Category Archives: Improving Your Business

Should an ISP Offer Fast Upload Speeds?

Speed_Street_SignOne question I am often asked is if clients should offer symmetrical data speeds for residential customers. I’ve noticed lately a number of fiber networks that are advertising symmetrical speeds, and so this option is gaining some market traction. This is not an easy decision to make and there are a lot of different factors to consider:

The Competition. Most fiber networks are competing against cable networks, and the HFC technology on those networks does not allow for very fast uploading. The number one complaint that cable companies get about upload speeds is from gamers who want fast low-latency upload paths. But they say that they get very few other complaints from residential customers about this issue.

So this leads me to ask if residential customers care as much about upload speeds as they do download speeds. I know that today that household use the bulk of their download capabilities to view video and there are very few households that have the desire to upload videos in the same manner or volume. One of the questions I ask clients is if they are just trying to prove that their network is faster. Because to promote something heavily that most customers don’t care about feels somewhat gimmicky.

Practical. At the residential level there are not many users who have enough legal content to justify a fast upload. There are a few legitimate uses of uploading, but not nearly as many as there are for downloading. Some of the normal uses for uploading include gaming, sending large files, sharing videos and pictures with friends and family, doing data backup and other related activities into the cloud. But these uses normally do not generate as much traffic as the download bandwidth that is used by most households to watch video. And so one must ask the practical question if offering symmetrical bandwidth is just a marketing ploy since customers are not expected to use the upload nearly as much as they download.

Cost. Another consideration is cost, or lack of cost. A lot of ISPs buy symmetrical data pipes on their connection to the Internet. To the extent that they download a lot more data than is uploaded, one can almost look at the excess headroom on the upload side as free. They are already paying for that bandwidth and often there is no incremental cost to an ISP for customers to upload more except at  the point where upload becomes greater than download.

Technical. One must ask if allowing symmetrical bandwidth will increase demand for uploading over time. We know that offering faster download speeds induces homes to watch more video, but it’s not clear if this is true in the upload direction. If uploading is stimulated over time then there are network issues to consider. It requires a more robust distribution network to support a network that has significant traffic in both directions. For example, most fiber networks are built in nodes of some sort and the fiber connection to those nodes needs to be larger to support two-way traffic than it would be if the traffic is almost entirely in the download direction.

Bad Behavior. One of the main arguments against offering fast upload speeds is that it can promote bad behavior or can draw attention from those with malicious intents. For example, fast upload speeds might promote more use of file sharing, and most of the content shared on file sharing sites is copyrighted and being illegally shared.

There has always been the concern that customers also might set up servers on fast connections that can upload things quickly. And one of the few things that requires a fast upward connection is porn. So I’ve always found it likely that having fast upload connections is going to attract people who want to operate porn servers.

But the real concern is that fast networks can become targets for those with malicious intent. Historically hackers took over computers to generate spam. That still happens today, but there are other more malicious reasons for hackers to take over computers. For instance, hackers who launch denial of service attacks do so by taking over many computers and directing them to send messages to a target simultaneously. Computers are also being hijacked to do things like mine bitcoins, which requires frequent communication outward.

One would think that a hacker would find a computer sitting on a network that allows 100 Mbps or 1 Gbps upload to be worth a whole lot more than a computer on a slower network. And so they might well be targeting customer on these networks.

What this all means to me is that if you offer fast upload connections that you ought to be prepared to monitor customer to know which ones upload a lot. If such customers are operating server businesses they might be directed to use business products. Or you can help them find and remove malware if their computers have been hacked. But I find the idea of allowing fast uploads without monitoring to be dangerous for the ISP and for customers.

Making Privacy Work for You

privacyNumerous surveys have shown that the vast majority of people are leery about ISPs recording and sharing data about them. As a small ISP you can take advantage of this sentiment to get a competitive advantage. Most small ISPs compete against the larger ISPs, and we all know that those companies have willingly and directly handed customer data to the NSA.

Probably the biggest step you can take in this area is to look at your data retention practices. I’ve visited clients who retain records of everything their customers have done on-line for the last year or even longer. They generally say this is done for the purposes of being able to trace network problems and also because data storage is cheap.

There are FCC requirements to retain originating telephone calling records for 18 months. That requirement was recently bolstered by asking you to keep even more data about calls placed to rural locations for six months. But there are no legal requirements that you must track the web sites people visit or retain emails or other web-related records for any length of time.

Think about the message that you can send to your customers if you make it a point to not store customer data for any longer than necessary. You probably want to keep things for a little while for the purpose of investigating network problems and answering custom inquiries. You should make an assessment of how often you need to look backwards at customer data to help determine the right time to keep records. You might even be able to justify not recording some things in the first place.

You can’t always erase customer data. Obviously you have to comply with law enforcement subpoenas, but those can only require you to record and turn over data going forward and you are not required to have kept older data. And most ISPs will voluntarily save and track data for customers who request it, such as somebody who is being cyber-harassed. The hardest data to have a policy for are emails. What you might want to consider is that when a customer deletes an email that you also permanently delete it. This puts emails into the control of your customers instead of you. But if they choose to retain emails you obviously must keep them. Otherwise there is very little reason for you to be keeping customer data. If you don’t have a very specific network security reason to store something, then don’t do it.

If you are proactive on customer privacy and data retention you should make sure that your customers know about your policies. You can openly pledge to customers that you are taking concrete steps to protect their privacy. Such pledges can be a good marketing tool for you, particularly if your competition can’t or won’t make such promises. So make sure you don’t miss an opportunity to talk about your practices.

You can even go further. There are a number of network tools today that promote privacy and you can educate your customers about them. For example, the web search engine DuckDuckGo is different than other search engines in that they don’t save the IP address of somebody doing a search there and they never use cookies. Contrast this to Google who uses their search engine to learn as much as they can about people. If somebody routinely searches about diabetes, for example, Google will infer that someone in that household is a diabetic. Over time Google can put together a really detailed profile of your household just based on the things you search for and purchase.

You can go even further and educate people in general about practices which will help them preserve their privacy. Changing to a no-tracking search engine is a good start, but other practices like clearing their cache of cookies or turning off location identifiers are other ways for people to have a lower web profile. So you can create a few educational pages informing people about good web practices. Again, the point is to show that you care about their desire for privacy.

You obviously can’t help your customers if the NSA is somehow still snagging a lot of the data at some later point in the network. But very few people are as worried about the NSA as they are about the big web companies like Google that are gathering a detailed profile about them and then selling this to marketers of all types. So take whatever steps you can to assure your customer that you understand their concerns about privacy and that you are on their side.

How Much Should You Spend to Stay in the Cable Business?

Old TVOne of the questions I am often asked is, “How much money should I be willing to spend to stay in the cable TV business?” It’s a really great question because I think every small cable provider probably understands that they are losing money today on cable. Plus everything they read tells them that the cable business poised to undergo tremendous change.

The cable business is by far the most capital intensive of the three triple play services. Cable headends are expensive and they seem to need constant upgrades. Programmers alone cost you a lot of money. They move networks between satellites; they change the compression on channels; they push you to add more high definition channels and additional networks. And settop boxes cost a lot to maintain. They break and wear out. People move and take them with them. And they get obsolete – Scientific Atlanta recently stopped supporting one of the more common settop boxes in the market.

Additionally there is always pressure to offer all of the bells and whistles. A lot of content is being added to video on demand and customers seem to really like it (although they don’t spend as much on VOD movies as we were all once promised). The big cable companies offer TV everywhere so that customers can watch TV on computers, laptops, tablets and smartphones. The middleware vendors are always coming out with updates and improvements and want to charge more.

This leads you to ask the big picture question – how much money do I pour into a business line that is losing money? This is something that every business faces from time to time. I know a decade ago many of my clients faced this same question with their sales of PBX and key systems. Most of them lost money on that business line if they were honest about the real cost of being in the business. And many of them decided to cut the cord and ditched the losing business line, although others kept it.

Business school basics would tell you that you need to ditch lines of business that are losing money. But dropping cable is not easy, and for a triple-play provider it would be like McDonald’s dropping the Big Mac. It’s not easy for a triple-play provider to decide to get out of the cable business, and for most of them it’s not practical. So what do you do about this situation? Every company is different, but here are some ideas worth considering:

Charge More. If your cable line of business is not profitable, then reduce your losses by raising your rates more than normal. I had one client who raised rates 10% per year for four years and finally got close to profitability. You will lose some customers along the way, but there is no particular reason for you to subsidize a losing product by having rates lower than the surrounding market. And within the product line make sure you are charging enough for settop boxes, HD channels and the other ancillary cable products.

Pinch Pennies on Capital. If you are losing money on cable then you will never recover any investment made in cable assets. Delay upgrades and delay putting in new channels as long as possible. Make sure you are buying forward-looking settop boxes that will be compatible with future changes in the industry.

Don’t Try to Do Everything.  At some point you need to decide if you can really afford all of the bells and whistles. You really need to understand your market and your customers and decide what will happen if you don’t offer TV Everywhere or if you don’t update the VOD system. Let’s face it, little companies can’t keep up with big companies like Comcast. Comcast has headends that serve millions of customers and that makes it easier for them to justify upgrades. Unless your customers absolutely demand everything, then start paring back your offering. Perhaps cut channels and don’t implement every industry upgrade. It may not feel right to not have the state-of-the-art system, but it feels pretty good to not be bleeding money.

The Cost of Bond Financing

ppp_logoI have worked on fiber projects where the project has a choice to finance something through municipal bonds or through commercial loans. Such projects involve a government entity as well as a commercial partner. These public private partnerships are becoming more common as cities are looking for fiber and commercial companies are looking for help getting projects financed.

I have always told people that financing through municipal bonds is the most expense kind of debt possible. People at first don’t believe this until I show them. Afterall, the interest rates on municipal bonds is generally a lot lower, and in today’s market, and depending upon the rating of the bonds involved, you see 4% or 4.5% interest on bonds versus 7.0% – 10% interest on the equivalent commercial debt. And so people assume that municipal financing is a better deal.

In fact, around the country when the large incumbents try to pass laws that make it hard for municipalities to get into the fiber business they generally list the ability to obtain municipal financing as one of the big benefits that municipalities have over commercial firms. However, as the following numbers show, this is not true. Consider a project that is going to build a $30 million dollar fiber network. The project is also going to ask for $2.3 million in working cash to cover operating expenses. Following shows the financing using a revenue bond and using commercial debt.

Revenue Bond  Commercial Loan
Assets to be Built $30,000,000 $30,000,000
Fees $900,000 $100,000
DSRF $2,700,000 $      –
Bond Insurance $300,000 $      –
Capitalized Interest $6,500,000 $      –
Construction Interest $1,600,000
Working Capital $2,300,000 $2,300,000
Loan $42,700,000 $34,000,000
Interest Rate 4.50% 7.00%
Term 30 15
Annual Payment $2,621,419 $3,733,017
Total Outlay $78,642,566 $55,995,259

The first obvious difference is that you have to borrow a lot more money with a bond. Here are some of the reasons:
• Bonds require you to take the money in a lump sum and then pay interest on the full amount of borrowing during the time the project is being constructed. Further, bonds generally require the project to capitalize interest, that is borrow the amount up front to make the first three years of bond payments. In contrast, a commercial loan generally uses construction financing, meaning you draw the money as needed and only pay on what you have borrowed.
• Revenue bonds generally require a Debt Service Reserve Fund (DSRF) which puts one year of debt payment into escrow as a hedge against the project having trouble making the bond payments.
• Bonds often also require bond insurance, which is a policy that will make a full annual payment to bond holders should the bonds default.
• Finally, there are huge fees associated with floating bonds. There are many attorneys involved as well as substantial payments to bond trading desks for selling the bonds.

In this example, the bond debt is $8.7 million higher than the equivalent commercial debt. Bonds typically have lower interest rates and longer terms than commercial debt, and in this example mean that the annual payments are $1.1 million less per year. But there is a penalty to be paid for financing anything over a long term (like your home mortgage) and that is that you pay a lot more out over the life of the loan. In this example, the total cash outlay is $22.6 million higher for the bond debt, which is a 40% cash premium to pay for using bonds.

Municipal entities generally use bonds for several reasons. First, bonds rarely require any equity and the borrower can borrow 100% of the cost of the project. But the main reason that municipalities use bonds is that they are comfortable with this kind of financing and they don’t know anything else.

The problem this causes is that everything that the government builds in this manner costs more than if a commercial entity built the same project. I said the above example was for a fiber network, but it could just as well been for a water processing plant, a new high school, a new court house or any other municipal project.

We have an infrastructure crisis in this country and all of governments added together are capable of only borrowing a small percentage of the money needed to build and fix everything that is needed. So we need to abandon the bond model of financing a lot more often and start looking at public private partnerships as a way to get things done.

Making Money With Home Automation

Nest_Diamond_ThermostatAt CCG we are always telling carriers that they need to find products to replace cable TV and voice, both which are slowly losing customers. One of the products worth considering for carriers that have a sizable residential base is home automation.

What we hear is that once homeowners learn what home automation can do for them they want this product. But there are a lot of moving parts to the product. There are hardware costs to cover along with numerous home visits needed, so it’s not a product that is automatically going to make money unless you do it right. Here are things to think about when considering the product:

  • You must be willing to cross the threshold. This product requires you to routinely go into customer homes. As an industry we have spent a decade looking for ways to reduce truck rolls and this product increases truck rolls as a routine part of the product. Your pricing must embrace that concept so that you are recovering a lot of your technician time.
  • One way to look at this product is that it gives you the opportunity to cross-sell other telecom products. We are told by some clients that the cross-sales are worth far more than the margin on home automation.
  • There are not likely to be any industry standards for a long time, if ever. This means that you need to decide what devices you will and will not support. We think the right strategy is to define the list of things that you will automate, and even then that you only deal with monitoring units that are part of your suite of products. Otherwise customers will always be buying crazy off-the-shelf things (like an egg tray that tells you how many eggs are left) and expect you to somehow tie them into your system.
  • You must recover equipment costs. You need to have an initial installation fee plus some portion of monthly fee on a term contract that is aimed at recovering the cost of the equipment. Base hub units for home automation are going to cost you from $150 to $200 and there is a wide array of monitors that can be added to the system to automate things like watering systems, thermostats, fire detectors, music systems, lighting, etc.
  • This industry and the product are always going to be changing. Home automation is the first small step into the Internet of Things and by becoming the trusted vendor today you have a foot up on that market when it gets more mature. The downside to this is that the technology will be changing quickly and so you are going to have to always be looking at different and newer monitors and devices to support with the product. But your customers will want many of the new things that will be coming along, and so you will have a continuous opportunity to upgrade and add on to customer systems.
  • You must manage customer expectations. There are three components to pricing the product – installation, equipment and ongoing maintenance. We think customers are going to get excited about this product. Once it’s installed and you have automated their sprinkler system and window shades they are going to want you to keep coming back to update more things over time. So your pricing needs to make it very clear about what is included with your base fee, and what costs extra. We suggest that you offer pricing plans that include some set number of visits. For instance, a base plan might mean that all future visits to the home are for a fee. But you might then also sell plans that include two, four or six visits a year where the customers pay for these visits as part of their monthly fees. That kind of pricing will stop customers from calling you to visit every time they think of a new home automation device to add or a refinement to make with the existing equipment. Without managing expectations in this manner you will find yourself making a lot of unpaid trips to customers.
  • Bundle the product. It’s a natural to bundle home automation with home security, but you could bundle it with anything else your customers want. The whole point of this product is to use it as a platform to get your customers to buy multiple products from you.

The Changing Nature of Being a Service Provider

Black phoneIn the last four months I have talked to few companies about helping them look into the future and develop a strategic plan for getting ready for that future. And each of these companies said the same thing to me. They are each triple play providers and they all know that they are losing and will continue to lose telephone and cable customers. And each one said, “I will hire you if you can tell me what the next big killer product is that will replace what I am losing”.

And that is exactly the wrong question to ask, because there is no killer new product. We have been spoiled in the industry because we have had benefitted by having three products that have such a wide appeal that most of customers bought them, often in bundles. But there is nothing on the horizon that is going to have that same wide-spread appeal to customers.

It is time to acknowledge that customers have changed. One of the major lessons people have learned from using the Internet is that they have choices. If you don’t want to pay $80 – $120 for a traditional cable TV package of channels there is an alternative. If you don’t want to have a landline telephone there are a ton of options. Ten years ago nobody would ever have believed that people could be happy watching television on a tiny hand-held screen, and yet millions of people are happy doing that.

There are no killer products on the horizon because there is just not any product that over half of your customer base is going to want any more. Because the second big lesson the Internet has taught people is that they can get exactly what they want and don’t have to settle for something generic that only fits part of their need. They are being taught that somewhere there is an app for everything. So customers are far pickier than they used to be and will not sign up for a product that doesn’t satisfy a need in their life.

So what is a service provider to do? If there is no new killer product on the horizon, then the only alternative I see is to have a suite of products that satisfy niches in the market. If you are not going to find that one new product that gets a 60% market penetration, then you are going to need six products that each can get a 10% market penetration.

And frankly, many service providers don’t want to hear this message because it scares the hell out of them. They know how hard it is for their organization to develop even one new product and so they panic when they hear that the future is probably going to require them to constantly be rolling out new products.

And this is not even the end game. Some of my clients have been in the telephone business for over a century. And so they have done very well selling telephone lines to successive generations of households in the community. But many new products are going to have a much shorter shelf life. You may roll out a home automation product that is obsolete five years later and will have to be replaced with something else. Service providers are never again going to be able to rest easy that they have the perfect product mix going into the future. Instead they are going to have to continuously reinvent themselves.

The companies that survive and thrive in this new market are going to have to be nimble. They are going to have to keep their eyes out for things that some of their customers will be willing to pay for. And more importantly they are going to have to get way better at sales. They are going to have to hit the market hard every time they get a new product in order to make a profit.

To many this is a daunting future. If this scares you it might be time to think about selling your business. The status quo is quickly dying and the ways we have survived by selling the triple-play networks will no longer suffice. But the need to be constantly innovative is not foreign to much of the rest of the business world. There are many businesses that have to reinvent themselves over and over to stay relevant in the marketplace. It’s going to take a different kind of ownership to thrive in this new world, a more entrepreneurial mindset, and those that have that should do fine. But anybody who thinks they can just keep happily selling the same old thing had better prepare for the day when their company becomes irrelevant and insolvent.

The Informed Customer

Black phoneThe US consumer is far more informed today than any time in the past. And this goes double for businesses. When somebody goes to sell something as complex as the triple play mix of products, one has to assume that most customers will have already done some research on the web to find out what they can about your company and your products.

In the past one of the first steps of the consultative process of selling telecom services was to inform the customer about all of the options. And so salespeople were equipped with slide shows and handouts that would explain what their products can do. But from what I hear it is getting to be the rare event when a business customer doesn’t already have a pretty good idea of what they want to buy. They will have done their web researched, read reviews, and talked to peers before they are going to accept a sales visit from you.  They are already fairly well-informed before the first sales knock on their door.

This has changed the sales process because often it’s then just a matter of talking price and logistics. Where it used to take multiple visits to sell a business customer, many of them can be sold in one or two visits. This leads me to talk a bit about how telecom companies portray their products on the web. I have browsed through hundreds of telco and cable websites looking at how they portray products and prices and more often than not I am surprised by what I find.

A lot of companies spend time on their web site talking about who they are, but very little time talking about what they sell. In fact, there are a significant number of telecom companies that don’t even list their products on the web. Even among those that do, very few companies list their pricing. This is an interesting trend, because back when the web was new companies routinely had their product list on the web. But over the years the information about product and pricing has shrunk rather than grown.

And I think this is a mistake. This is not being responsive to the way that customers want to shop and buy today. Individuals and companies are used to completing sales transactions on the web without talking to anybody. They are used to now doing their own research and deciding what products are right for them on their own.

I hear a number of different reasons why companies don’t have full disclosure on their products and prices. Here are some of the most common ones:

I don’t want my competitors to know what I am doing. Really? Can you possibly think that any competitor of your does not already have a big pile of your bills that they have gathered from your customers? Do you really want to make it harder for customers to do business with you because you are afraid of your competitors? Customers are going to welcome your openness, candor and ease of use if you make it easier for them to shop with you.

I don’t want to make it easy for customers to disconnect. This is one of the dumbest excuses I have ever heard. Can you really think that a customer is not going to drop services because they have to call you? Just the opposite is true, and the customer that goes to the web to easily drop a service they don’t use today is just as likely to come back and add a different feature six months from now. Your customers will love that you have made it easy to shop with you.

I sell in packages and I don’t want to quote prices on the web. Then say this. Describe your process for how you sell to a customer so that they know exactly what to expect from you. It is far more likely that a customer won’t call you if you have no product information on the web than if you instead tell them about what to expect from you.

Why Not 3.65 GHz?

Transmitter_tower_in_SpainAny company about deploying point-to-multipoint wireless data services ought to be thinking about using the 3.65 GHz spectrum. Unless you happen to own other licensed spectrum, this is probably your best alternative to using the normal unlicensed spectrum. But in many places the normal unlicensed bands of 900MHz, 2.4GHz, and 5.8GHz are congested, and are getting more so every day. I’ve written earlier blogs talking about how all of the cable companies and telcos are now using unlicensed spectrum routers at almost every home. And the Internet of Things is going to pile a ton of new uses onto unlicensed spectrum everywhere.

The FCC authorized the 3.65GHz – 3.70GHz frequency for public use in 2006, with some usage rules to maximize the utility of the spectrum. The rules are aimed to provide the most benefit to smaller markets and less densely populated areas. This can mean a cleaner signal for any carrier deploying a point-to-multipoint wireless services. A few of the rules include:

Restricted Locations. The spectrum cannot be used close to existing government installations or satellite earth stations that use the spectrum. So you can’t deploy around some of the larger air force bases and around a handful of remaining satellite earth stations. The FCC maintains a list of the restricted locations. It should be noted that the earthstation market has been consolidating and over the last few years a number of older earthstations have been decommissioned. This restriction does not block the spectrum in too many places.

Licensed Use. You can license the spectrum for a $280 fee. However, such a license is not exclusive and every holder of the spectrum is expected to coordinate with other users. This is not like a normal FCC license and it is not first come first serve. Everyone using the spectrum in a given area is expected to work with others to minimize interference. The FCC will act as the arbiter if parties can’t work things out. I would point out that in a point-to-multipoint deployment it I fairly easy to keep interference to a minimum.

Contention. There are different rules for using the spectrum depending upon how you deploy it. The rules promote using radios that deploy other spectrum in addition to 3.65 GHz. For radios that only use this spectrum the usage is limited to the 25 MHz band between 3.65 and 3.675 GHz. But radios that allow for a shift to other frequencies when there is contention can use the full 50 MHz channel within the frequency.

The frequency can support bandwidth on one channel up to a theoretical 37 Mbps download. But real life deployments are called somewhere around 25 Mbps close to the transmitter.

Radios for this frequency are readily available from most of the major point-to-multipoint radio manufacturers. The price of the base stations and customer CPE are very much in line with the cost of radios in the unlicensed bands.

One advantage of this spectrum is that it can go a significant distance. It can theoretically work to the horizon, but the throughput diminishes with distance. Life with most bandwidth, you can engineer to get good bandwidth at the outside of your range by sacrificing bandwidth close to the antenna, or you can alternately go for big bandwidth close to the tower with decreasing bandwidth with distance. It’s easy to engineer a system that can deliver 10 Mbps download at five miles. We’ve seen 3 Mbps at 9 miles.

This frequency is best used in a rural deployment, because the bandwidth from a given sector of a basestation is shared with all of the customers using that sector. Like with any shared bandwidth technology, the more customers you cram onto the system, the less bandwidth available for each customer, particularly at peak times.

Sell or Hold?

1854_gold_dollar_obvEvery telecom business ought to periodically ask the question of whether it should stay with the business or sell. Asking this question prompts you to take a measure of your business and to think about the future. One of the best tools to measure your performance is to periodically get a valuation. I recommend a valuation every three years. This gives enough separation in time to understand if the business is gaining or losing value over time.

A good valuation is going to be detailed enough to dig into the details and will find the real value to a buyer. Telecom valuations are no longer done on value per customer. Instead a buyer will offer a multiple of the cash flow that they will inherit after a purchase. A well-prepared valuation is going to start with your books and ledgers and will make adjustments to reflect the actual cash flow a buyer will see if they bought your company.

There are almost always expenses that would disappear if a company was sold. For example, there might be higher than normal salaries paid to owners in lieu of paying dividends. There might be benefits for executives that wouldn’t be paid by the new company. There might be company cars or other assets that won’t convey to the new buyer. There might be employees that are not expected to be retained by a buyer. In an actual sale the seller would want to acknowledge these sorts of adjustments, and so they should be reflected in a valuation.

One must also consider normalizing revenues. It’s not unusual these days to sell services on a long-term contract that have up-front payments. So if you sell things like transport to a cellular tower but only get such revenue in the years when the contract renews you need to adjust to show that as annual revenue at the appropriate level.

Getting a good valuation is only a start to looking at your business. A valuation will tell you about the overall health of a business, but it doesn’t tell you how to make your business worth more in the future. So along with a valuation I also highly recommend that you look periodically into the future to see where the business is headed. Take a look at the services you are selling today and see if those same revenues will be around in the future. For example, if you count a lot on cable TV or voice revenues you must consider that the customers from both of those products are disappearing each year.

I call this process of looking into the future a strategic review. You need to periodically take hard look at your business and ask yourself if you are doing the right things. Are you staffed right? Are you selling the right products? Are you marketing right? Should you outsource things done internally or bring external functions in-house?

It’s not always easy to look at your business critically and you ought to consider bringing in some outside advice to get a fresh set of eyes looking at your business. You can do this by hiring a consultant like me, and I regularly help companies take a hard look at themselves. But you can also get this advice elsewhere. You might know somebody who runs a telecom company that you know and trust who could give you the same look. But what you want is somebody who will ask the hard questions and who will challenge the assumptions that you take for granted. It’s very easy in a telecom business to get stuck thinking that the status quo will never change, but you don’t want to look up some day and see that you have lost a lot of margin and value and didn’t take steps to avoid it.

Finally, the really critical step is to use the information you learn. If your business is not meeting the goals you set for it, in terms of generating cash flow or growing in value, then you must decide what steps need to be taken to meet your goals. A valuation is a tool and not an end to itself. Only undertake valuation and a strategic review if you intend to learn from the process and are willing to deal with whatever you learn during the process.

The Future of Triple Play Providers

HK_KEN~1I am asked often about what I see coming in the future and anyone who reads this blog knows that I look into the future a lot, be that two years, five years or 100 years. One thing that I have thought about a lot is the future of the small triple-play carriers that make up the majority of my client base. What is there business going to look like ten or fifteen years from now?

I see two very contrasting choices and I think every small carrier that survives into that time is going to have to choose one of these two paths. I think the choices are between being a dumb-pipe provider or a full service provider, and I don’t think there is much room for success to stay at status quo and be somewhere in the middle.

I think by now that everybody understands that cable TV penetration rates are going to erode over time as more and more people eschew the high price of cable TV and opt out for programming on the web. And there is always the chance at some point where the migration away from traditional cable could become a flood if somebody can find a way to get enough programming to the web to make that an attractive alternative.

A lot of small carriers today offer the triple play in a fairly passive way. They market and try to sell their products somewhat, but in their footprint they have most of the customers and they don’t do a lot of hard selling. For instance, they don’t push upselling of existing products very hard. But as they lose cable customers and even more voice customers the way they have been doing business is not going to work any longer.

If a carrier elects to become a dumb-pipe provider (or maybe calling them a distribution provider sounds a little better), then they are going to make a living by bringing fast Internet pipes to their customers and they are going to let customers pick up most of their products over the Internet.

If you are a dumb-pipe provider you are going to increase the speeds of your Internet product enough to keep customers happy. You are going to have to charge a lot more for that Internet connection than you charge today. If you are a triple-play provider today you will probably keep some voice, and maybe even some cable customers years from now, but for the most part those will have gone away and the data pipe is going to be your only significant product. From an operational perspective you will have to cut your staff and overheads back to the bare bones needed to keep the pipes working. Your company will be a stripped down version of what you do today, but you can make a profit doing this.

The other alternative is going to be a full-service provider. That means you will replace telephone and cable revenues with a host of other products and services that your customers are going to want. I am always asked what the next big thing is that people can do to make money, and the unfortunate answer is that there is no one big thing. There are a whole host of new product lines that you might get into, but no one of them is going to be as big as your telephone or cable business you are trying to replace.

So you will offer a host of new products – things like security, home automation, energy management, medical monitoring, cloud service resale and device monitoring and maintenance. Every one of these product lines, and the dozens of other that might pop up over the next decade will be of interest to some of your customers. And by having a suite of products you will have something for everybody.

Being a full service provider is going to require you to operate very differently than today. These new product lines are going to need you to spend a lot of time in people’s homes doing things like connecting new devices to their home automation system, making sure their medical monitoring devices are working right, making sure all of their computer-like devices are properly accessing everything.

And there will be one other big change in the way small carriers operate. Today the typical small carrier handles every aspect of a product from beginning to end. If they are in the cable business they have a full cable headend. But in the future when you will need to be in many product lines you are instead going to partner with and buy a lot of these products from wholesalers. That is going to take a big shift in thinking.

Finally, you are going to have to be nimble. The products you sell are always going to be changing and you will need to keep up with those changes. You will not have the luxury you have today to leisurely analyze new business opportunities, but instead you will need to be able to implement new products on the fly. You will need a very well-oiled product implementation plan to make changes fast while keeping customers happy.