ILEC – POTs and PANs

Public Private Partnerships

Today’s blog is talking about public / private partnerships (PPPs). This is an area of the telecom world where I see the potential for significant growth in the next decade. Increasingly, rural towns and counties are looking at their inadequate bandwidth and are clamoring for something better. Generally such communities just want somebody to bring them bandwidth. But when nobody steps up to do that, many of them are now taking steps to do it themselves.

And there lies the opportunity. There are very few communities that want to be in the telecom business. Most of them are in the water and sewer business and some of them have municipal electric companies, but these are all monopoly businesses. Most cities are very uncomfortable when looking to enter a competitive business. Given a choice they want somebody else to be in the bandwidth business and will only take that path if they see no alternative.

It’s a natural reaction of a local cable or telecom company to look at communities that are building fiber systems as threats, when instead they are opportunities. You can’t blame them for wanting adequate broadband. They look around the country and see that rural America is becoming a world of broadband haves and have-nots. Most urban areas now have decent broadband, but many rural areas still no or slow broadband that putting their citizens and businesses behind the rest of the country. While the FCC may define broadband as starting at 4 Mbps download, this is totally inadequate for a household today and certainly doesn’t cut it for the business community. Communities that don’t get enough broadband are worried that they will become irrelevant. Their populace will slip away. Kids won’t stay in the area when they graduate. Being on the wrong side of the broadband divide is a scary place to sit today.

My advice to small telcos and cable companies is that you ought to be the first one in the door to these kind of nearby communities offering to help them to find a solution. And if these communities are in your own service territory you need to listen to them – because if you won’t help them they will find a way to get what they feel they need.

Communities that feel strongly enough about bandwidth are generally willing to contribute money to bring a solution, and that creates an opportunity. I know of one community that went to an ILEC and said that they would be willing to pay for a fiber network in their town, have the ILEC operate it, and then hand it to the ILEC for $1 when the financing was retired. Incredibly, the telco turned down this opportunity (which still has me scratching my head).

There are a number of successful business plans that I have seen for PPPs between cities and local ILECs. Consider the following:

Operator Only. The municipality can build a network and then hire somebody to operate it. Operating another network can create a good new long-term revenue opportunity for a telco because it lets you leverage your existing backoffice and technical staff and to turn some of their time into revenue.
Building a Project Jointly. Another option is for both parties to make an investment. This can be a tricky option to make work because this makes you a financial partner with a City. It is vital under this kind of arrangement that both parties fully understand the other’s goals and motivations for being in the business because it’s hard to maintain a partnership where the partners have different goals. This kind of arrangement also calls for some creative financing since you are likely marrying commercial loans and municipal bonds. But there are many examples of this kind of opportunity working.
City as an Anchor Tenant. Under this scenario the ILEC will build the network, but you would have the City, the schools and other key broadband customers sign on as long-term anchor tenants to help assure you of the revenue stream.

If you are in a rural area the chances are that these opportunities are all around you. Telcos tend to think about expansion in terms of how much money you are able to borrow to build new networks and grow. But by looking at PPPs you can leverage your borrowing power with the borrowing power of the municipality and together you can build more, and faster than either of you could have done on your own.

I have been in a number of partnerships myself and have seen some that work great and some not so great. But generally if partners are realistic about what they need to achieve it can be made to work well. Getting the financing and governance right are essential so as to head off future problems before they happen. At CCG we probably have more experience in creating these kinds of PPP arrangements as anybody in the industry and we can help you do this right.

Choosing the Lesser of Two Evils?

FTTH fiber-to-the-home (Photo credit: dvanzuijlekom)

Today our guest blogger is Ron Isaacson, a former employee and still a good friend of CCG’s.

A number of years ago, the large ILEC in our area installed fiber optic lines in our neighborhood and soon started offering their FTTH product line in the area. The cable provider had already been in the neighborhood for a while and was already fiercely pushing their bundled service packages. We finally were going to have the competitive market version of a boxing match. SWEET!!

Our family had “Dish” TV service, satellite access that worked most of the time – except when bad weather interrupted the signal. We had dial-up Internet through a local ISP, back when the bandwidth offered on dial-up was still relatively decent, and we had our telephone service through a local CLEC. Being a telecom consultant I liked splitting services between the different vendors because no one monopolist had their claws fully in my back pocket. I might have been paying a little more for this split service, but it made sense to me.

However, the FTTH offerings changed the whole equation. Cable offered a full package too, so we had a choice.

Having had previous horrendous customer service experiences with both the ILEC and the cable company we were at a quandary as to which 21st Century telecom service to commit to, so I decided to take a poll: I asked a bunch of my neighbors which service they subscribed to and why, and how were the services provided?

The results were a classic case of monopolistic bad reputations! Either a family absolutely hated the ILEC and had signed up with cable, or they absolutely hated the cable company and had signed up with the ILEC. Apparently, no one truly loved either telecom provider and they just chose the company that they hated the least. (It’s been a few years, hopefully this has changed!) I couldn’t help but thinking that both companies are as bad as the worst of the stories about the airlines!

We chose the ILEC, but the notorious nature of the story was just getting started. Our telephone number, which we had for over 25 years, was an exchange-level “FX” number, meaning that all of the customers with that exchange were billed as if the service was down-county, closer to the metro-area. The rep advised that this was not a problem, that they could still do the switch.

Once the FTTH was installed, the Internet and TV service worked beautifully, but it took another 35 days for the phone service to be re-connected because, and this is a quote, “The fiber can’t handle the FX line.” At this point I laughed and replied, “I beg to differ. The fiber doesn’t know the difference, and doesn’t care….it is your systems that are messed up!”

After 35 days, they decided to run the telephone service over the old copper pair, and bill it as if it was on the fiber. This actually proved to be a good thing when the electric power went out due to an electric utility that also possessed byzantine customer service skills.

Years later the ILEC came back and reconfigured the FTTH to include the telephone service on the fiber. Incredibly, the telecom service that was the most troublesome for the telephone company to install….who knew?

Years later, this experience still shades my view of the ILEC, the gang that proved to me beyond a shadow of a doubt that they can and will shoot themselves in both feet.

Thinking of my installation experience with fiber made me think back to something that had happened to me earlier. Many years ago, in the hay-day of the long distance marketplace during a customer service training seminar, the class discussed the results of a poll showing the reasons that customers cancel their service with carriers. A couple of facts stuck with me: First, 3% of customers die and there’s not much one can do about that. Additionally, about 5 to 10% of customers move, or otherwise change locations. Again, not much (at that time) that could be done about that.

However, over 50% of customers cancel because of rudeness or indifference from customer service personnel in reference to a given incident. There were reasons filling in the rest of the 100%, but those three points stuck out to me – two that you can’t do anything about and one that we definitely can.

The bottom line I took away from that training, and my experience with the telephone company is to be sure that every customer is treated as if their service matters, as if their patronage is appreciated.

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