because small companies often emphasize the fact that they need every possible customer in order to thrive and survive. So it’s a question of weighing the revenue from a handful of problem customers against company harmony and a good workplace environment.

You also have to be careful not to take this to the opposite extreme. Your employees cannot feel empowered that you will fire anybody who disagrees with them, because that can foster bad behavior on behalf of your staff. But I don’t think it’s hard to identify the really bad apples, and if you do this the right way it’s another way to make your company a better place to work.

Delivering Fiber to Apartments

Bellevue_Apartment_BuildingOne of the biggest issues that’s not talked about much with fiber deployment is getting fiber to older apartment buildings. According to the US Census there are around 19 million housing units in buildings with 5 or more rental units. Statistics from several apartment industry sources estimate that over half of those units were built before 1980 and over 80% were built before 2000. This means that a large percentage of apartment buildings are not pre-wired for broadband. There are both network and business issues associated with serving apartments that makes this part of the fiber business a real challenge.

The network issues are of two types. First is the issue of access to buildings. Building owners have the right to allow or not allow access to service providers. Many business owners will already have some sort of contractual or financial arrangement with the incumbent cable company. A few years ago the FCC outlawed a lot of specific kinds of onerous contracts between the two parties. The cable companies had used deceptive tactics to lock cable owners to only allowing them into buildings. But there are still numerous ways for an apartment owner and cable company to agree to keep other providers out of apartments.

But even should an apartment owner allow a fiber builder in, the cost of wiring older apartment buildings can be prohibitive. When a fiber builder comes to a single family home they generally are free to use the existing coaxial and telephone wiring in the home if they want access to it. But unless an apartment owner is going to grant exclusive access to a fiber builder the existing wires are still going to be used by the incumbent cable and telephone company.

And that means a total rewiring of the building. That can be a nightmare for older buildings. It might mean dealing with asbestos in ceilings and walls. It often means trying to somehow snake fiber through concrete floors and walls or else having to somehow run wiring through open hallways. And it often means disturbing tenants, and coordinating gaining entrance to multiple apartments or condos can be a challenge.

There are also business issues to deal with in apartments. Probably the number one issue is dealing with tenant churn. Almost by definition apartments have a much higher percentage of turnover than single family homes and it can be a real challenge to get and keep a decent penetration rate in apartments. Companies have tried different ideas, such as getting referrals from apartment owners, but the turnover generally is seen as a problem by most overbuilders.

One way to deal with the churn is to make a financial arrangement with the building owner rather than with each tenant. That generally involves paying some sort of commission. That is not a big problem with selling broadband, but the commissions expected on cable TV could easily push under the cost of providing the service. There was a time when seeking wholesale cable arrangements was a good business plan, but the rising cost of programming has made it far less attractive.

There are companies that are concentrating on serving apartment units in metropolitan areas. They bring a fiber to a complex and then serve data and cable to every tenant, often built into the rent. One would have to think that most of these deals are being done with newer apartments that have been built with telecom expansion in mind – lots of empty conduit throughout the building or even fiber already in the walls.

But for the normal fiber overbuilder who mostly serves single family homes and small businesses, apartments are mostly seen as an obstacle more than an opportunity. I have numerous clients who have built whole towns except for the apartments and they have yet to find an affordable and profitable business case for doing so. There are some new and interesting ways to more easily wire older buildings, such as running fiber along the ceilings in hallways – but a lot of my clients are not yet convinced there is a long-term profitable option for serving apartments.

How’s Your Competition Doing?

comcast-truck-cmcsa-cmcsk_largeA large percentage of my broadband clients compete against some of the biggest ISPs in the nation – either the big telcos, the big cable companies, or both. And so it’s worth taking a look from time to time to see how those big companies rate in terms of comparative customer service. The 2016 ASCI (American Customer Satisfaction Index) was recently released and reveals some of the following things about the biggest players in the telecom space:

The ASCI survey each year talks to 70,000 customers about more than 300 large businesses in 43 industries and 10 economic sectors. The survey gives each company a grade on a scale of 100.

As a sector both ISPs (overall rating 64) and Cable TV companies (overall rating 65) are still the two lowest rated sectors within the overall survey. To put those ratings into perspective there are a number of industry segments at or above a rating of 80 such as full-service restaurants, credit unions, household appliance makers and shipping companies.

ISPs as a whole are up slightly from an overall rating last year of 63 to a rating now of 64. There was a lot of change in positions of the big companies. Verizon FiOS is the highest rated company and went from a 68 rating in 2015 to a rating of 73 this year. At the bottom of the scale is Frontier Communications that fell from 61 last year down to a 56 rating for 2016. The other big gainers were Time Warner Cable (58 to 66), Bright House Networks, (63 to 67) and Charter Communications (57 to 63). The other big loser for the year is AT&T U-verse which dropped from the highest rated in 2015 of 69 to 64 this year.

Cable companies overall improved slightly last year from 63 to 65. But most companies stayed about the same except for moves upward by Comcast (54 to 62), Time Warner Cable (51 to 59) and Suddenlink (57 to 62). Verizon FiOS continues to top the list with a 70 rating with AT&T U-verse just behind at a 69. It will be interesting to see how the Charter / Time Warner Cable / Bright House merger will change these ratings for next year. I’ve read several industry analysts that predict that customer service at those companies will suffer during the transition. As might be imagined, cable customers are pretty happy overall with things like picture quality but the survey showed that they are very unhappy with the call center experience.

Perhaps the most surprising change this year among big companies was the noted improvement of satisfaction for Comcast. Last year they were dead last among cable providers and 2015 saw a rash of negative news articles about customer service fiascos. Comcast says every year that they are taking steps to improve customer service, but perhaps they are finally starting to make some changes that are noticeable to customers.

In the telephone world Vonage leaped to the top of the list moving from 73 to 78. What I find interesting is that everybody else rated between 64 and 72 – not a lot better than the cable companies. I wonder if that rating reflects general dissatisfaction with the telephone product or with these large companies in general.

One thing this survey does every year is to remind us how poorly the general public views the big telcos and cable companies. The industries consistently rate at the bottom for all major industries – far below banks, insurance companies and hospitals.

But these ratings also remind us that it’s possible for these larger companies to get their act together to provide better customer service. I know one of the most dreaded events in our household is having to make a call to Comcast. But the last few times my wife called she said it ‘wasn’t so bad’, and perhaps that explains their improved satisfaction score.

There are certainly new tools and technologies coming to customer service that ought to make customers happier. Companies that provide alternate ways for customers to communicate without having to talk to people are finding that this makes a significant segment of their customers happier. And it looks like we are on the verge of getting some fairly intelligent AI agents to handle routine customer inquiries, and that, sadly, will end the very entertaining news articles about the outrageous things said by Comcast service reps. But it might improve the customer service experience.

Business VoIP

Business phonesetI’ve been thinking about getting a VoIP phone in my home office. I’ve been using only a cellphone to conduct business for fifteen years, but there are times when it would be very handy to have a good speaker phone and to also enjoy some of the other features that come with business phones these days. So I’ve been shopping around and I quickly noticed that VoIP vendors have introduced some interesting innovations to their VoIP platforms in just the last few years and they are trying hard to be a better alternative to local phone service.

Since most of my clients offer business landlines I thought it would be interesting to describe what I found in the marketplace. I think it’s important to keep up with what your competition is doing, and VoIP business service is definitely becoming a serious competitor to anybody selling phone lines to businesses. Here is what I found about today’s VoIP market:

Price. Business VoIP keeps getting less expensive. Just a few years ago the VoIP prices were universally around $40 per line. Both Fonality and RingCentral now have lines starting at $19.99 including unlimited long distance and basic business features. Packages climb in price to $40 to include such things as video conferencing. Every online vendor has a different set of features at various price levels making it difficult to do a side-by-side comparison. But the bottom line is that basic VoIP business lines have come down in price.

Integration with Apps. Probably the coolest new feature with some VoIP services is full integration with common business software. For example, you can get full integration with helpdesk software like Salesforce’s Desk or with Zendesk. Or you can tie into collaboration software like Google Drive or Dropbox for business. A number of phone vendors are integrated into Salesforce, the industry-leading sales tool. And some platforms claim to integrate easily with most android apps.

These are powerful tools that are not bundled with switch-based telephone systems. Buying a phone line that is already fully integrated with Salesforce or Google Drive can be a big enticement to users who want to solve multiple issues with one purchase.

Advanced Business Services. VoIP business vendors have made big strides with their suite of advanced business features, Earlier generations of VoIP business lines were mostly a replacement for single line business phones, but they now offer features that rival the best functions of IP Centrex and other switch-based solutions.

And many VoIP platforms now integrate video conferencing for up to 50 simultaneous users, something that is not part of most Centrex or PBX feature sets.

Mobility. It doesn’t look like the VoIP providers have yet solved the mobility issue, but it’s obvious that they are working on it. Most of them still use call-forwarding to allow calls to be sent to cell phones, but I couldn’t find anybody that is yet offering an integrated cellphone / landline product where all features work seamlessly across both platforms.

Unified Communications. A few VoIP providers are now offering applications that will support phone calls, voice mail, email, chat applications, conference calls and other forms of communications and give users the ability to easily switch how they are communicating. But most don’t yet have this fully developed.

There seems to a lot more functionality with VoIP business lines than what I was able to find just a few years ago. I think carriers need to be putting pressure on their switch vendors to keep up with the innovations going on with VoIP. Many businesses are going to like the integration with common business software and with video calling and if you are selling landline solutions you need to keep pace with what customers want.

Politics and Municipal Partnerships

ppp_logoOne of the hot topics around the industry today is the creation of Public Private Partnerships (PPPs) with municipalities to provide fiber-based broadband. Today I want to talk a bit about the difference in partnering with a municipality compared to other commercial carriers.

Commercial carriers are often very used to partnering with each other. They will build fiber routes together and routinely share facilities. And many ISPs will outsource functions to another carrier when it makes economic sense. I see ISPs everywhere engaging in some very creative partnerships with other carriers.

But partnering with a municipality is different, mainly due to the very nature of how municipalities work. Any carrier that does not understand the differences and that doesn’t account for those differences in their plans is likely to get very frustrated over time with a municipal partner. Today I look at some political issues that arise in PPPs and I will look at financial and legal issues in subsequent blogs.

Municipalities are (by definition) political entities. The people at the top of the political pyramid are elected officials and that has to be considered when partnering with a municipality. The city you partner with today might not be the same city you find yourself working with in five years after a few elections. Change can happen with a commercial partner as well, but it’s rarely as abrupt or as expected.

I know one company that partnered with a city to build fiber and the city was an enthusiastic partner. But the next administration of the city came in with a bias against the city working to ‘enrich’ private businesses, and that partnership then became a lot more difficult to maintain. So the one thing that a good PPP needs is to be insulated from politics as much as possible. You don’t want to have the PPP structured in such a way that future decisions like raising rates or building new facilities must be approved by a city council.

It’s also important for a business to understand how slow municipalities are in making decisions. The whole municipal deliberative process is slow on purpose to give the public a chance to weigh in on things a city does. But it can drive a commercial entity crazy waiting for a municipal partner to make a decision when you are running a commercial business venture.

Another shock that those involved in PPPs are often surprised about is how everything they decide or do as part of the PPP is suddenly in the press. Local ISPs can often go for decades without making the paper for anything bigger than making a donation to a local charity. It’s very disturbing to see your business decisions discussed in the press, and often incorrectly.

Engaging in a PPP also can subject an ISP to an unusual kind of attack from the larger incumbent providers. They will make the argument that anything that a municipality provides as part of partnering with an ISP ought to be extended to all carriers. These arguments are labeled as ‘level playing field’ issues and incumbents can sound incredibly persuasive when talking about the unfair advantages given to one of their competitors (while ignoring the monopoly power they probably held over the city for decades before).

All of these issues can be managed as long as a carrier walks into a PPP arrangement fully aware of each of them and with a strategy for dealing with each one. Once a carrier has joined with a municipal partner they can never be free of these sorts of political issues – but they can structure the business arrangement in such a way as to minimalize the practical impact of them.

IoT as a New Product Line

Light bulbLast week Google and Nest announced that they were discontinuing the Revolv IoT hub for the home. The hub is the smart device that sits at the core of an IoT network and is generally the device that lets a user communicate with any other devices in the network. The Revolv hub will still work for anybody that owns one, but there will be no further development on the hub and no new devices designed to work with it.

And this got me thinking about small carriers offering IoT as a product. Big companies like Comcast are now offering a home automation package. Comcast has integrated nine different devices together that range from security, smart locks, smart lights, smart thermostat, etc. Comcast reports that they are surpassing their early goals and have a penetration rate of over 5% of total broadband customers.

But I would think that a company as large as Comcast has developed their own proprietary IoT hub to work seamlessly with all of the various devices. But finding a reliable hub vendor, and working to get any hub to work with a core set of devices can be a daunting task for smaller carriers. And since there are not yet any industry standards for IoT, devices don’t automatically integrate into different brands of hubs and will not work at all in many cases.

The real fear for a small carrier is that you’d build a product line around some specific brand of hub and that hub would either be discontinued or the company that makes it might even disappear. If you can’t trust somebody as large as Google for an IoT hub, then who can you trust in an industry that doesn’t yet have any clear dominant IoT manufacturers?

There are other issues with the IoT business plan that have to be considered. Probably the most immediate and costly issue is the fact that supporting residential IoT means a lot of truck rolls. I’ve looked at the cost of a truck roll for some of my clients and it’s not unusual to see costs of $50 to $75 for a truck roll, and so any business plan has to compensate for a product that is going to require multiple visits to customers over time.

Another issue to consider is customer expectations. There is now a huge variety of smart devices on the market and the vast majority of them are not going to work with whatever hub you choose. I would expect that once customers have some IoT devices from an ISP that they are going to buy other devices and will be disappointed when they won’t work with the hub that they are already paying for. And it’s virtually impossible for a small ISP to integrate incompatible devices with their hub of choice.

Yet another issue that is still of concern for the whole industry is security. Smart devices tend to have very rudimentary operating software and IT experts say that hacking IoT networks is relatively easy. I don’t think many of us are too worried about somebody hacking into our smart coffee pot, but when you put your thermostat, front door locks and watering systems onto a network together there is a lot of chance for damage from malicious hacking.

But a greater security concern is that an IoT network can be a gateway to your entire network and can let in malware and other problems that can create havoc with finances and personal data stored on your computers.

There are certainly customers that will buy these services, as has been demonstrated by Comcast. We might be decades away from a time where there might be significant penetration rates like we see with triple play products. But there probably is an opportunity today to get a small, but potentially profitable product out into the market. But the risks and costs of offering residential IoT still looks to be out of the comfort zone of many small ISPs. Perhaps rather than try to offer a full suite of products like Comcast is doing, a more workable strategy might be to concentrate on a small handful of functions like security and smart thermostats.

Stranding Fiber Investment

Fiber CableThere is one issue with fiber-to-the-home networks that doesn’t get talked about a lot. In areas with normal churn – people moving in and out – a fiber network will end up with stranded fiber drops and ONTs that have been built to homes and businesses which no longer have service.

This happens to all networks of course, but the investment from the curb to the customer is a lot more expensive in a fiber network than it is with a coaxial or copper network. The cable and phone companies normally just leave the drop in place and hope that sometime in the future that the residents at the address will want service again.

Most of these stranded investments come from a couple of causes. First are people that don’t pay their bills and have been cut off service by the fiber provider. In any given market when a new ISP opens their doors, a lot of households that can’t pay their bills will try to get service with the new company. And so if a new fiber provider doesn’t do good credit checks they tend to get flooded with the bad debt customers, and they will have invested in building fiber to a lot of places that aren’t likely to pay them.

But over time most of the stranded investments come from people who move. The new people moving into a home might not want the same service. But more often, the people moving into a home will have automatically called the incumbent cable or telco provider for service – generally not even knowing there is an alternate broadband provider available to them.

This is not an issue in those places where the incumbent is the fiber provider. But for competitive fiber providers this can turn into a sizable problem over time. I know companies that have accumulated stranded investments as large as 10% of the total passings in a market.

I have clients with different strategies for this problem. First, companies using external ONTs need to have a process for retrieving and reusing the ONT electronics at houses they no longer serve. A surprising number of companies leave the electronics in place hoping that they will get the customers back.

But the bigger issue companies face is how to reach new residents before they choose the competitor. People that move into a new town tend to automatically think of the incumbent provider when ordering the triple play, and it’s generally too late to get to them if they’ve already signed a contract for service.

One common strategy is to make deals with the most active real estate agents and rental agents in a market so that they tell new tenant about your fiber service. I have clients who give free service to such folks as a way to induce them to make sure that new tenants know about the fiber.

It’s also vital these days to keep good records on potential customers. If you miss an opportunity with a household that signs a one or two-year contract with the incumbent, you should have a software program that alerts you when that contract is going to expire so that you can make your pitch later. I’m always surprised at the number of clients that don’t capture and track this kind of information in any usable way. Over time you should know about every home in your fiber footprint. You should know who doesn’t pay bills, who doesn’t want broadband at any price, who has contracts with the incumbents, etc.

Two markets with an especially large potential for stranded investment are college towns or towns with a military base where a significant number of residents turn over every year. I have clients who have gotten very creative and work with the colleges and the military to make sure that information about them is given to new students.

But the takeaway from this discussion is that you are going to spend more money building fiber than you might have planned for in your original business plan. Fiber drops are not cheap – particularly buried ones – and you are going to build plenty of drops that never drive enough revenue to cover their costs. Your best way to fight this is to always check the credit of potential customers and to have a plan in place to be able to market to new people who move into your community.