Is Wireless a Substitute for Wireline?

English: A cell phone tower in Palatine, Illin...

Last week in GN Docket 13-5 the FCC issued an update that asked additional questions about its planned transition of the historic TDM telephone network to all-IP network. This docket asked for comments on several topics like having a trial for transitioning the TDM telephone network to all-IP, for having a trial to go to enhanced 911 and for making sure that a switch to IP would not adversely affect the nationwide telephone databases.

But the docket also asks for comments on whether the FCC should grant telephone companies the right to substitute wireless phones for wireline phones and abandon their copper network. The docket mentioned two companies that wanted to do this. For example, Verizon said they intend to put wireless on Fire Island off New York City as they rebuild it from the devastation of hurricane Sandy. But AT&T has told the FCC that they are going to request permission to replace “millions of current wireline customers, mostly in rural areas, with a wireless-only product”.

Let me explain what this means. There are now traditional-looking telephone sets that include a cellular receiver. To replace a wireline phone, the telephone company would cut the copper wires, and in place of your existing phones they would put one of these cellular handsets. They would not be making every family member get a cell phone and there would still be a telephone in the house that works on the cellular network.

This make good sense to me for Fire Island. It is mostly a summer resort and there are not many residents there in the winter. It’s a relatively small place and with one or two cell phone towers the whole island could have very good coverage. And if the cell phone tower is upgraded to 4G there would be pretty decent Internet speeds available, certainly much faster than DSL. One would have to also believe that the vast majority of visitors to the island bring along a cell phone when they visit and that there is not a giant demand for fixed phones any longer.

It is AT&T’s intentions, though, that bother me a lot. AT&T wants to go into the rural areas it serves and cut the copper and instead put in these same cellular-based phones. This is an entirely different situation than Fire Island.

Anybody who has spent time in rural areas like I do knows the frustration of walking around trying to find one bar of cellular service to make or receive a call. Cell phone coverage is so good today in urban areas that one forgets that this is not true in many places. I have a client, a consortium of towns and the rural areas of Sibley and Renville Counties in Minnesota. Let me talk about my experience in working with them as an example of why this is a bad idea.

My primary contact works in the small town of Winthrop. I have AT&T cellular service and when I visit him my cellphone basically will not work. I sometimes can move around and find one bar and get a call through, but I can’t coax the phone to get a data connection so that I can check email. And if you go west from Winthrop the coverage gets even worse. AT&T’s coverage maps show that they serve this area, but they really don’t. There are places in the east end of Sibley County that have decent coverage. But there are also plenty of farms where you can get coverage outdoors, but you can’t get coverage in the house.

The traditional cellular network was not built to serve people, but rather cars. Cell phone coverage is so ubiquitous now that we already forget that cellular minutes used to be very expensive, particularly when you roamed away from your home area. The cell phone network was mostly built along roads to take advantage of that roaming revenue stream. If you happen to live near to a tower you have pretty decent coverage. But you only need to go a few miles off the main highway to find zero bars.

And I use the Renville / Sibley County client as an example for a second reason. The people there want fiber – badly. They have been working on a plan for several years to get fiber to everybody in the area. The area is a typical farming community with small hub towns surrounded by farms. The towns have older cable systems and DSL and get broadband, although much slower than is available in the Twin Cities an hour to the east. But you don’t have to go very far outside of a town to get to where there is no broadband. Many people have tried satellite and found it too expensive and too slow. There are any homes still using dial-up, and this is not nearly as good as the dial-up most of you probably remember. This is dial-up delivered to farms on old long copper pairs. And it is to get access to an Internet that has migrated to video and heavy graphics. Dial-up is practically useless for anything other than reading email, as long as you don’t send or receive attachments.

Over 60% of the people in the rural areas in Renville and Sibley Counties have signed pledge cards to say that they would take service if fiber can be built to them. One would expect this would translate to at least a 70% penetration if fiber is built. They refer to the project locally as fiber-to-the farm. There has been a cooperative formed to look at ways to get fiber financed. And any financing is going to require local equity, meaning the people in the County are going to have to invest millions of their own dollars in the project – and they are certain they can raise that money. That is how much they want the fiber. And this same thing is true in rural areas all over the country. Most of rural America has been left behind and does not have the same access to the Internet that the rest of us take for granted.

AT&T’s idea is only going to work if they make a big investment in new rural cell towers. The current cell phone network in rural areas is not designed to do what they are proposing, even for delivering voice. And even if the existing rural cell phone towers are upgraded to 3G or 4G data (which almost none have been), most people live too far from the existing towers to get any practical use from cellular data. Cellular data speeds are a function of how close one is to the tower and, just like with DSL, the speeds drop off quickly as you get away from the hub.

I hope rural America notices this action at the FCC and files comments. Because as crappy as the rural copper wires are today, when the wireline network disappears many rural households are going to find themselves without telephone service. And forget about fast rural data. The AT&T plan is really just a plan for them to abandon and stop investing in rural communities.

Should the FBI Be Able to Wiretap the Internet?

There is currently a government task force that is working on proposed legislation that would give the FBI the ability to ‘wiretap’ data. This is very different from what is available today. Today, ISPs are required to comply with the ability to turn over electronic records by a series of laws referred to as CALEA, which is from the Communications Assistance for Law Enforcement Act. Under a CALEA an ISP might turn over emails or a list of the web sites that a given customer has visited. ISPs generally retain such data for 60 – 90 days for all customers and it is then automatically deleted unless law enforcement requests it. But CALEA requests generally are for historical data and are not ‘wiretaps’ when it comes to data usage. This new proposal would give law enforcement live access to a customer’s data in the same way that phones have been historically wiretapped. And this is a law with teeth. The proposal includes a $25,000 per day fine for companies who aren’t wiretap capable, with those fines doubling after 90 days for non-compliance.  There are a number of issues with this idea.

It Goes Against the Direction of the Industry

The business world is rapidly heading to the cloud with data. There is a long list of benefits of using the cloud and businesses get it. But before a business will send sensitive data out of their control into the cloud they generally encrypt it (or they should). Companies are not going to put sensitive financial data, trade secrets and things like legal correspondence into the cloud if there is any chance that other parties can somehow crack and read the data. The whole point of encryption is that only the parties involved can unencrypt it.

It seems like the FBI law would forbid this kind of encryption. This would have a ton of ramifications on the industry. Businesses are going to refuse to put sensitive information into the cloud if it can’t be encrypted. This means that they will probably continue to use company-specific LAN storage rather than the more efficient cloud. Further, company lawyers are going to advise companies to not use the cloud if everything there can be wiretapped. Today a subpoena is required to get information that a company keeps on their own servers. But a wiretap at an ISP could be done without the knowledge of the person or company being investigated. No corporate attorney is going to agree to let a company expose themselves to being investigated through the back door just to gain the advantages of using a cloud service.

The FBI’s idea will also put all of the companies that supply encryption out of business. There are a number of businesses that sell encryption to cell phones such as Cryptocat, Silent Circle, Red Phone and Wickr. There are many software packages that can be used to encrypt data files such as Folder Lock, SensiGuard, Safehouse, SecureIT, Cryptoforge and many others. And almost every maker of carrier class transmission equipment, servers and related software has an encryption product.

It’s Costly

One of the biggest issues with the proposed bill is that it casts a far wider net of companies who must comply with a wiretap than who must comply today with CALEA. Today CALEA applies to the companies that supply a basic data pipe to a customer, to whoever is the physical ISP. This may be a telephone company, cable company, wireless ISP or cellular provider. But every firm who must meet CALEA today is a carrier of some sort. They have a physical hub where they perform ISP functions. These hubs are the sort of places where CALEA makes sense.

But the proposed law would impose a more complex obligation on other web-based platforms like Facebook, Google, Yahoo and AOL. Those are all big companies and one might assume that they can all afford to do this, and you might be right. But the same requirements would apply to much smaller firms and start-ups who store and or process customer data. It’s going to be technically challenging for a web-based platform to give live access to data. They just are not configured that way. And the cost to design a system to enable that is going to be costly and inefficient.

The cost of compliance will deter future small start-ups. And if you don’t think that is true, let me give you a real life example of when CALEA costs became an issue for a small carrier. It is very difficult for a small ISP to comply with CALEA on their own, so there are companies who sell CALEA compliance. If you get a CALEA request they overnight you a black box that rides next to your core servers and captures the data that law enforcement wants. This kind of service costs about $600 per month. I have a small City client who wanted to become an ISP just to serve themselves, some other local government agencies and some non-profits. Since they were facility-based using their own servers then CALEA applied to them. They almost decided against doing this since the CALEA fees ate up most of the monthly savings they were trying to bring to their town. I know that is a very tiny dollar example, but I foresee the new requirement to be much more costly than CALEA. Small firms will have a very difficult time creating the ability of live data wiretaps and this is going to stifle small web firms.

It Goes Against the Basic Premise of the Internet

The main premise of the Internet is that it is a decentralized network. The wiretap proposal relies on some of centralized hub in order to implement a wiretap. There has to be a place where you can guarantee that the data the government wants to see will flow. That is a whole lot harder than it sounds and it would end up resulting in some fundamental changes in the way that Internet traffic flows. And that could be the costliest impact of all.

The traffic on the Internet keeps growing at nearly exponential rates. Carriers have been able to keep up with the bandwidth demands because they have upgraded the networks to be more and more efficient over time. This change would go in the opposite direction and would make the network more inefficient.

I fully understand and appreciate the needs of law enforcement. But this could be one of the biggest unfunded mandates ever if it ends up impeding the efficiency of the Internet. The Internet is now a fundamental part of everyday life and is a lifeline for most businesses.

It just seems like a colossally bad idea to me to impose a costly change on everybody that is intended to only catch a few bad guys. Particularly when the smart criminals will avoid these wiretaps. They will find a black market way to self-encrypt their data or they will avoid the web altogether. So this is really just a proposal to catch the dumb criminals. It seems like too great a cost for such a paltry goal.

Finally a la Carte Programming?

English: Signature of US Senator John McCain.

English: Signature of US Senator John McCain. (Photo credit: Wikipedia)

 

John McCain recently introduced a bill to the Senate that would allow for a la carte programming. The bill will be known as the Television Consumer Freedom Act of 2013  and is attached by clicking the link. Also here are the comments made by McCain when he introduced the bill.

Here are the things the bill does:

  • It makes it voluntary for cable operators to offer a la carte programming.
  • It mandates broadcast networks (ABC, CBS, NBC, FOX, etc) offer their channels to cable providers on an a la carte or face the possible loss of their broadcast license.
  • Programmers like Discovery and Disney can only sell their programs as a bundle if they also offer them a la carte. So cable operators can buy only the programming that they want.
  • It threatens that any broadcast network that pulls its programming off the airwaves would lose the spectrum and also any rights that go with being a broadcaster. This is a threat for local networks to not mimic Aereo.
  • Current sports blackout rules won’t apply in cases where the stadium being used was publicly financed.

Here are the practical consequences if this bill becomes law:

  • Cable companies could save money by eliminating channels they don’t want to buy. I helped one client get into the cable business a few years ago who ended up taking almost twenty more channels than they wanted due the bundling requirements from the programmers. And so I see cable providers shedding channels. This may not necessarily result in any price cuts and might just increase the profits of the cable company. But over time this ought to help hold down costs and rates.
  • This bill does not mean that any customer will get a la carte programming. In McCain’s announcement he said that ESPN costs $4.69 per month. That is the price that a cable provider pays for the ESPN suite of channels if they agree to make them available to, and charge every customer for them. But if ESPN is forced to sell this on an a la carte basis, they understand that a lot of households are going to opt out of paying for it since many households have no interest in sports. I would expect that ESPN’s a la carte price is going to be a lot higher than the $4.69 bundled price. If that occurs (and there is nothing in this law that would prohibit it) then the math for ESPN and customers changes drastically overnight. Rather than everybody paying $4.69, if only one-third of households would want ESPN the price would have to go to nearly $15. And this same kind of math is true for every cable network. So my prediction is that none of the large cable companies will move their programming to a la carte. But there might be small ones who try it.
  • This benefits companies who want to deliver programming in a non-traditional way. This might open the door for Aereo or web-based companies to buy programming. I can see sports fans willing to pay $30 a month for a suite of sports channels and nothing else. But the first cable company that tries this is going to see the wheels come off. It could end up costing consumers as much to buy the channels they want a la carte as it is to buy the big bundles of today, due to the way the current pricing averages the cost across millions of homes instead of just those who want to watch it.
  • I can see cable operators who will put the broadcast networks on a la carte. There is a huge battle between local stations and cable companies over retransmission fees and I can envision cable companies who will price each channel according to what they must pay and letting the public deciding what they want to watch.
  • Marginal cable networks will fold. Some of the large programmers have made cable providers buy channels they didn’t want, and if enough of them elect to shed some of these networks they will fold.
  • It would be interesting to know if this law would override existing multi-year contracts for programming or if it would force new contracts immediately.

The primary benefit of this law is that it breaks the bundling being done by the large programmers who own many channels. The cable business is not profitable for cable operators and I have some clients who lose money on cable. They make almost all of their profits on data and voice. If cable companies have the ability to set any line-up they want they might be able to return some sanity to what they pay for programming. Over time this might be the change that breaks some of the power of the programmers and stops the insane price increases. McCain cites a 6.1% average increase in programming costs since 1995, but where I have been tracking it in the 2000’s it has been more than 7%. These kinds of rate increases are heading the whole industry towards a consumer revolt. If the 6.1% increase that McCain cited continues unabated, a $75 cable bill today would be over $136 within ten years.

The real shame of the bill is that the public will interpret this bill to mean they are going to get to pick just the channels they want to watch and that is still unlikely to happen. The bill is a good idea, but it’s really a la carte for the cable companies, not a la carte for consumers.

A Look into my Crystal Ball

Technology of the FutureI have spent quite a bit of time recently reading futurist books and articles that think about the most likely future. I’ve done this to the point where my wife asked me if I am unhappy with the present! After chuckling, I told her that I am happy now. But thinking about the future is a worthwhile effort when one is engaged in a technology-based industry. Everything I have read tells me that selling to residences is going to change a lot over the next few decades. And I believe that those who understand where the trends are taking us can begin preparing for that future today.

So what will the future residential customer want from a telecom company? Everything I have read tells me that traditional telephone service and cable TV service as we know it today will not be around. Voice will have become a total commodity. You will probably be able to put a phone in your house if you insist, but it will be an IP device and very few people will still have a traditional telephone.

Within twenty years voice will be a commodity for cellular service also and the cell phones we carry today will also be a thing of the past. There will be devices far smarter than our ‘smart’ phones. Many of these devices will be somehow integrated into our body and will be far more sophisticated than the first generation of Google glass. I am not enough of a futurist to predict the specific technology that will win the battle, but we will not be carrying around a device whose primary purpose is to talk to people.

Cable TV is headed down the same path and there will no longer be a subscription to hundreds of channels for a high price. Video will be available ubiquitously on any device you want to watch it on. People will subscribe to the programming they want and will not pay for what they don’t want.

But people will still want bandwidth at their homes – lots of bandwidth. As we move towards the Internet of Everything, where multitudes of devices will include cheap chips and will be networked together to make our lives easier, the average house will want a lot of bandwidth.

And there will be two kinds of bandwidth providers – dumb pipe providers and service providers. There are already dumb pipe providers today. I live in the country and I get my Internet access through a wireless link from a nearby tower. And that wireless link is all that my ISP sells. They don’t offer any other services over that link and I doubt I would buy them if they did. I have my smart phone to give me everything else.

Many of today’s networks will morph over time to become dumb pipe providers. They will raise the price of bandwidth until it is high enough to compensate them for their network. They will have much smaller staffs than today who will be needed just to install and maintain the network.

But there will be another kind of provider that I call a full-service provider. They will also deliver a bandwidth pipe to the house, but they will also provide a host of services. And mostly these services are going to look like a future version of today’s Geek Squad. These companies will send technicians into people’s houses to help them make everything work together. When there is an Internet of everything it is going to get complicated. People who are not very technological are going to want lots of help to customize the many options to get just what they want. And so when a technicians visits he might be asked to help a customer get a medical monitor working right, find some programming they had trouble locating, fiddle with the controls for the lighting, and put a different personality on the home AI. The service-oriented provider will build customer loyalty and will be perceived as something very different from the dumb pipe provider.

There is a lesson today from envisioning this future. Far too many service providers today sell products that they treat as commodities, and once they sell them they rarely talk to their customers unless there is a problem. Technology has already gotten complicated for the average household and I think there is already a market for sending technicians into homes to make things work together better. I have clients who do this and they say that changing to a service model is the best change they ever made. They generally sell something new every time a technician visits somebody’s home. But the vast majority of the telecom companies I know look a lot more like the dumb pipe provider. They may sell telephone and cable TV on their data pipes, but what are they going to be left with when those products turn into a commodities and then disappear into the cloud?

Who Makes the Best Salesperson?

Sale

When you picture a salesperson, you typically think of somebody who is assertive, gregarious and extroverted. However, a recent study published in Psychological Science (a journal of the Association of Psychological Science) looked at the actual performance of salespeople and they found that the best salespeople are those who are neither too extroverted nor too introverted, something the study labeled as ambiverts.

Adam Grant of the Wharton School of the University of Pennsylvania did the study and he wanted to look at the relationship between personality traits and success in sales after he found that there was a gap in this kind of research. He was surprised at what he found because the general wisdom is that extroverted people make the best salespeople and would perform better in terms of making sales. But that turned out to not be the case. As it turns out, both extroverts and introverts performed about the same at sales, but salespeople who are not either outperformed both extreme types of personalities. The difference was significant and ambiverts outsold introverts by 24% and outsold extroverts by 32%.

Grant postulated that there are reasons why the stereotypical extroverted salesperson didn’t fare as well as might be expected. There are both pluses and minuses from being extroverted. On the plus side is that extroverts are assertive and enthusiastic which often leave customers feeling wary. And the negative side, extroverts don’t listen carefully and instead often dominate the conversation with their own ideas.

Ambiverts, on the other hand strike a good balance among traits that are important in sales. They can be good listeners and don’t come across as being too enthusiastic or overconfident. They are able to put the customer at ease.

And this has a lot of implication for anybody creating a sales team. It’s typical to hire salespeople who are outgoing and confident. And anybody who is hired who doesn’t fit the typical mold is given assertiveness training to make them better fit the perceived ‘salesperson mold’. This study would suggest that perhaps a far better tactic is to hire salespeople who are not extroverted. And if you do hire an extrovert perhaps you need to provide listening training.

And of course, if you are hiring a telecom sales team it is also vital that they fully understand the product and the value proposition of how products benefit customers. But assuming that there is training on the products, this study suggests that the best salespeople might just be those average people who we would normally assume will not succeed – those who are quite different from the stereotypical salesperson.

Transparent LAN Service (TLS)

local area network

local area network (Photo credit: benschke)

Transparent LAN Service (TLS) is an Ethernet service that allows a business customer to connect together multiple Local Area Networks (LANs) without complex protocol conversions, carrier equipment or expensive dedicated facilities. Probably the best way to think of it functionally is as the Ethernet version of frame relay, only much improved in terms of speed and cost. The product goes by many different names, but we prefer to call it Transparent LAN Service because transparency is the major benefit it brings to businesses. Properly configured it removes all of the barriers that were in older technologies and connects LANs and WANs seamlessly.

Transparent LAN service can be configured in multiple configurations including both point-to-point or multipoint-to-multipoint arrangements. In the past businesses with multiple locations had to buy dedicated facilities to connect their LANs together. And typically the dedicated facilities were expensive, were slower than the speeds of the corporate LANs and had issues like carrier demarcation points and protocols to deal, which required quite a bit of expertise on the part of the business IT personnel.

Businesses with multiple locations like banks and grocery stores, educational institutions and government agencies are examples of institutions that want simple, distributed LAN connectivity. These kinds of business customers have outgrown the traditional LAN connectivity offered by most telcos because they have significantly greater bandwidth needs than in the past because of applications like remote monitoring, distance learning, business location integration, business disaster recovery and interconnection to cloud services.

There several variations of the service with the two most common being:

Any-to-Any service (E-LAN). This service allows any connected site to talk to any other connected site across the carrier’s network, with only one physical connection at each site. With this service, the customer controls VLAN IDs so that he can segment traffic in any desired manner among his connected LAN locations. All sites share one EVC (Ethernet Virtual Circuit). To the customer, this service is “transparent” across the carrier’s network and the customer controls everything.

Point-to-Point (E-LINE). This is a point-to-point EVC (Ethernet Virtual Circuit) solution where the carrier controls which customer sites can talk to which customer sites. This service allows one or more EVC per User Network Interface (UNI). The customer does not control VLAN IDs so that he can’t segment traffic among his locations. With the carrier controlling the site ingress and egress, better Quality of Service can be offered across the carrier network. To the customer, this service is not as “transparent” across the carrier’s network, but many customers prefer that the carrier control the network.

There are a number of benefits to customers from Transparent LAN Service

  • Reduces IT personnel expertise requirements for WAN hardware, software, protocols, testing and maintenance;
  • Reduces WAN equipment requirements;
  • Reduces complexity of networking – single network capability;
  • Can increase WAN speed to LAN or near-LAN speeds;
  • Increases network manageability – can look like single LAN for all customer sites;
  • Scalable bandwidth that can be changed as needed;
  • Accommodates a single physical interface at each customer site;
  • Scalable site connectivity – easy to add or remove sites from network;
  • IT staff can still self-manage network if desired;
  • Allows efficient redundancy across carrier’s network;
  • Allows QOS access carrier network.

And there are benefits to the carrier from offering Transparent LAN Service

  • Can leverage fiber and IP network as well as legacy transport network;
  • Managed services make your customers more dependent on your network and value-added services;
  • Less costly network compared to SONET;
  • Multiple services can be provided over a single network;
  • Can offer value added services like QOS/Performance Control over delivery of customer’s traffic.

Transparent LAN Service can be a valuable addition to your carrier Ethernet service offering. This product can support multiple locations for the same customer and can bring solutions for greater bandwidth to WANs, video content delivery, disaster recovery, and cloud services. When done right this is a killer app for larger businesses.

While this product sounds simple there are a lot of options and it can be tricky to set up. You can call Derrel Duplechin of CCG at (337) 654-7490 if you want to know more about the product.

Diminished Clout for Rural Telcos

FCC Open Meeting - Broadband Plan

There were two recent announcements in the industry that has to have the rural telephone industry shaking their heads a little. The announcements are not specifically negative, but they are indicative of the fact that the industry has lost a lot of influence in Washington.

First, the president has announced the nomination of Tom Wheeler as the new head of the FCC. His background is as a high-powered lobbyist, and he was the head of both the National Cable Television Association (NCTA) from 1979 to 1984 and CTIA – the Wireless Association from 1992 to 2004.

His nomination has come with mixed reviews from the industry with many fearing that he will favor issues that promote the wireless industry. But there have been others who know him who think he will be a fair arbiter and will step up to the position. As someone in the industry I obviously share the trepidation that he would prefer one industry over another, and I would have the same concern regardless of which industry he formerly lobbied for. I’m not a big fan of putting lobbyists into powerful government positions overseeing the industry they once represented. That just seems to be asking for trouble and at the very best adds complication to every decision they make in their new role. I can certainly see how small telcos in particular could feel uneasy about this nomination.

The other news I saw was that Representatives Peter Welch (D-Vermont) and Bob Latta (R-Ohio) announced the formation of a bipartisan working group as part of the Energy and Commerce Committee that was going to focus on rural telecommunications issues. The group will be known as the Rural Telecommunications Working Group.

This new group is going to focus on a range of issues including call completion (meaning making sure that everybody can call everybody), broadband access and speeds, and wireless spectrum.

Other members of the Rural Telecommunications Working Group include: John Barrow (D-GA), Bruce Braley (D-IA), G.K. Butterfield (D-NC), Lois Capps (D-CA), Bill Cassidy (R-LA), Renee Ellmers (R-NC), Corey Gardner (R-CO), H. Morgan Griffith (R-VA), Brett Guthrie (R-KY), Adam Kinzinger (R-IL), Billy Long (R-MO), Ben Ray Lujan (D-NM), Doris Matsui (D-CA), Jerry McNerney (D-CA), Lee Terry (R-NE), and Paul Tonko (D-NY).

It is certainly good that Congress started this working group, because having anybody look at rural issues is a positive. But I did notice that there are more representatives in the group from large urban states than there are from truly rural areas. Any old-timer (like me) with a rural telco background will remember that there used to be a strong coalition in Congress who fostered rural telephony issues. But in recent years the rural telecom support in Congress largely faded away, due in part to retirements of Congressmen who supported rural telephony and due to other factors like the growth of the wireless industry. I appreciate that this new group has been formed, but it makes me remember a day when rural companies could depend on the support of Congress.

These two announcements made me realize that the political world has changed as much as the technological world for the rural telco industry. When I got into the telecom world there was no such thing as a cell phone, and now somebody who was the head lobbyist for that industry might be the next head of the FCC. Who woulda thunk it?

What’s Up With Verizon?

1980s Dodge Ram Van Verizon

1980s Dodge Ram Van Verizon (Photo credit: Wikipedia)

I have another story to tell about my friend Danny. He runs an accounting firm in northern Virginia and he looks a lot like a ton of other small businesses. He has half a dozen phone lines and he wants a fast Internet connection. He called me the other day and told me that he had been approached in just the course of one week by three different salespeople who represented Verizon.

His first contact still has me shaking my head. A salesman stopped by and offered to sell him an all-in-one T1. Danny already has FiOS and a symmetrical 35 Mbps Internet connection. This salesperson wanted to sell Danny a T1 from Verizon or from half a dozen other CLECs and resellers. And he could do this for only $1,400 per month, which is 3.5 times what Danny is paying for vastly better service.

I was really surprised by this sales call. This is a flashback to the late 90’s when there were salespeople everywhere selling the all-inclusive T1 that had some channels for voice and the rest of the T1 for data. And in those days since we had all just migrated from the dial-up world, this seemed like fast Internet access. But then DSL and cable modems, and now fiber and 4G have all left T1s far behind and I was surprised that there was a company who would spend the money on a salesperson to go door-to-door with last century’s product. That seems like the telecom’s version of a buggy-whip salesman.

But Danny says that in his CPA practice that he has at least 50 clients who still use T1s. He advises them every year to move to something better, but I guess there are a lot of people in the world who stick with what is comfortable and working. Such customers could save a lot of money moving to something else and would get far faster Internet access to boot. But I guess the fact that these kinds of customers are still out in the market explains the T1 salesman. There is so much profit in a T1 at his prices that one sale per month probably keeps him happy and very profitable.

Next Danny got a visit from Verizon Wireless. They wanted him to ditch his FiOS and go completely wireless with 4G. Danny has had his FiOS for four years and has never had a single problem. During that time Verizon has increased his bandwidth without changing the price. He is completely happy with fiber and he knows that fiber is the ultimate pipe if he wants bigger bandwidth in the future.

4G is an interesting product, but nobody thinks that a wireless network is as reliable as the FiOS fiber. Cell towers sometimes go down or get overwhelmed with service requests. And the 4G speeds vary by how many customers are using it at any given time. 4G is nice, but it is not fiber.

Danny says that the 4G salesperson could not answer some basic questions. For instance, they could not tell him the speeds he could expect at his location but only could talk about a possible range of speeds. And they never asked him any questions about his business. There certainly are going to be businesses where 4G might be the right solution, but Danny is not one of them. His accountants work in the office and clients come to see him. His major concern is reliability and he loves that FiOS stays up and running. Before FiOS he had a Comcast cable modem and had to send employees home several days when the Internet was not working. Danny is a happy Verizon customer and is sold on their fiber. Danny was somewhat amazed that the 4G salesperson did not know that he already had FiOS and it seems like the different parts of Verizon don’t talk to each other.

Finally last week Danny got a call from a FiOS rep. He had not gotten a call about his FiOS since he first bought it, but I guess that the Verizon FiOS group knew that Verizon Wireless was out trying to poach their customers and they called to check on him. So within the span of one week Danny was contacted by three different salespeople, two from Verizon and one who was a Verizon reseller.

This surprised me for a number of reasons. First, I honestly would have thought the day of selling T1s was dead and that visit just has me shaking my head. But the idea that two different parts of Verizon would spend for sales resources to compete for the same customer has me flummoxed. I understand that the Verizon fiber and wireless businesses are separate business units. But at the end of the day their profits all roll up to the same bottom line.

It appears to me that Verizon has missed one of the basic principles of selling – putting the customer first. A lot of my clients are CLECs and they learned a long time ago that the way to get loyal customers is to get to know them and find them a solution that fits what they need. This approach is called consultative sales and involves taking the time to get to know the customers’ needs. In the early days of CLECs they all sold on price and they quickly learned that a customer who changed to them for a lower price would also drop them for the next lowest offer. The CLECs who are still around today are for the most part doing it right and selling in a way to earn trust and loyalty from customers.

It honestly surprises me that Verizon has not learned this simple lesson. Danny says that the wireless salesperson never asked him about his business and only spouted that 4G was the latest and greatest product. It further surprises me that Verizon would put a live sales staff on the street to compete against themselves. Sales teams are expensive and it’s hard to fathom why Verizon would send a wireless salesperson to a place that already has Verizon FiOS. You would think at a minimum they would send salespeople only to those places that don’t already use Verizon. But once they heard he had FiOS they still tried to convert him to wireless.

Why would Verizon compete against itself like this? I know that there are different business units at Verizon and that each group will earn bonuses based upon their own performance, but at the end of the day it is more profitable as a corporation to do this the right way. Verizon ought to be sending out one sales team that can sell their whole product line and who will help the customer find the best solution for their business. In the long run it can’t do Verizon any good having salespeople bashing their own product lines. As a corporation do they really want wireless salespeople telling the public not to use their fiber? That is going to lead customers to pick somebody other than Verizon.

I think Danny has it right. When his receptionist hears the word Verizon now she just tells them, “He doesn’t want to talk to you.” And she is right.

What is Behind the Aereo Controversy?

Image representing iPad as depicted in CrunchBase

The Aereo ruling on April 1 certainly has the cable industry in an uproar. In that ruling a federal appeals court upheld a lower court ruling that Aereo’s wireless streams to customers are not a ‘public performance’ and thus do not constitute copyright infringement. On Friday Glenn Britt, the CEO of Time Warner, said that his company was considering pulling the broadcast networks off of his cable TV systems and sending them to customers over a radio in the same way that is being done by Aereo. And recently, in response to the Aereo ruling the broadcast networks threatened to pull all of their content off the air and move their programming to cable TV. So what is up with Aereo, and can these companies do what they have threatened?

Aereo has an interesting product that seems to have found a market niche, at least in New York City where it is now operating. Aereo sets up a radio link to each customer and sends them a 28 channel packagethat includes the major networks, some other low-cost networks and some spanish and asian-language channels. Aereo can be installed on any Windows or Mac computer and can then be streamed to iOS devices like the iPhone, iPad or Apple TV. It can also be made to work with a Roku box. And one would imagine it will soon be made to work with other pads and tablets. The service also lets a consumer record some programming for later playback. The pricing is cheap compared to cable TV with a $1 per day plan, monthly or annual plans, including a monthly plan for $8 that lets a customer watch everything live plus record and play back 20 hours of programming per month.

Why does this controversy even exist? Can’t people just receive the broadcast networks over the air? On June 12, 2009 all full-power analog television transmissions ended and starting with that date the full-power television stations, which include all of the major networks like ABC, CBS, NBC and Fox could only broadcast in digital. Customer now need a Digital Television Adapter (DTA) to receive the signals and any home that is near to a station can receive it for free. But it is not easy for the average consumer to get these signals from the TV to mobile devices, and Aereo’s real marketing niche is providing signals to computers, iPhones and iPads.

Why are Time Warner and the cable companies so stirred up over Aereo? Aereo seems to have found the niche of people who want to watch mainstream programming without being tethered to their TV. If Aereo was limited to New York City this probably wouldn’t be a huge deal, but they have announced that the service is coming to 22 other major markets in 2013.

As is the case with all big business controversies it all comes down to money. In the 1992 Cable Television Consumer Protection and Competition Act, Congress required that all cable operators obtain the permission from broadcasters before carrying their signals on their cable systems. For a while this permission was granted for free, but in recent years the broadcasters have asked for significant fees and it is not unusual to see each local broadcast network charging $1 or more per customer per month for retransmission consent. So a cable system now has to pay that much each for ABC, CBS, NBC and Fox, and in some markets multiple stations of some of these. This has driven large increases in cable rates and is now a point of huge contention between broadcasters and the cable companies.

The broadcasters are angry that Aereo is able to bypass their fees since retransmission fees currently make up as much as 10% of their revenue. And the cable companies are angry that Aereo has gotten out of paying the same fees that they must pay. And they are worried that Aereo will accelerate the trend of customers who are ditching traditional cable TV in favor of programming from the web and elsewhere, the trend referred to as the cord-cutters.

Can Time Warner really do the same thing that Aereo is doing? Certainly Time Warner or anybody could form a company that does the same thing as Aereo and compete with them. Such a company could sell the same sort of line-up and do it using radios like Aereo has done. But they first must recognize that it’s important that Aereo is using radios because this is what allows them to not be a cable TV company, which is defined as somebody who delivers cable content using cables. So Time Warner would have to use radios also. And Time Warner is still hoping that the Supreme Court will look at the issue so it’s not entirely certain that Aereo, or anybody, has the legal last word that this is okay.

So Time Warner could establish an Aereo-clone company and do exactly what Aereo is doing. But they could not do this as an alternative to putting the network channels onto their cable system. In the aforementioned 1992 Cable Act, Congress set forth the rules for cable systems to carry broadcast channels, referred to as the must-carry rules. Congress said that a cable system with 12 or fewer channels must carry at least three local broadcast channels. Larger cable systems must carry all local broadcast channels, up to a maximum of 1/3 of their system. This means that Time Warner could not pull the local broadcast networks off of their cable and deliver it in a different way. But Time Warner could probably sell an Aereo-like product to somebody if that is the only product they sell to that customer.

Finally, can the broadcast networks pull their signals off the air and move them to be cable only? I can’t think of any reason why not. At that point they would no longer be a broadcaster and they would avoid all of the FCC rules applicable to over-the-air broadcasters. But if they do this they would become like any other cable network, and so ABC would be treated the same as HBO or TBS or any other cable network. It is likely that such a change would infuriate Congress since around 15% of the people in cities still receive free TV over the air. There would certainly be political repercussions from a broadcast network deciding to become just another cable network. For instance, might they lose their ability to carry professional football?

At the bottom of this controversy are huge dollars and also the underlying fear of the cable industry that Aereo is one more factor that is accelerating the bypass of their systems. It seems like Aereo might be in a similar position to MCI back when they broke the long distance monopoly. Aereo has stuck a sharp stick in the eyes of both the cable companies and the broadcasters and there is one hell of an interesting fight yet to come.

Value Added Selling – The Only Way to Go!

Customer Service Think Tank hosted by Dell

Customer Service Think Tank hosted by Dell (Photo credit: Dell’s Official Flickr Page)

Today’s guest blogger is Mike Fox. He was one of the founders of CCG and we still work together on a number of projects. Mike is working at Fox Management Advisors and can be reached at (307) 431-6543.

In my last blog I discussed how it is important for your customers to make an emotional attachment to your brand.  You want them to think of you first when they are in the market for any telecommunications product or service.  A corollary concept is for you to focus on adding value to everything you sell.  Many telcos are order takers.  By that, I mean that they sell a suite of products that customers know and understand.  The customer is already sold. This has been the nature of the telephone business for many years.  Furthermore, for a long time, customers really had no choice but to call the telephone company when they wanted telecommunications services. So, we all got into the mode of order taking rather than selling value.

But, the world has changed in this regard (as you well know)!   The telecom world has entered a new age.  Residential customers are dropping traditional voice (landline) and video (cable TV) services at an alarming rate. Businesses are no longer happy with just vanilla voice lines or trunks. The successful communications company of the future must sell products that are different from what they sell today. These products must be attractive to the new generation of customers.  This will force many companies out of their comfort zones.  How (and what) do you sell to customers who only want broadband from which they will tie in various Over The Top (OTT) devices like Roku?

Are there additional revenues beyond simply providing the Internet pipe?  Of course there are, but they may be harder to identify and even harder to monetize.  This might mean selling products like IP Centrex, cloud services, SIP trunks, unified communications, advanced security, transparent LAN, MVNO wireless or a host of other new products. And a decade (or less) from now it will mean selling products that we haven’t even envisioned yet.  Some smart guy or gal is in their garage as I type thinking up the next “killer app” for our industry.  We just have to be ready to sell our customers on the value of this new product. Not just on the value of the new product, but HOW the new product will be valuable for them.

Selling a new product that customers don’t fully understand requires different sales skills.  You need to educate the customer on the benefits of the new products – i.e, consultative sales, which is quite different from order taking. Consultative sales means sitting and understanding what the customer most needs, and then offering a package from the suite of possible products that best fits the customer’s needs.

Actually, the very first step in selling a new product is for you to understand the VALUE PROPOSITION of each product in your portfolio. The value proposition means knowing how a product will benefit the customer. You cannot sell new products just by showing that they are new; unfortunately, many sales people take this approach and try to sell the ‘cool’ of the new product rather than the value. You have to show the value and make the customer understand how this new product or service will make their life or business better.

Finally, in order to understand the value proposition you must know your customers well. As I said in my previous blog, make them part of the club. Get to know them, and encourage them to get to know you and your company. Basically, you need to get out and talk to your customers.  Find out what they are looking for, what excites them, and what their needs are both now and in the future. Once you understand those needs you can craft products and services that will provide what your customers want; and you will have built the foundation to support a strong, loyal customer base.