Category Archives: Improving Your Business

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.

Upcoming Webinar on PPPs

I have written a lot lately about Public Private Partnerships (PPPs) in this blog. After many years where most carriers were leery of municipalities we are starting to see a lot of beneficial partnerships arise throughout the industry.

I will be on a webinar panel on April 21 at 3:oo eastern discussing the topic in more detail. The panel is being sponsored by Finley Engineering and presented as part of the Telecompetitor Interact webinar series.

The webinar will look at some practical considerations for forming a telecom PPP.

You can find more details at this web site.

 

PPPs – Issues to Consider

ppp_logoOne of the hottest topic in the broadband industry today is Public Private Partnerships (PPPs) where a commercial ISP partners in some manner with a city or county to provide broadband. The trend is probably being nudged forward by the many communities that are becoming desperate to find better broadband and which are waking up to the fact that they are going to have to put some skin in the game if they want somebody to build broadband.

Many carriers are used to creating partnerships or joint ventures with other carriers. But many carriers have never considered working with a government entity – be that a city, a county, or perhaps a school district. Working with government entities is definitely different than working with commercial companies and below I highlight some of the differences to be prepared for.

This list might sound negative and drive a carrier away from thinking about a PPP. But there are strategies for dealing with each of these issues. And generally, the smaller the government entity, the fewer of these issues probably apply. Working with small towns can be fairly easy while big cities might have every issue listed below, and even more. There are some great PPPs in the country, and today there are more communities willing to commit some funding towards paying for a broadband network. So the rewards for working with a PPP can well be worth the extra effort needed to create a successful partnership. I use the word ‘city’ below very generically, and these same things can be true for any municipal entity.

Politics. Government entities, by definition, are political. The main issue with politics is not that you can’t negotiate a good deal with a willing city, but rather the fear that the city can change over time and in the future the city might turn into a partner very different than the one you partnered with.

Decision Making. Cities cannot make decisions very quickly. The process of making municipal decisions involves a very specific process that often requires public meetings and allowing time for public comment. This is not that much of a hurdle in getting a new partnership started, but after it is up and running, a city will not be a nimble partner that can make a quick decision when needed.

Public Disclosure. In most places there are public disclosure laws that mean that almost everything you do with a city will be subject to disclosure to the public should somebody want to see it. There are states where ‘commercially sensitive information’ can be protected to a degree, but in some states everything can be made public. Generally even any records of negotiating a PPP might be publicly discoverable.

Purchasing Process. Even when you negotiate a PPP with a city, some of them will feel obligated to then send the whole deal out to the public on an RFP or an RFI to make sure there isn’t a better deal available. Cities are often cautious about agreeing to sole-source deals without having gone through the process to see if they could have negotiated a better arrangement with somebody else. This is often a case of CYA in case the deal ever goes sour later.

Different Goals. It’s always important to remember that a city partner will not have to same goals as a commercial partner. They might care, for example, about making sure that there is broadband brought to the poorest parts of a city while the commercial partner cares most about profits and cash flows.

Ownership. Most cities cannot own a share of a corporation or a for-profit partnership. This means that if the city is to be a true partner that some alternate mechanism must be found to compensate them for their contribution to the partnership.

The “Anti-Voices”. Since the process is usually at least somewhat public, you must expect that there will be some citizens who will be loudly vocal against whatever the PPP is doing. This is inevitable because there are some citizens that are against almost everything. This is something that governments are all used to but which might be an eye-opener for an ISP.

You need to keep all of these things in mind when negotiating or working with a municipal partner. At the end of a day a city can be a great partner and there is at least anecdotal evidence that a broadband venture with a city partner will get more customers than a pure commercial venture – due probably to the fact that many people like their city governments and trust them to do the right thing.

Telecommuting and Broadband

BeetleI was looking into telecommuting and ran across a large survey done last year by FlexJobs that asked how people feel about telecommuting. As somebody who telecommutes (CCG is a virtual company and we all work at home) the results are not surprising.

The survey showed that over half of workers said that they could be most productive at home and this is where they would go to work on important projects. They cited the major reasons as fewer distractions, minimal office politics, reduced stress and a more comfortable environment.

Less than a quarter of employees thought they were most productive at an office. (When CCG went virtual we had one person who said they could not be productive in the home environment, and it’s important to recognize that telecommuting isn’t for everybody)

Interestingly, a third of the respondents thought that telecommuting was better for their health. Avoiding the stress of commuting, being able to eat their preferred diet and the flexibility to more easily make medical appointments all contribute to this.

OnlineMBA.com has put up some substantial information on telecommuting. Some of the more important points they make about the topic include:

  • A Stanford study shows that home-based customer service reps are 13% more efficient than those that work in a call center.
  • Another study by the University of Texas showed that telecommuters worked an average of 5 – 7 hours more per week than office-based employees.
  • Telecommuting can reduce turnover. 73% of telecommuters report being happy with their jobs as compared to 63% for office workers.
  • A Penn State study showed that telecommuters feel more valued. They feel less stress and they show gratitude for the flexibility they are given.
  • The Consumers Electronics Association calculated that telecommuting in 2013 saved enough energy to power one million homes. I’m always a bit leery of such calculations, but there is no doubt that saving on commuting is a huge benefit for society. And it’s also not bad for employees as can be witnessed by my two-and-a-half year old truck that has only 10,000 miles on the odometer.
  • Several studies have shown that employers save considerable money from allowing telecommuting and it’s been calculated in a few studies that the cost of housing an employee at the typical office costs between $10,000 and $15,000 per year. And employees who telecommute save on commuting costs, lunches and attire for the office.

Finally, Global Workplace Analytics analyzed over 4,000 studies on telecommuting and reported the following:

  • 2/3 of people would like to work at home.
  • 36% of employees would choose telecommuting over a pay raise.
  • A survey of 1,500 technology professionals showed that 37% would take a 10% pay cut to be able to work at home.
  • 14% of Americans have changed jobs to shorten commute times.
  • Almost half of employees feel that their commute is getting worse.
  • 78% of employees that call in sick really aren’t. Unscheduled absences cost employers $300 billion per year.
  • Sun Microsystems says that telecommuting employees spend 60% of the saved commuting time working for the company.
  • A number of companies report that telecommuting reduces discrimination and lets people be judged by what they do instead of what they look like.
  • And my favorite – telecommuting cuts down on wasted meetings. Web meetings tend to be better organized and shorter.

This is only a partial list of the benefits and there have been numerous studies from companies that have introduced telecommuting. But one thing is true for every telecommuter – they must have adequate home broadband. Communities without good broadband are missing out on the great benefits from telecommuting.

Highlights from the NTCA PPP Panel

ppp_logoI was just on a panel at the NTCA Spring Convention looking at the topic of Public Private Partnerships (PPPs). The audience was mostly independent telephone companies and cooperatives. I was one the panel with Curtis Dean of Smart Source Consulting, and Dan Olsen and Ben Humphrey of Finley Engineering. Together this particular group has a lot of day-to-day operational experience working with or for municipal telecom companies.  Following are a few of the major points made during the presentation and the follow-up questions:

Cities are Different. Cities don’t think the same way as commercial companies. They have different goals. They have a number of issues that make working with them a challenge such as slow decision making, open records laws, public purchasing practice, and of course, politics. They even have a different idea of what a successful venture looks like and any business that can cover costs and not need a subsidy is considered successful.

A Good Partnership Can be Harder to Maintain than a Good Marriage. In general, it’s hard to find a good partner, commercial or municipal, that you will feel comfortable with working over a long period of time. The recommendation was to take the time up front to ask the right questions to make sure that you understand the differences in working with a city, and to figure out an operating structure that will let both sides be comfortable with the differences over many years.

Don’t be Afraid of PPPs. There is no reason to be afraid of PPPs. There are numerous examples of successful PPPs already in existence and the parties in those ventures found ways to make it work. While cities and commercial companies are very different, if you do the hard work up front in creating a sustainable partnership it can work.

Shield a PPP from Politics. Probably one of the most harmful things that can happen in a PPP is for politics to influence decision-making after it’s up and running. You need to find a governance structure that isolates the business to some extent from direct political interference. A PPP should not require government approval to raise rates or to make operational changes needed in the business.

Have an Exit Plan. One thing that is often missing in the creation of a PPP (and in the creation of commercial partnerships as well) is for both sides to have an exit strategy. When negotiating a new partnership the two sides should always talk about what happens if things go south, and the contractual arrangement should allow both partners a way out of the partnership if it isn’t working for them.

Rural America is Growing Desperate for Broadband. Towns that don’t have great broadband today are seeing a huge gulf opening between them and neighboring towns that have good broadband. Cities are growing fearful that without broadband they will lose jobs, lose population as kids move elsewhere for work and will not attract new housing or businesses. Broadband has grown from something that is nice to have to an economic necessity and places without broadband are fearful that their towns will become irrelevant and disappear.

Municipalities Need to Put Skin in the Game. Cities are waking up to the fact that in order to get the broadband they want that they are are going to have to help pay for it. The numerous RFPs that are asking somebody to show up and build broadband are falling on deaf ears and they are realizing that they are competing against tens of thousands of other cities in the same situation and with the same need. Cities and citizens are getting more willing to put taxpayer money into the pot to find a good broadband solution. And municipal money can make it easier for a commercial partner to make the desired returns.

Seek Help. If you are considering a PPP, then seek advice from those that have already done this right. There are many things that can wrong, and no partnership is assured of long-term success or harmony. It’s worth the extra time and cost up front to make sure that you are not making one of the fatal mistakes that will be a problem five years down the line.

Watching Interest Rates Again

eyeballWe have had an amazing run of stable interest rates. This has meant that I could create a business plan and have good confidence that the interest rate that I used would still be good a year or two later when it’s time to finance a project. That took one big worry off the plate because it hasn’t always been like this.

Historically interest rates have gone up and down and this period of steady rates is the exception in the way that interest rates have bounced during my career. Just within the last decade there were times where the bond markets were in such turmoil that it was nearly impossible to float new bonds. For the past few years we’ve seen nearly the opposite and the bond houses I know have instead been decrying the lack of bond deals wanting to get financed.

It’s not surprising to see interest rates starting to swing a bit again. We are going through a big stock market correction that has investors spooked. And the first thing that spooked investors affect is the bond market. The municipal bond market sells almost entirely to wealthy individuals looking for a safe haven for money. And corporate bonds are sold to both wealthy individuals and big pools of money like pension funds and insurance companies. As those buyers liquidate stock holdings there is a big increase in demand for bonds. Bank rates are the last to change, but they react over time to changes in the corporate bond rates.

Interest rates really matter to fiber projects. A project that might be feasible at a low interest rate might become risky at a higher one. I can remember times in the past when floating a municipal bond deal was dependent on the interest rate that was being offered on the day the bonds went to market. Bond sellers would hire experts who would try choose the right time to sell new bonds. And on the morning when a bond was to go for market I’d be sitting waiting to plug in the interest rate and bond term being offered that day to make sure it was a good deal.

I certainly don’t hope for a return to those kind of crazy times because high or fluctuating interest rates can put the kibosh on many good projects that would have easily been funded in better times. But since the payment term for bonds is so long the interest rate matters a lot – fiber bonds might last for 25 or even 30 years and might not be able to be called and refinanced for 10 or 12 years.

This blog was prompted by reading an article about the widening spread between corporate bonds and US Treasury bills. The spread for the whole corporate bond industry has opened up to 770 points, meaning that the interest rate being charged for issuing corporate bonds is a full 7.7% higher than the rate being paid on T-bills. That different climbed 1.1% just during the month of January. We haven’t seen a full 1% change in interest rates during a month for quite a while. More worry came when I just read that a Federal Reserve survey of banks shows that the majority of banks see a tightening of credit for 2016.

Why do interest rates matter to a fiber project? Consider a $50M fiber project. I just did a calculation of a project of this size for a client. In that project an increase of 1% in interest rate cut long-term cash flows by over $5 million if funded with bank debt. But if funded by municipal bonds the impact was $15 million due to the longer payment term plus the fact that muni bonds usually borrow money to make the first few years of interest payments up front. While a 1% change in interest rates might not kill a project, it’s easy to see that changes of more than 1% can be deadly.

Maybe worse of all is that we have been sitting with interest rates at historic lows for a long time. This means that the only place that rates can go is higher. At least, when rates finally go higher, there is always a chance that they might drop. So I will start keeping my eyes on news of interest rates again. It seems one of our old worries is back on the plate again after a nice hiatus.