TC2's David Rohde on Telecom

Practical issues come to the forefront in SIP Trunking

Fri, 03 Sep 2010 11:31:00 -0400

A few years ago one of my old colleagues at Network World got hold of an analyst report on MPLS, and we started discussing it by email. Contrary to almost every market research report up until then, the analyst's survey and analysis concluded that MPLS wasn't really going anywhere. Most enterprises would stick with frame relay, the analyst concluded. My reaction was: You gotta be kidding. There comes a time in every successful shift in enterprise networking when the industry discussion reverses itself. Think of a seesaw. For a good period of time, vendors, analysts and technology "evangelists" will promote a new technology, pushing down on one side of the seesaw. But the actual users won't adopt this technology, staying high above the ground on the other side of the seesaw. When the adoption finally starts happening, and the users start pushing down, some of the analysts lose heart. That very action by enterprises -- because it happens so gradually compared to changes in consumer technology -- causes the industry-watchers to say that the business technology shift is happening "more slowly than expected." But this is the very moment at which everyone should be focused on practical issues in implementing the technology, because that's exactly what the savviest enterprises are doing. We're at something like that moment in SIP Trunking. There's no "hockey stick" adoption of SIP Trunking because there's never a "hockey stick" in enterprise carrier services. There's also no "this is the year of ..." phenomenon in the corporate telecom arena, so watch out for that headline, too! The process is always a matter of 18-36 months -- at least. But if it's a real shift, major enterprises will be putting out RFIs, RFPs and other single-source and competitive offer solicitations for the new technology at the very moment when industry-watchers are questioning the pace of adoption. And the big issue internally will be how to issue these solicitations to make the process pay off. All that is exactly what's happening right now in SIP Trunking. That's why, at the upcoming CCMI Telecom Negotiation Conference in San Diego, several sessions will delve into the potential, and practical issues, of SIP Trunking. Here are some of the matters we're going to take up: -- A SIP "trunk" is really a virtual concept that replaces a physical POTS trunk. It'll be one of the concurrent call channels to which you have subscribed that are dynamically allocated to your locations over your enterprise data networking service. So a key question is: Does your enterprise networking service support SIP? Crucially, AT&T has not yet made this service generally supported over AVPN, although it will deliver it over MIS Internet circuits with the PNT, or Private Network Transport, feature. Will this situation last? Does it give Verizon -- or other, competing carriers -- an advantage? Or is it simply part of AT&T's entire strategy to manage a multiyear transition off the PSTN, which was probably the true import of its request to the FCC to "turn off" the PSTN? -- Do you have to spend money to save money? The big IP PBX vendors -- now notably Avaya and Cisco, but also Siemens and smaller players -- have wide-ranging new platforms and software-licensing plans that integrate SIP with unified communications architectures and other features. These are being heavily promoted, with the perception among many enterprises that SIP projects are to be paired with a full refresh of voice infrastructure. That leads to key capital budget questions, as discussed in an interesting article by Infonetics Research. How mature does your transition from TDM to IP telephony on the premises (which is not the same thing as full-featured IP voice in the WAN) need to be to make SIP trunking optimum? -- Which carrier SIP services really allow you to share concurrent calls across multiple sites, and how do the charges for these SIP rate elements really compare with existing telephony plant? -- Do you have to upgrade your MPLS or other existing data network to handle the call capacity? And is it time to haul out the old "busy hour" tables to make this determination? -- How could SIP Trunking shake up the traditionally lethargic world of "local telephone deals," where the old "Bell" sides of AT&T and Verizon will sometimes do bulk deals for their services, but in a notably different way than their legacy "long distance" houses? What if a carrier tries to combine your major national deal (and its annual dollar commitment) with your local services deal? Will that improve your terms, or will you wind up with the lowest common denominator of terms and conditions? The very fact that AT&T (at least) is clearly pacing the transition to full-fledged IP voice over several years is a classic example of why there is not simply a "moment" at which adoption of a new telecom technology soars, as is true in other parts of the IT ecosystem. But this also opens up the opportunities for you to bring different (and often very eager) carriers into the discussion, depending on how widely your SIP Trunking service will be deployed. That's something we'll also be discussing in a session about determining bidder lists for both broad and narrowly focused procurements. There's a lot going on. If you have any questions about the conference, drop me a note or give CCMI a call. In SIP Trunking as in most things, it's all in the details!

Potshots at cloud computing demonstrate necessary focus for enterprises

Tue, 24 Aug 2010 16:24:00 -0400

I have good news about cloud computing: Everyone's criticizing it. Here are just some of the headlines about cloud computing and virtualization that have appeared recently in my inbox from sources such as Network World, Webtorials and NoJitter: -- Cloud computing: Reality vs. fiction -- Virtualization: Not as simple as it sounds -- Are your cloud services secure? -- Cloud Computing: A Reality Check & Guide to Risk Mitigation -- Businesses not sold on using public cloud for capacity That's great stuff! No enterprise technology has ever prospered while it was being emptily hyped. Things only take off once the problems are aired. One focus of all of this attention is obviously going to be security. (As it is with everything at first. It was a huge issue in the early days of MPLS because it was -- gulp! -- IP.) You'll see jumping-off points in one of the items above about cloud security to white papers, including from vendors like Cisco and Juniper. These papers often deal with the key issue of going beyond perimeters such as firewalls to the whole concept of borderless networks. One issue, though, that tends not to get enough attention in any technology at first is the matter of Service Level Agreements. Sure, SLAs are often mentioned, and even headlined by vendors in their product announcements. But initial SLAs are often not measured correctly or meaningfully. In new technology after new technology, we at TC2 and LB3 have seen repeated gaps and weaknesses in SLAs along similar lines. Classic problems include: 1) SLAs for service availability but not true network performance such as application response time; 2) vagueness in appropriate remedies; 3) overly broad definitions of maintenance windows that bump aside any SLA measurement; 4) requiring the customer to make its own notification of below-par performance to trigger the actual SLA measurement and any chance of enforcement. Could you see these issues in such cloud computing arenas as "Software as a Service" and "Infrastructure as a Service"? We've begun discussing this at past editions of the CCMI Telecom Negotiation Conference, and it'll be a key focus at the upcoming meeting in San Diego. SLAs as well as all of the issues referenced in these recent articles and e-newsletters are the necessary sort of discussion all enterprises must have as they explore cloud computing.

Your carrier, your technology choices, and the Lowest Common Denominator

Mon, 23 Aug 2010 08:18:00 -0400

If your principal carrier is the one that starts with either the letter "A" or the letter "V," then you've already been asked to broaden your relationship with them, or you will be asked to do so soon. I guarantee it. These guys didn't roll up national interexchange networks, legacy Bell telcos, and comprehensive wireless footprints for no reason. They want it all. In their mind, they paid big money for all this (never mind that a lot of it is sunk investment from ages ago or, like Verizon's purchase of MCI, was basically a fire sale), and they want a big return. Besides that, A wants to shut V out of your company for years to come, and vice-versa. One big consequence of all this is a growing concern that we at TC2 and LB3 call the Lowest Common Denominator Problem. As a general proposition, the broader the demand set you put out to market at the same time, the better the deal you can get. But that's only really true to the extent that the components of the demand set are logically related. The reality is that local, national, global, wireless, and managed services markets still have distinctive terms, pricing mechanisms, and competitor line-ups. If the only commonality among all these markets is that the same parent company has an entry into them, then what may happen when you mash them all together into one broad contract relationship is a deal that features the worst -- not the best -- practices that the carrier can throw into your terms and conditions. Interestingly, the ways in which smaller carriers are attempting to break into these markets can also create their own Lowest Common Denominator issues. That's because of the new technology choices that they have to promote to get your ear. Areas in which smaller carriers and alternate suppliers are obviously trying to break in include SIP Trunking, Cloud Computing, local and national Ethernet, and 4G wireless such as the Sprint/Clearwire WiMax initiative. All of these have the potential to dramatically lower costs and/or create breakthroughs in end-user access and network experience. But they compete against legacy systems and services that virtually guarantee data network throughput, or provide advanced call center features as a matter of course, or ensure that you can reach an emergency number from any phone. Experience has shown that large enterprises will not embrace new technologies until they provide rich feature sets and something very near the network performance level of the technology it's replacing. If a large business happens to accept a trial service that only provides a Lowest Common Denominator of voice or data throughput, it won't completely roll it out until features and performance match up well against its legacy services. This phenomenon as it applies to the technologies, contract practices, and supplier choices of 2010 going into the 2011 is a major focus running throughout CCMI's upcoming Telecom Negotiation Conference in San Diego. New sessions and new content will address these issues in a way you simply won't get at even the best of the "trade shows." For each issue you'll get a specific look at the trade-off between embracing new practices vs. falling into a Lowest Common Denominator trap. At the conference, LB3's Joaquin Gamboa and Marc Lindsey will speak from experience on cloud computing. That's an unavoidable hot topic -- you need to identify the key issues that set cloud computing deals apart from traditional telecom and IT transactions. Marc and TC2's Ben Fox will speak on the crucial connection between MPLS and SIP Trunking, and give the specifics on MPLS/SIP product structures, pricing models, and contractual considerations you'll need to move forward. I'll be speaking in tandem with LB3's Ellen Block and TC2's Jack Deal about the crucial connections between SIP, unified communications, and the often-confusing world of "deals" for local wireline service provided by incumbent (and thus near-monopoly) providers. That's an area that Ellen notes is especially susceptible to the Lowest Common Denominator problem when the big, integrated carriers try to transfer their monopoly-related terms to the historically competitive national interexchange market. I will also host a special Day 2 breakfast session called "Matching the Players to the Project" which will unravel the trade-offs between throwing all your business to a big carrier vs. considering specialized players for key services. That's a product of both the Lowest Common Denominator problem and the unmistakable fact that AT&T and Verizon are around for good while many other carriers still strain for financial resources. That's just a sample, and a look at the full agenda will give you a view to its direct relevance to your current challenges and upcoming decisions. One note: As conference chairman Hank Levine often remarks on site, the conference plate is very full and, as a result, we have to include multiple breakout sessions toward the end of the two days. So you may encounter conflicts in getting to every session you want (including a couple I've mentioned here). The best way to solve that problem is to bring a couple of people from your company. We've noticed a recent trend where, when established enterprises give a new person telecom responsibility, one of their first steps is to send them to this conference, or to bring them along with a more experienced person. Check out conference organizer CCMI's reference to Team Discounts on the registration page and call the number there for details. I look forward to seeing you in San Diego!

Coming soon to a meeting near you: The cloud computing discussion

Fri, 06 Aug 2010 09:01:00 -0400

The following is a guest post by TC2 Senior Consultant Tony Mangino, who is based in Atlanta. Chances are that cloud computing is at the top of your CIO's list of priorities going into the fall, and will certainly be there going into 2011. That means the issue going to be at the top of your list, too. Are you ready to help your organization make decisions about embracing cloud computing? After all, the major carriers are already putting a stake in the ground, with Verizon having recently announced customer trials of a cloud-based unified communication and collaboration offering. The "cloud" means lots of different things to different people. You'll certainly hear suppliers say they're moving services into the cloud to leverage a lower-cost utility model, and to capitalize on the operational efficiencies of delivering solutions "as a service." But cloud computing also entails a fundamental reengineering of IT process. And for enterprise customers, such a change in the delivery of IT services has its pitfalls. You'll have to address the issues of maintaining contractual flexibility, providing a secure computing environment, and maintaining compliance with applicable statutes. Contractual flexibility may be the most salient issue. It's a key component of your overall leverage with your suppliers to begin with. And the nature of cloud computing has the potential to complicate, rather than simplify, the issue. Contractual flexibility is a function of many components of your deal, including term, commitment, rate reviews, transition periods, and shortfall penalties. Sub-par provisions addressing any of these components of your deal reduce your leverage, and invariably leave you at the mercy of your incumbent suppliers. It turns out that moving services into the cloud may solve many problems, but mitigating the impact of lock-in is not one of them. In a recent Network World article, Red Hat's CEO James Whitehurst declared that computing in the cloud can become the "mother of all lock-ins." According to Whitehurst, the concept of lock-in can manifest itself in many different ways in a cloud-based IT service environment. These include "the inability to move workloads among different clouds, the difficulty of extracting data from the cloud, and being forced to use the underlying virtualization platform chosen by the cloud provider." So is the ability for an enterprise to move its subscriptions and licenses along with the workloads from one cloud provider to another. The federal government's management arm is also taking note of these considerations, as pressure grows on the public sector to move to cloud computing. Last month the Government Accountability Office submitted testimony to the House of Representatives indicating that cloud computing has both "positive and negative information security implications." The GAO noted that "cloud computing can expedite the implementation of secure configurations for virtual machine images" while providing for the "ability to apply security controls on demand." But then came the not-so-good news from the GAO in identifying a number of risks for federal agencies -- substitute "enterprise" for "agency" and the same risks apply to any large user of IT services in a cloud environment: -- The possibility that ineffective or non-compliant service provider security controls could lead to vulnerabilities affecting the confidentiality, integrity, and availability of agency information. -- Potential loss of governance and physical control over agency data and information when an agency cedes control to the provider for the performance of certain security controls and practices. -- Insecure or ineffective deletion of agency data by cloud providers once services have been provided and are complete. -- Potentially inadequate background security investigations for service provider employees that could lead to an increased risk of wrongful activities by malicious insiders. -- Multi-tenancy, or the sharing of computing resources by different organizations. Finally there's the issue of compliance with a vast array of regulations and statutes that may apply to your organization based on the nature of your business. As services are moved into the cloud, enterprise customers must consider the impact on the obligation to comply with regulations such as Sarbanes-Oxley, Gramm Leach Bliley, HIPAA and PCI. While most cloud providers point to their SAS70 certifications, such compliance only implies that their services are in alignment with "guidelines" or "principles" of the various regulations. But that doesn't necessarily equate to the strict compliance with the applicable statute that you've had to provide in past telecom and networking initiatives, and no less so (and perhaps more so) in cloud computing. A 360-degree view of the financial, technological, and legal implications of cloud computing is something we've developed at TC2 and LB3. Watch for more on this, and feel free to contact me or my colleagues directly for more discussion.

Sprint and Clearwire's 4G WiMax strategy needs clarity to sustain an advantage

Thu, 29 Jul 2010 10:15:00 -0400

Strategic certainty is a big deal for enterprises when they choose vendors to supply network services on multiyear contracts. Everyone else loves to place bets on vendors' shifting partnership arrangements, complex financing moves, and technology upheavals. But corporate telecom managers don't like surprises. They require reliable roadmaps from their key suppliers. Recent developments in the saga of Sprint's entry into 4G wireless networks continue to provide good fodder for analysts and early adopters, but less to go on for corporate buyers. A good article in The Wall Street Journal today following Sprint's earnings report demonstrates how Sprint is hampered by its lack of full ownership in 4G partner Clearwire's WiMax network in gaining traction in the marketplace. One possibility discussed in the Journal is a set of financial transactions that would result in Sprint's 100% ownership of Clearwire. The other possibility involves Sprint taking the initiative to build out its own LTE network to compete head-on with the expected launches of LTE networks late this year by Verizon and next year by AT&T. But look at the issues that complicate all of this: 1) Clearwire's board governance is complex, and typical of arrangements that resemble joint ventures; 2) Clearwire's other financial partners, notably Intel and Google, would have to be satisfied; 3) Sprint's first-to-market 4G device, the HTC EVO 4G, has clearly suffered manufacturing delays; 4) the ability to provide dual-mode LTE/WiMax mobile and fixed-location devices is unclear, as is the feasibility of Clearwire's own ability to fill in WiMax gaps with LTE PoPs if it elects to do so, albeit not at least until 2012; and 5) money obviously doesn't grow on trees at Sprint, even if it's no longer losing net overall subscribers. These issues are further developed in an excellent recent article in Network World called "Can Sprint Afford a WiMax Flop?" As this article discusses, Sprint is ultimately going to have to come up with a pricing breakthrough on devices and subscription plans, and perhaps also on the fixed-wireless bypass around access T1s and T3s that was supposed to be one of WiMax's great calling cards. One pattern I've noticed throughout my time in telecom is that when a carrier's ultimate strategy is uncertain, its marketing often unwittingly reflects that hesitation. Last February I went to Clearwire's website and, after noticing that the service was not yet available in the Washington area, I signed up for a notification service in which they were to email me updates on availability in my area, as well as periodic interesting news about wireless broadband. Since then, Clearwire has indeed launched in Washington, and (on my own initiative) I've checked out the map and determined that my house in the near suburbs of D.C. is just outside their current serving area. Now here's the number of emails I've gotten from Clearwire's notification service since signing up: zero. You'd think they could ramp up the excitement a little more than that! All this is reminiscent of past telecom flops marketed by "not available, we'll notify you when we're ready" campaigns with poor follow-up. Now clearly, in this case Clearwire is not just going to fade -- 4G is coming, and Sprint and Clearwire have both said that they expect Verizon and AT&T's marketing to help them too in popularizing the idea of always-connected wireless broadband via 4G. But Sprint's place in it remains subject to change, in line with a longstanding pattern from the company of trying to hit home runs but not being able to follow through in the real world to keep up with its two super-rivals. If Verizon and/or AT&T wind up with the lion's share of 4G business, it would hardly be the first time in telecom -- or technology in general -- that the first-mover advantage dissipated in a marketing wave controlled by the big players coming up behind them.

A fine book of business: AT&T and Verizon's service mix pays dividends

Wed, 28 Jul 2010 16:14:00 -0400

Is telecom the worst business in the world, or the best? For every intractable problem the big carriers have developed over the past decade, you can now name an opposite phenomenon where the same carriers are golden. I mean, consider that consumers are dropping their primary telephone landlines from incumbent carriers in droves. Oh, but wait a minute, the carriers still have a near-monopoly on dedicated local access lines to businesses to nicely offset that revenue loss (and with higher returns). Or did you say that wireline long distance is losing popularity at an accelerating pace? Whoops, consumers are more than making up for that with mobile minutes (and at higher prices). Huge deflation in wholesale intercity bandwidth? Big deal, when the big carriers are also enjoying big increases in hosting revenues from enterprises (and on a much "stickier" service). Traditional voice under threat of extinction as everything goes across data networks? So what, when the big carriers are supplying smartphones that are practically becoming the personal data device of choice (and to which people are becoming addicted). This yin-and-yang characteristic of the telecom industry is nicely illustrated in the recent strong earnings reports from AT&T and Verizon. A bullet point near the top of AT&T's announcement spoke volumes: "Consolidated operating margin expansion to 19.8%, up from 18.0% in the year-earlier quarter." This statistic is a reference to the entire AT&T in all its glory: the legacy long distance and local businesses, the wireline and wireless sides, the domestic and international revenues, and the old circuit-switched and new IP-based services -- all mashed together. The complete mix of services at AT&T is now generating a combined profit margin that's moving up smartly. For an industry with a reputation for suffering ruinous deflation, and for a brand once associated almost entirely with legacy products, this is a notable occurrence. It's especially worth keeping in mind as AT&T makes statements to the effect that the need to maintain the Public Switched Telephone Network is dragging it down financially. If it is, it's more than made up for by the rest of AT&T's business. It's also worth keeping in mind as AT&T and Verizon cite their huge expenditures for wireless network upgrades, wireline broadband buildouts, and the like. Now, profit margins are a notoriously tricky statistic with which to make comparisons across industries. If you're in an industry that's at all politically sensitive, you may already know that. One type of company's profit margin may not be comparable to another, and this has proven to be an issue in economic and political debates. To make an easy comparison, a grocery store's profit margin is of course going to be lower than a furniture store's profit margin, because the grocery store gets to sell the same item over and over in the same spot on the floor, and the furniture store's turnover is much less. Which business actually has the greater return on the owners' investment is unknown until you factor in other inputs besides raw margins. But the comparison here is between a big carrier's margins today vs. the same company's margins yesterday. The major suppliers' decisive move into growth services is no longer a matter of playing catch-up. It's the outstanding feature of their businesses from a financial standpoint. We've discussed why another carrier like Qwest may have had so many operational problems that it couldn't make it on its own. But an argument can made that Qwest had to sell out simply because it never got into the wireless business beyond resale. Qwest today remains a valuable national competitor for individual services and circuits, but for those who remember what Qwest was originally supposed to be -- the giant-killer that would bring down the legacy players with its more-advanced networks -- it's notable how enterprises actually tend to use Qwest for the simplest, not the most complex, voice and data services. Those comprehensive, mission-critical deals still go overwhelmingly to AT&T, Verizon and -- still very occasionally -- Sprint, and you bet these carriers are going to be looking to enlarge their relationships with you even further. When they make that attempt, remember that their "big tents" -- legacy services and all -- are providing an excellent mix of businesses for them, with an improving financial yield. That financial reward for them should very much be on the table for you when they seek your business.

Apple's antenna issue and the soaring wireless demands on enterprises

Wed, 21 Jul 2010 16:14:00 -0400

So Steve Jobs had to go before a big press conference and defend the iPhone 4 against accusations that its antenna design uniquely runs the risk of blocking reception. Ha! Apple's problem is quite the relief for enterprise telecom managers! I should explain what I mean. After all, it's the general consensus of my TC2 colleagues that the iPhone antenna story is something of a mild tempest. Enterprises that were previously hooked on the BlackBerry may be diving into the Apple world, but it's not like they're out buying the latest model for employees. Other companies' smartphones may or may not be subject to the same issue (though none of us has experienced it). And user behavior that can be unlearned may be the real culprit. Meanwhile, media coverage of the controversy is fading, and Apple's latest earnings, announced yesterday, are soaring anyway. But from a procurement and ongoing management standpoint, it's heartening -- and potentially constructive -- to see a key vendor taken down a peg or two. End-user pressure for certain supplier choices has dramatically increased in recent times. And the (expensive) iPhone has been nearing iconic status. Vendor worship is not a good place for corporate telecom management to be! All of this also serves as a reminder that there's still a difference between wired and wireless networks. Actually, nothing would be better for telecom and networking's position and prestige within large enterprises than to have a quantum leap in the reliability and flexibility of employees' access to applications. And that means pervasive, unwired, full-speed availability. But we're not about to see SLAs for wireless in the "five nines" category of traditional wired voice networks, or even the robust network metrics of generations of enterprise data networks like frame relay and MPLS. It's good to have a reminder of that every once in a while, and if it makes end-users stop and think about their attachment to given vendors, so much the better for long-term leverage. In particular, the increasingly grabby AT&T -- still today the only network source for the iPhone -- is trying all kinds of gambits with customers to attach every offering under their corporate roof to new, all-encompassing contract commitments. Enterprises hardly need their own employees' help in letting AT&T's attempts at excessively broad, long-term lock-ups succeed. As it happens, we are at a moment when the carrier-network side of wireless really is set to try to make a quantum leap toward the seamless, always-connected feeling of robust wireline data networks. Next quarter Verizon Wireless is supposed to make the first metro area introductions of its 4G LTE networks, and it's supposed to do them in a bunch, as opposed to the relatively quiet introductions of the Clearwire/Sprint "WiMax" 4G services. But in preparation, enterprises should be building more, not less, flexibility into their contracts, with such best practices as the ability to upgrade plans and devices without restarting individual line terms. In this light, it's not a bad thing to have a timeout on the headlong rush by one device or network supplier toward dominance in the public's mind. Even if the respite is brief, the recent demonstration that no vendor is perfect is a welcome window for corporate telecom professionals to organize themselves, and their entire organizations, for the procurement challenges going forward.

SIP trunking's growth is perking up Wall Street

Wed, 14 Jul 2010 09:57:00 -0400

I recently received a Wall Street analyst note that read for all the world like it was 1999, not 2010. The analyst at JP Morgan was assuming coverage on an alternative local carrier and assigning it an "overweight rating" (translation: BUY). He said that the carrier's "recent initiatives are expected to benefit growth" and its "valuation favors upside." And in a familiar echo of hot-telecom-stock days gone by, the analyst said of the carrier: "We believe it can achieve double-digit compounded EBITDA growth over the next five years." Even if that's only Wall Street babble to you, doesn't that just sound like the go-go CLEC days of yore? So here now is the twist: The carrier in question is Cbeyond, one of the new breed of SIP-centric carriers targeting small and medium-sized businesses that we've mentioned in the past. These companies are far from the old CLEC model, where many alternative carriers without last-mile facilities were basically attempting to sell themselves on price and service vs. the Bell companies (while often fighting them in court). Cbeyond and a group of others add new technology to the mix -- the SIP trunking methodology which attempts to supplant traditional telephone trunks. Perhaps this proves the truism that it takes a new technology, not just a theoretically competitive business plan, to bust markets open. Now, the analyst, Mike McCormack of JP Morgan, didn't burden his readers with the technical details. In fact, he didn't even refer to SIP per se. The way he put it was that Cbeyond "operates an IP-based network through which it delivers integrated voice and data services," which is a good enough explanation for Wall Street. McCormack also credited Cbeyond with offering a "large business approach to the small business market," noting that it offers "popular calling features" to small business. While of course what Cbeyond offers isn't really an enterprise package -- what a Fortune 500 business needs for its call centers is hardly the features he's talking about -- I'll grant him poetic license within his sphere of influence (institutional investors). And to McCormack's credit, we're hardly talking about a stock call like the old days, where an analyst would take a $50 stock and predict it would zoom to $250 (usually before it fell to $1 or $2 a share). Cbeyond was trading around $13 a share at the time of McCormack's report, and McCormack (who actually has quite a good track record) set a yearend 2010 target of $18 a share for the stock. Hardly something to spawn new stock market billionaires! The point is that there's renewed telecom attention in the investment world driven by the unmistakable battle now unleashed over true, full-featured POTS vs. IP voice for business. As is often the case, in some ways it may be easier for smaller customers rather than larger ones to take the first advantage of the new wave. But when even a chastened Wall Street is dusting off old analytical methodologies in service of a technology that's actually sticking in the marketplace, you know that SIP trunking isn't going away. Up and down the ladder of customer size, from small business to multinational enterprises, SIP is now in the mix.

Vodafone's surprising next move: Wired Services in India

Wed, 30 Jun 2010 10:39:00 -0400

The following is a guest post by TC2 Senior Consultant Sreeni Katta, who is based in Singapore. I was in Mumbai recently to meet with India's major Telecommunication solution providers in conjunction with a procurement project for one of our clients. Vodafone's team, who were one of the invitees to the meetings, surprised all of us in the room by announcing their new offerings. Apparently Vodafone now offers National Private Leased Circuits (NPLC) in India, and expects to offer International Private Leased Circuits (IPLC), Internet Leased Lines, and even MPLS networks soon. The first question that came to my mind was: Why on earth did a major global wireless service provider decide to venture into the untested waters of enterprise networking services -- and in India, no less? In fact, Vodafone's historical (although admittedly recently softening) policy of religiously disposing of fixed line assets that it acquired incidentally through various acquisitions throughout the world, made this announcement particularly surprising. But once we'd reflected a little, we realized that in many ways it makes a lot of sense. Firstly, enterprise customers continuously strive for a one-stop shop for all of their telecommunication needs, and a pure wireless focus leaves Vodafone behind some of its key competition. Secondly, India is at the heart of the huge growth potential in Asia Pacific. In fact, India has one of the world's largest mobile phone user markets, with 10 million new subscribers signing up every month. Vodafone does have a very well established emerging market strategy. And over the years it has disposed of ownership interests in a number of saturated western markets in order to invest in emerging markets instead. So making a move into wireline services in a growth market, rather than in one of its more established western markets (where growth is limited and strong incumbent competitors already exist), makes good sense for Vodafone. It also turns out that Vodafone will be able to leverage its existing wireless network backbone. It won't be building infrastructure from scratch in order to offer wireline services, rather simply upgrading and building on its existing in-country wireless network backbone. This is consistent with other carriers that offer integrated service offerings on a single platform to cater to telephony, data and video solutions. Although a common and consistent procurement objective of enterprise customers is indeed to reduce their number of service providers, this objective is often based on little more than "telecom suppliers are a pain to deal with" and therefore the fewer the better. There can be clear efficiencies to having less, not more suppliers, but many carriers have not yet come up with much more than limited bundled discounts to reward customers who buy both wireline and wireless services. But slowly the advantages should become more pronounced, not least as fixed to wireless integration and unified communications bring wireline and wireless solutions and technologies closer together. If Vodafone begins to establish itself as a supplier able to offer wireline and wireless services, it will be well placed to take advantage of such trends. Vodafone also has some experience in managed services that it may be able to leverage as it moves into wireline services (not least in a disparate region such as Asia Pacific). For a number of years Vodafone's Global Enterprise (VGE) group has been offering large global enterprise customers a one-stop shop for all a customer's global wireless needs. For countries where Vodafone does not have a wireless network, or one of its partners does not offer services, Vodafone will manage a third party supplier on the customer's behalf. Vodafone will also take care of migrating current suppliers' services to its, or its partners', network. Vodafone established this service offering as a solution for customers desperate to deal with a reduced number of suppliers, despite global wireless services being the most fragmented global telecom market of them all. Not all customers have found it to be a compelling offering (the detail can fall short of the marketing), and extending this model to wireline services will present a different set of challenges -- particularly for global MPLS services where having a single supplier has technological advantages. But in a region as fragmented as APAC, if Vodafone is able to build on its experience in the wireless market to be able to present a similar offering to customers on the wireline side, then this could be a distinct differentiator. So we regard this as a welcome move by Vodafone in India, and wonder if it is a sign of a wider drive by Vodafone into wireline services in Asia Pacific and beyond. In Asia Pacific in particular, Vodafone will come up against some familiar faces (not least BT but also the other main global providers of AT&T, Orange and Verizon) as well as newer players emerging from APAC such as Reliance and Tata that are investing heavily to win more customers. It will help drive more competition in this burgeoning and high-growth market, and it gives additional options to enterprise customers. We will be watching these developments carefully to see how they unfold.

Soaring demand for devices and apps requires a savvy management response

Fri, 18 Jun 2010 16:28:00 -0400

Until recently, companies buying wireless devices and plans for employees based purchasing decisions on price, coverage and (maybe) key contract terms. In contrast, corporations procuring wireline services have historically paid a lot of attention to differences in capability and features. We've never gone as far as those who've called wireless service a commodity. But apart from coverage issues, and niche services like Sprint Nextel's iDen-based push-to-talk, the technical capabilities of the wireless carriers have sometimes felt pretty hard to distinguish. Or at least telecom buyers have not felt pushed hard enough by their user base to make those distinctions in awarding business to wireless suppliers. But that's all changing -- rapidly. Last fall on my blog, TC2's Joe Schmidt teed up the key issue of Do devices matter when buying enterprise wireless services? Joe noted that responding to needs for devices and applications changes the leverage equation with regard to your negotiations with prospective carriers, if you make device demands the end-all of your project. Since then, this question has become even more crucial as the dominance of Research in Motion's BlackBerry in corporate smartphone deployments has been cracking, and soaring iPhone sales and pre-orders have been stretching AT&T to the limit. Last week, TC2's Mark Sheard colorfully commented on his own preference for the iPhone in service of several larger points -- that smartphone makers are actively trying to leapfrog one another in capabilities, that end-user populations are increasingly pressuring their companies over their personal preferences, and that all this pressures telecom managers to accurately and usefully build wireless cost models as the stakes grow higher and supplier choices carry more risk and reward. Now TC2's Ben Fox and LB3's Kevin DiLallo have an article in one of our favorite publications, The Voice Report, further delving into this issue. Their piece, Hunger for Devices and Apps Complicates Wireless Procurements, brings you up to date on the implications of cost modeling not only for devices and minutes, but also for app downloads, VoIP over 3G to avoid cell phone charges, how far you should go in accommodating BlackBerry vs. iPhone vs. Android-based devices, and other factors that could drive wireless expenses and management challenges through the roof. Check out Ben and Kevin's analysis, and let any of us know your thoughts and experiences on what's rapidly becoming one of the most complex challenges for telecom managers today.

Lower USF surcharge brings illusory benefits in the heat of midyear changes

Fri, 18 Jun 2010 09:03:00 -0400

Do you want to hear some good news about surcharges? I could pretend to have some, if that'll make your day! The federal universal service surcharge for the quarter beginning July 1 will be 13.6%. And while that's really high, it's down from the amazing 15.3% of the current quarter. So why couldn't an optimistic, glass-half-full person treat that as a positive development? Because the quarterly USF contribution factor -- you know, the bit owed by carriers on their interstate revenues that they don't have to pass along, but always do -- is never the end of the story. The very idea that the landline surcharges with the biggest bite are "revenue-based" is an open invitation for carriers to play with their entire line-up of surcharges so that you never really get a break. And looky here: Verizon at the same time is increasing its "Property Tax Recovery Charge" from 3% to 3.65% of applicable revenues. That's an extra chunk of money out of the same or similar revenue base, instituted through a quiet change that Verizon has just made in its Service Guide. That move alone cuts in half the benefit of the USF reduction for Verizon's national enterprise customers. I've had some fun in the past with Verizon's particular love of collecting extra dough out of the property tax allotment, given that the "revenues" in question have nothing to do with Verizon's real estate for its POPs and central offices but rather your revenues to Verizon for voice and data services. But by no means am I meaning to just pick on Verizon today. Turns out that midyear of 2010 seems to be a red-letter day for AT&T on two other fronts: -- June 30 happens to be the expiration date for some multiyear regulatory conditions of the AT&T-BellSouth merger -- remember that one? Under the conditions, AT&T had to file tariffs over three years ago that dropped its unregulated rates down to regulated levels in order to get its merger approved. But AT&T's filing will also kick the special access rates back up again automatically when the merger condition expires. That's pretty clever -- where else can you announce price increases three years in advance? -- The folks at LB3 have noticed that AT&T has started making an interesting, and potentially nefarious, change to proposed Master Agreement wording for enterprise customers. It's technically a replacement for the "Regulatory Charges" clause but it allows AT&T to raise the rates or impose new charges for goods and services, period. Unlike older form contracts, this right is not limited to increases prompted by changes in AT&T's regulatory obligations. Now, if you have a well-designed current deal with AT&T, neither of those two developments necessarily change your operating and procurement results ... yet. Free-flowing T1/T3 access price negotiations continue to be a crucial part of competitive bids for national data networks. The AT&T special access price move directly affects only those who buy access directly from "AT&T the ILEC" (the legacy RBOCs that it rolled up) or those whose current contracts with the national legacy AT&T fail to stabilize prices. And of course, the idea that AT&T wants to extend a sense of user helplessness against price increases beyond surcharges to the price of actual services is something you'll want to fight if it's proposed to you! But all of these things certainly change the procurement environment going forward, and it's a predictable by-product of the looming duopolization of the U.S. market. The leverage you'll want to bring to the table to fight these fights on multiple fronts will have to grow as the big carriers' market positions appear to strengthen. What you don't want to be is surprised, and TC2 and LB3 stand ready to anticipate and deal with these issues for you. Look for follow-ups on these individual issues soon.

Even bankers love the iPhone, so what's a telecom manager to do?

Thu, 10 Jun 2010 14:52:00 -0400

The following is a guest post by TC2 Senior Consultant Mark Sheard, who is based in London. When one of the world's largest banks gives corporate users the option of switching from the BlackBerry to the iPhone, you know that the world of corporate wireless procurements is going to have to make adjustments. Last month London-based Standard Chartered Bank gave its bankers, including thousands in Asia, the ability to switch away from the previously standard BlackBerry. And if you're feeling the pressure to do the same thing in your own organization, you certainly have good company! The iPhone has been on a massive land grab, quickly winning the loyalty of huge numbers of domestic consumers and increasingly promising to threaten BlackBerry's dominance in the corporate arena. Under the weight of the excellent Apple user interface experience backed up by host of cheap (really cool and often pretty useful) iPhone Apps, the iPhone has generated a momentum that is compelling to many. In fact, I myself must admit to being a convert from my BB, which I loved, to my iPhone, which I love more. And some of our clients have already crossed the Rubicon to allow iPhones, often starting with family packages for example. Of course, I come across others who swear by their BBs and recite advantages relating to better handling of email, higher security etc. In a piece last year that got a lot of circulation, former tech stock analyst Anton Wahlman wrote an against-the-trend article for the popular investment website Seeking Alpha entitled '26 Advantages BlackBerry has over iPhone'. But I could argue several of his points as follows -- just as you may now be hearing such end-user arguments as part of their lobbying for the devices they want: -- BlackBerry can be used on almost every carrier in the world (over 475 of them). In the US, the iPhone is available on AT&T only. My response: Erm ... not for long. -- BlackBerry is available in five form factors -- small keyboard, large keyboard, no keyboard, flip phone, and candy-bar. OK if you have very big fingers! iPhone can be a little tricky, but you'll learn. -- BlackBerry has removable and expandable memory. iPhone is fixed. Yep and it's massive for most users -- 32Gb on a phone! -- BlackBerry allows programs to multitask. iPhone has limited multitasking. Got me here, but can't say it has bothered me and I bounce around like a rubber ball ... but I can play my iPod while using other Apps! -- BlackBerry can be synchronized to multiple computers simultaneously, if you have multiple computers. Arguably, this is more about problems with iPhone App synchronisation and iTunes, but it can be done, although when you have to start writing code you're missing the point, right? Regardless, enterprise synchronisation isn't a problem. I have to acknowledge that the BlackBerry isn't lying down. Hence, we now have touch screen BBs and better handling of all the stuff like photos, MP3 and Wi-Fi networking that is becoming de rigueur for users -- and, of course, there is BB App World. And just when you thought you knew where the battle lines were, the Google-backed Android is rapidly moving from the 'clunky beloved of geeks' into another real competitor in the smartphone space, as its open source operating system is used by a variety of smartphone providers. But can you model such costs across vendors and devices? Today's smartphones are hugely feature-rich and will continue to gobble up data bandwidth like there's no tomorrow; 50% year-on-year growth is a common rule of thumb. And provider packages will be designed to extract revenue from you. Think about: costly add-ons that may be hidden; traditional 'oh my gosh is that how much it costs for data when roaming' tariffs; differences in inclusive data download volumes; overage charges; handset acquisition costs; equipment subsidies; device commitments; annual commitments; term commitments; and, of course, plain old telephone calls and SMS. Previously, which BlackBerry or mobile handset a particular supplier offered was not much of a differentiator between suppliers, it was mostly about pricing and technology funds. But now the availability of applications like Skype, and the ability to easily use WiFi instead of roaming internationally, has a material impact on costs, and thus becomes a differentiator between suppliers. Exact matches between bids or your current position will be rare -- more complexity makes it harder to spot the right deal, something suppliers like so that they can seek to win your business through factors other than hard dollar savings. To get the best of your increasing inventory of ever more capable smartphones -- 'that users just can't live without' -- make sure you know how to intelligently estimate relative total costs and to holistically assess the impact of restrictions on use a particular vendor's offering might have. Typically, this will involve: understanding the value stakeholders place on certain features or services; identifying and factoring in the impact of corporate constraints on use; and modeling key cost components to generate as much of a 'like for like' comparison between suppliers' offerings as is possible. At the same time it is important to capture any less easily quantified (in cost terms) differences in a way that aids decision making. For example, the difference between a 5Gb versus a 2Gb 'fair use' data download limits might not generally be seen as material for the vast majority of users. But will this be the same with application-rich smartphones? Particularly when recent announcements by AT&T in the U.S. and O2 in the UK signal the advent of more complex data pricing for data plans. Both a quantitative and qualitative assessment and an appreciation of the use environment apply to smartphone procurement. The changing capabilities/features of smartphones and the emerging competitive dynamic mean that more attention than ever before is required to manage the risk of making the wrong choices -- and to gain the benefit of making the right ones!

What will AT&T's new data caps mean for you?

Thu, 03 Jun 2010 12:15:00 -0400

The following is a guest post by TC2 managing director Ben Fox, who is based in London. The wires were buzzing yesterday as AT&T announced that it will no longer be offering unlimited data plans to its smartphone subscribers. Instead, the old $30 per month unlimited data plan is being replaced with a $25 plan for 2 GB of data, with a $10 charge per additional GB. Customers who are already on the $30 plan won't be forced to move to the new plan, but will clearly be tempted by the $5 per month saving if they are one of the 98% (according to AT&T) of users that use less than 2 GB per month on average. For users using less than 200 MB per month AT&T is also offering a $15 plan. But these are all consumer plans -- corporate users are typically purchasing BlackBerry plans, either on a stand-alone basis or as an add-on to a voice plan. These BlackBerry plans include unlimited data usage, just like the $30 consumer plan, but AT&T's announcement didn't seem to include any changes to these corporate plans. So the direct impact of these new plans for corporate users is limited, but it does seem to indicate some trends and strategies in AT&T's pricing that will ultimately feed into corporate pricing plans in the longer term. Caps on so-called unlimited plans are not unfamiliar to corporate users -- broadband data plans for laptop datacard/aircard users have been capped at 5 GB by all the main suppliers for some time, and this cap does not seem to have caused corporate users significant problems. Similarly, 2 GB of usage seems to be an ample allowance for a smartphone, especially since these plans do not allow tethering with a laptop. In fact, industry pricing for BlackBerry price plans has been steadily going down in negotiated deals over the last two to three years, and continues to do so. And further reductions in return for changing an unlimited allowance to a 2 GB allowance might seem like a good deal, especially since the overage is only $10 per additional GB -- there won't be any huge "bill shock" here. So what's behind AT&T's data plan changes? AT&T is claiming that it is simply trying to move away from a one-size-fits-all approach in order to offer some lower price data plans and thus make its service affordable for a greater number of consumers. Very noble, and probably part of the story. Some commentators have also noted that this could be a way of controlling the 2% of users that use very large volumes of data. I suspect that is also part of the story. But I think there is a wider and subtler underlying theme here. All wireless carriers have, for many years, presented revenue on data services as the driver for growth as voice revenue growth has become stagnant. But unlimited data plans are hardly a great way to drive revenue on data services; a variable usage pricing model is always going to be more attractive to the carriers. The new AT&T data plans seem to be very reasonable -- offering lower pricing to 98% of users really isn't the kind of behavior we're used to from AT&T! But the 2 GB/98% metric is a 2010 metric. With typical annual data usage growth of 50% year on year, that 2 GB might not seem so generous pretty soon. And that's before the kind of step change in data usage growth that the iPhone has generated. By the way, it's important not to ignore the link between the new AT&T data plans and the iPad. The very nature of iPads means that they will doubtless generate more data traffic than smartphones, and AT&T offers the same data plans for iPads as it does for smartphones. A 2 GB limit on an iPad may rapidly get used up if users are streaming videos and music. The explosion in smartphone apps, plus the fact that nobody really knows what is going to be the next big thing, means that for consumer and corporate buyers the only certainty is that data usage is going to continue to grow, and grow fast. In many ways these new data plans from AT&T look innocuous for most users, and even beneficial, but in actuality AT&T is likely planning for the future growth in data usage, and retiring unlimited plans so that it can benefit economically from such future growth. What AT&T does on the consumer side tends to be shortly followed on the corporate side, so don't be surprised to see AT&T retire unlimited corporate smartphone plans in the future. My advice is to do what you can to hold on to your unlimited data plans -- for both current and new users. And of course what one carrier does, others soon replicate, so no doubt this will rapidly be an issue with all your wireless suppliers.

Gauging the impact of individual-liable wireless lines on your procurement strategy

Thu, 27 May 2010 16:59:00 -0400

The following is a guest post by TC2 Senior Consultant Theresa Knutson, who is based in Sioux City, Iowa. U.S.-based wireless suppliers offer an interesting side benefit in their corporate contracts -- employee purchase discounts that deliver savings on your employees' personal use devices while adding to the total line count and contributory spend in your overall contract. This translates into higher discounts on your corporate liable devices, saving your company money. Sounds like a win-win scenario, right? It can be, if managed correctly. Each supplier has a different way of referring to these employee purchase programs. Some call them individual liable (IL) or employee accounts (EA), and others refer to them as individual responsible units (IRU). Whatever the reference, the definition is simple -- these are wireless devices that your employees and their families have for personal use that are paid entirely by the employee but that are also eligible for discounts under your corporate contract. For most companies, the number of individual liable lines can greatly outnumber the corporate liable line count. All of the wireless suppliers are in a "race to win the market share" game, so leveraging their corporate relationships to build their consumer base of users is a smart move. And on the surface their interest in promoting these programs is similar to yours. Suppliers typically have tiered discount tables that provide increased discounts as the total number of corporate liable and employee liable line counts grows. If you have a company with a significant number of employees, you can leverage the employee purchase programs to increase your total line count/spend under the contracts, increasing the discount your company receives on the corporate liable lines. Some wireless suppliers will also offer annual rebates to the company of a nominal percentage of the employee purchase spend. Another windfall. Employees love these programs as they can save them and their families 15+% each month on their wireless bills. And with the rapid expansion of wireless devices to all aspects of our life, every family budget needs some savings. If a family spends $75/month on their personal wireless phone bills and saves 15%, that translates into $11.25/month or $135/year. But remember: If you have significant employee liable lines under your corporate contract, you are further bound to this supplier, making it more difficult to move corporate business to another supplier, which diminishes your negotiating leverage. Make sure you understand the double-edged sword here. No one is going to be able to force employees to change their personal wireless supplier. But if you do manage to convince them to sign up, and then for your own corporate reasons you decide to change carriers, those employees will definitely voice outrage if they lose a discount that they were previously enjoying. And that will leave you in a cumbersome situation with any of your suppliers that have any sizable employee spend. They'll know that it will be difficult for you to ever completely get rid of them, regardless of how poorly they treat you in terms of providing competitive pricing, services and terms. So how do you make this employee benefit a net winner rather than a net loser for your competitive procurement position? The answer is to leverage the ratio of large volumes of employee lines/spend to smaller volumes of corporate lines/spend and, where possible and practical, select discount tiers than can largely be met purely by the employee volume, regardless of what the corporate volume is. That way, your negotiations on the corporate pricing and terms -- and remember, carrier account teams do care more about the corporate volumes than the employee volumes -- don't need to be distracted by worrying about the implications on the employee discount. Employee volumes don't tend to undergo significant change over the course of a contract -- individual users are relatively stable and don't tend to change carriers very often. So you shouldn't lose sleep over your discounts being predicated on maintaining an employee volume that you can't directly control. Instead, take advantage of that employee volume stability (and more often continual growth), and use it to minimize your lock-in on the corporate volume. Being able to move your corporate volume around between carriers will maximize your negotiating leverage. It will keep all your wireless suppliers on their toes for both the corporate and individual-liable lines, and keep them always working towards winning more business by providing better pricing and terms for you.

AT&T's smartphone ETF hike raises the stakes on wireless procurements

Mon, 24 May 2010 16:40:00 -0400

Wireless carriers want each of your users to spend more money. Sounds obvious, right? Well, in the escalating wars over consumer wireless terms and conditions -- with the latest flashpoint AT&T's coming June 1 imposition of a $325 early termination fee on smartphones -- it's easy to lose sight of this simple fact. On the surface, AT&T's new consumer ETF policy appears designed to lock in iPhone customers while AT&T still has exclusivity. But it's also still related to the drive by all of the carriers for higher Average Revenue Per User (ARPU). This key ARPU metric dramatically rises whenever users opt for smartphones. And AT&T's nearly equalizing its smartphone ETF with Verizon's already notorious $350 fee indicates a level of confidence that consumers will upgrade to smartphones no matter what. Already that's caused ARPU to zoom past the average $60 a month level that AT&T worked so hard to surpass over the last couple of years, and that AT&T clearly wants to keep moving higher. So you have to be aware of this reality when negotiating for corporate-liable devices, even if officially the policy is not directly aimed at corporate-responsible units (CRUs). If anything, merely the threat of higher ETFs across the board makes any waiver pool you negotiate that much more valuable. And this dovetails with the carriers' ostensibly "generous" push for unlimited voice plans at lower prices, which are really a stalking horse for unlimited data plans. By now many corporate telecom managers are feeling the often uncomfortable linkage between the consumer and corporate wireless market, which resides in the fact that device preferences are bubbling up from the user base, which in turn can enable carriers to gain the upper hand in negotiations. But effective modeling of the total cost of ownership of plans, features and devices tips the balance back in your direction. Watch as we explore all of these factors as the wireless procurement stakes grow ever higher.