TC2's David Rohde on Telecom - Telecom Industry

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.

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.

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.

Qwest falls into the hands of a player far from the enterprise

Thu, 22 Apr 2010 15:11:00 -0400

There's always been an element of luck in the "local telephone business." All local exchange carriers with an incumbent territory are in the enviable position of extracting rents for the great majority of business dedicated access lines in their markets. But beyond that, the sense of whether more urbanized or more rural LECs have a financial advantage has varied depending on broad trends in pricing, telecom regulation, universal service, and consumer adoption of new technology. Recently the financial advantage in the local telecom business has swung to a distinct set of carriers that have been rolling up small-town and mid-market LECs. That's because they're losing landline consumer telephony customers to exclusively mobile connectivity at a slower rate than the big telcos. And so it is that one of the three remaining major Bell LECs, Qwest, is being bought out today by CenturyTel, a nearly invisible brand outside its diverse but widely scattered local territories. Not too long ago, Qwest was viewed as immune from the consumer line-loss issue because analysts thought consumers in its western territories wouldn't flee to cell phones as fast as they would in AT&T and Verizon territories. But that turned out not to be the case in the last couple of years, as Qwest's line losses turned into the same 10%-a-year-or-more rout as the other two carriers who rolled up the rest of the Bell system. Meanwhile, Qwest had built up a debt overhang owing to a long-ago buildout of intercity broadband transport that was then sold into a hugely deflationary wholesale bandwidth market. AT&T and Verizon had lots of debt, too, but their debt bought them wireless spectrum and network buildouts for what are today very profitable cell phone contracts -- exactly where those missing customers have gone. Qwest's search for a buyer thus meant finding someone who would actually take over the dead-weight debt in order to get further into a business they feel they know -- local telecommunications. CenturyTel has the revenue stream to pull that off, but Century is a far cry from a full enterprise player, not least because the brand is so unfamiliar and would be difficult to sell to top management in most customer organizations. Ironically, Qwest was technically a forerunner of what we today call AT&T and Verizon on the wireline side -- a combination local and long distance carrier. Qwest had a 14-state local incumbent network, a long distance voice and data network, and full regulatory approval to sell all services years before the defining SBC/AT&T and Verizon/MCI mergers. So why didn't Qwest get a leg up that it could bring to Century now? At first, Qwest had scaling issues with large national rollouts. But over time Qwest had periods where its contracting practices were some of the most troubling in the industry, even while making nominally eye-popping financial offers. Serious enterprises often could not get past the way Qwest would try to tack on very onerous circuit-by-circuit commitments to nominally low-commitment deals, or come up with some of the worst "we're not responsible for anything/you're responsible for everything" language. Going forward, I expect Qwest to continue to make good one-off financial offers for data circuits and certain other services. But the newly merged Century/Qwest would have a huge uphill climb to make a renewed play to be the primary alternative to AT&T and Verizon, especially as Level 3 and others have been showing significantly renewed energy to move up in the ever-churning world second and third tier of carriers. Of course, CenturyTel is in fact a "long distance" carrier itself as anyone can be these days for their local customers, and Century and Qwest cited "enterprise" prominently in their announcement today. No doubt Century expects Qwest's national enterprise business to bring it dividends -- as the original wholesale-only Qwest expected when it bought a niche enterprise carrier called LCI in the 1990s, as Level 3 did when it bought a niche enterprise carrier called Broadwing a few years ago, and as certain foreign carriers have expected over time in "allying" with U.S. carriers. But we have often found that carriers looking from the outside in on the U.S. business marketplace are naive about the distance between "long distance" and "enterprise," misreading the huge requirements for feature functionality, customer support, and, yes, addressing of the legacy ties of Fortune 500 businesses to Verizon and, especially, AT&T. One thing's for sure: Today's Century/Qwest deal is not the last in what we expect to be a series of deals changing up the competition behind the looming duopoly. Will this deal be the one that puts forth the eventual main competitor to AT&T and Verizon? Only time will tell for sure, but the odds are against it. Stay tuned as other, key industry deals are likely to make news sooner or later.

Some things haven't changed in telecom contracting over the course of a century

Fri, 19 Mar 2010 11:34:00 -0400

The following is a guest post by LB3's Hank Levine. Readers of this blog know that LB3 and TechCaliber specialize in helping enterprise customers negotiate agreements for telecom services. They may not know that my [hopelessly nerdy] hobby is collecting books and other material from the dawn of the telephone era -- the years immediately after Alexander Graham Bell famously fetched Watson with a few shouted syllables in 1875. Last weekend vocation and avocation came together when I happened upon a contract for telephone equipment and service between New England Telephone and the Town of Milton, Massachusetts. It was a three-year deal for four metallic circuits and 12 "suitable iron boxes," each equipped with a magneto transmitter and hand telephone and connected to one of the circuits. NET agreed to furnish and set up the required central office switches, and operate the gear for the town to use as a Police Signal System. Nothing out of the ordinary here, unless you count the fact that the contract was executed on May 1, 1890, almost exactly 120 years ago. Cool, of course. But also depressing in a way, because a surprising number of the agreement's terms and conditions are both tilted in favor of New England Telephone and sound familiar today. For example, under the Milton-NET contract, the customer agreed "to hold harmless the [telephone company] from any and all claims for loss, cost, damage or expense in any way due to or caused by the lines and other apparatus herein leased to" the customer -- even if the claim grew out of something NET did, not an action or failure of the customer. For over a century the courts have been ruling that carriers cannot try to exempt themselves from the consequences of their own willful misconduct or gross negligence, but carriers still routinely try to shift the expense and risk of their own misconduct to their customers. Another parallel: "No business is to be transacted by or through [the lines or instruments] for any consideration or toll to be paid by other persons than the [customer] or other parties named, nor shall business messages, market quotations, or news for sale or publication, or messages in respect of the transmission ... of which any consideration or toll is to be paid by any other person be transmitted over such line." In other words, no resale or shared use. In the intervening century the FCC ruled that this was anticompetitive, but with deregulation such provisions have reappeared in carrier agreements. The news is not all bad. The Milton-NET contract included a separate agreement with American Bell Telephone Company to cover the instruments. It provided that "upon nonpayment of any sum due, or any use of the instruments ... improper or contrary hereto, or any removal therefrom, the [telco] may terminate the subscriber's rights by written notice served on him or any occupant of the premises, and sever his wires and connections and remove the instruments..." We've progressed in the last century -- today, you get a 10-day disco notice before the line goes dead. And lest you think that people just started negotiating deals in the last 20 years, or just started using credits as a way to close a deal, letters accompanying the contract reveal that NET's initial offer was $480 per year on a three-year contract (paid annually, one year in advance) and $380 for a five-year contract. But the town balked, and NET sweetened the deal: if Milton entered into a three-year deal and then renewed it for two more years, "the Telephone Company will make the rate for the whole time as if the contract was originally made for the term of five years; giving the Town credit for the amount over-paid during the first three years." The contract doesn't say that in the event of a dispute the town will be responsible for the telco's attorney's fees plus interest, or that force majeure events like hurricanes, fires or crimes will excuse the performance of the telco but not the town. Those terms came later, proving (I guess) that 'progress' does indeed come with time ...

National Broadband Plan promises more USF debate, little near-term relief

Thu, 18 Mar 2010 15:33:00 -0400

The FCC's release this week of its National Broadband Plan inherently affects the issue of Universal Service surcharges. FCC officials have gone on record saying that for "universal service" to continue to make sense, at some level it has to refer to broadband, not POTS. Only one of the four current universal service programs -- the "E-rate" program that provides support to schools and libraries -- explicitly pays for broadband connections. The other three programs -- for "High Cost" areas with many subscribers far from central offices, for low-income consumers, and for rural healthcare facilities -- are still basically telephone subsidies. The core proposal in the National Broadband Plan is to shift the High Cost program from POTS to broadband, so that people in low-density areas have access to at least one broadband provider, rather than worry so much about whether they have a long copper tail to the CO. But the plan literally lays out a 10-year timeline for achieving this. In several phases before this happens, the plan advises the FCC to create yet new programs, such as a Mobility Fund that would assist areas to obtain 3G and higher wireless coverage where there currently is none. Clearly that implies that the FCC will have to broaden the universal service revenue base, so that more services are captured under the surcharge (which increases pressure on the carriers to pass along the charges). But oddly for a 376-page report, the National Broadband Plan, when it comes to stating exactly how to do this, simply repeats longstanding USF reform proposals as possibilities (such as charging USF not as a percent of revenues but per phone number or a data connection of some size), rather than formulating a complete USF reform proposal of its own. That's partly because the plan doesn't actually have the force of law, and isn't a document "voted" on by the full five-member FCC. Instead, both the FCC as a full panel and Congress are supposed to read it, debate the proposals, and eventually act on it. I probably don't have to tell you how complicated, uncertain, or simply futile that can sometimes get! Thus, for right now, despite the hoopla over the plan and other telecommunications-related provisions of the federal stimulus, we still have the USF system we're stuck with. And both current pressures and forward-looking ideas point to broadening of the services to which surcharges apply. Indeed, the whole surcharge issue is notable for the sense of powerlessness it can provoke in even sophisticated telecom managers. It would be wishful thinking to suggest that you can simply demand the non-applicability of all new charges when the carriers are bound and determined to pass along what they think they must in today's more complex and uncertain surcharge environment. Instead, think of all the latest developments as shifting the boundary of where you have the right and obligation to put your foot down. With universal service moving past legacy voice and data, it's now appropriate to be somewhat more aggressive than before and start drawing some distinctions, as follows: -- Selective knocking out of surcharges. A "best in class" procurement will at least make carriers justify the applicability of surcharges to all services. Try to capture some of these in the contract -- the more specialized the service, and the less justifiable the surcharge, the more likely you are to get a waiver or credit. You might be able to get a contract-term guarantee of no surcharges on an Ethernet service, for example, much more readily than an entire MPLS network, and it's easier to fight the nakedly greedy property tax and regulatory administration surcharges than E911 or USF. -- No retroactivity. Let the carriers' current conundrum over whether they'll have to go back and pay retroactive surcharges on their MPLS or other revenue bases be exclusively their problem. Make sure to get a no-surcharge-retroactivity guarantee for all your services. Definitely watch out for explicit statements that retroactive pass-alongs will be allowed (Sprint, for example, has been doing this). -- Look for offsets, but in the right way. You can actually play recent developments to your advantage, in that the carriers' typical insistence of the right to impose new surcharges in mid-contract term can lead you to say pre-emptively that you need lower rate element charges just in case. Be wary, though, of overly clever carrier responses to this idea. We're hearing talk of carriers "pre-bundling" rate element and USF charges in a way that ostensibly freezes the USF pass-along at its current rate. That's fine if the resulting bundle really captures a market rate for the actual network element (e.g. ports or circuits), but "bundles" have a funny way of not actually doing so. Consider asking for credits, but the same caution applies -- there's a right and wrong way to do credits, as discussed at our recent Telecom Negotiation Conference. Next week I'll look at how all of these factors are beginning to play out in one of the most important new services available -- SIP trunking. The differences in how carriers are handling this are already becoming object lessons in the application of USF to VoIP, IP-network access over dedicated Internet or MPLS, and other elements we've discussed. Almost no issue is more subject to the quality of the design of an RFP than the surcharge results on new services like SIP. It's worth the effort to understand it, and in the meantime feel free to shoot me questions and comments about this whole arena.

Think like a bondholder to assess contract term risk with carriers

Wed, 24 Feb 2010 10:43:00 -0400

One of the shocks that people often get with their first stock market investment is finding out what a stockholder really is. People often buy stocks thinking they're getting a "piece of the pie" along with the other stockholders. But that's only true if the company doesn't owe anybody any money. Debt holders go to the front of the line, way ahead of stockholders. If there's no pie left after the debt holders finish eating, then the stockholders are out of luck, no matter how good the company's story is or how innovative its products appear to be. When you a sign a term contract with a carrier, you should think like a bondholder. Do you deserve service ahead of the stockholders? Of course you do. In fact, your term contract with a vendor creates one of the many layers of obligations that it holds ahead of the need to pay off stockholders. But if it can't pay off the bondholders, your carrier's performance is bound to suffer. In recent months we've begun to see a gratifying upsurge in the number and quality of proposals from telecom carriers other than the AT&Ts and Verizons of the world for specific enterprise-class services. Many are getting their bearings around new services like SIP trunking and related, fully integrated voice/data networks over very high-capacity lines. But more often than not, these carriers have sorry-looking stock charts that seem never to have recovered from the tech/telecom bust of almost a decade ago. Or they have strange financial histories littered with bankruptcies and buyouts by unfamiliar entities that seem to come out of a dark corner of Wall Street and have nothing else to do with telecom. That naturally makes these carriers a difficult sell within your organization. You and your management have a right to be suspicious of carriers that look bad in the stock market, but this suspicion should lead to further investigation. Instead of tossing out a carrier because of its stock chart, a bond-like analysis is often a better idea. But it's tricky. Once you know how much debt a carrier has, what does it really mean? What do you compare it to -- the carrier's revenues, operating margins, profits, or what? For enterprises, the key is the connection to the term of the contract you're being asked to consider. In a way, signing a three-year contract with a carrier is like issuing a three-year bond to the carrier. Just as the bondholder must be paid back in three years, you must receive service for three years. In fact, whatever the length of contract is before you, it's probably best to add one year to the deal for the purpose of this analysis, in order to account for ramping down the old service after awarding a replacement service to a new carrier. At the upcoming Telecom Negotiation Conference in Washington, I'll be presenting some bond-maturity charts for carriers. Instead of showing the gross level of overall debt, these charts show on a year-by-year basis the amount of debt maturing in given years like 2012, 2013, 2014 and beyond. Making sure your contract expiration comes before a year with a large "balloon" in your carrier's debt is a good idea. It may even be a good negotiation tactic to have this specific information in hand. But year-by-year debt maturities often have to be calculated from individual bond disclosures by companies in their SEC filings. It's not as easy as going to one of the popular financial websites and looking up a chart, as it would be if you were just looking at their stocks! Be aware that actually having debt is not necessarily worse than the situation that some other carriers are in -- having no debt because of a past bankruptcy, but also having very concentrated ownership because of the way they were brought out of bankruptcy. That's another trade-off I'll be discussing in my breakout session, called "The Status and Prospects of the Telecom Providers." See the full Telecom Negotiation agenda for details. Along with the rest of the TC2 and LB3 presenters, I look forward to the opportunity to meet you in Washington!

What's the real story behind the Verizon Wireless and Skype tie-up?

Fri, 19 Feb 2010 08:35:00 -0400

In the following guest post, TC2's London-based managing director Ben Fox continues his comments about the Mobile World Congress in Barcelona. Besides the increasing momentum for establishing LTE as a global mobile broadband standard, the other very interesting announcement from Barcelona came from Verizon Wireless and Skype. The two companies reported that, beginning in late March, Verizon Wireless will allow subscribers to use Skype's IP voice application over its network. By downloading the Skype application to their Verizon Wireless smartphones, end users will be able to call other Skype users around the world for free. This represents a significant change of heart from a carrier (and indeed an industry) that to date has been very territorial in terms of allowing users to take advantage of applications that could reduce its own revenue. So what's in it for Verizon Wireless? The answer is data revenues. As I noted last month, Verizon Wireless' strategy is currently focused on driving the penetration of data services. And for Verizon Wireless users to be able to use Skype, they will need to subscribe to a voice and data plan. No doubt Verizon Wireless has calculated that the lost voice revenues from Skype usage will be more than offset by the increased data plan revenues and by the increased adoption of the smartphones that will be needed to use Skype, which typically drive increased average revenue per user (ARPU) compared to more basic devices. Perhaps they're even anticipating a further compensation for lost voice revenues in the increased revenue from the higher ETFs associated with these types of devices and plans! Skype and Verizon Wireless stated that their agreement is "exclusive", although it is unclear what that really means, since the Skype application has been available for some time on AT&T Mobility's network via the iPhone. Perhaps Verizon Wireless's thinking is that AT&T users have so far only been to use Skype over WiFi, not 3G, access. But a version that operates on GSM/HSPA is supposed to be pending. Of course Skype does not tend to be an application that large enterprises actively roll out and support for their end-users, so this might have limited initial relevance to business users. However, using Skype (and similar VoIP applications) on a smartphone whilst roaming on WiFi networks to save money, compared to paying $1+ a minute to roam on a GSM network in a foreign country, is a far more intuitive and "traditional" phone experience than using a soft phone (Skype or otherwise) on your laptop. So there is certainly money-saving potential in this area for enterprise customers. But the more important takeaway for the business user from this Skype/Verizon Wireless announcement is the continuing shift in focus for wireless carriers all around the globe from voice revenues to data revenues, driven by the evolution of all cell phones into smartphones. Similar announcements in 2010 already include Google's Nexus One, Windows Phone 7 for mobiles, the Wholesale Applications Community mobile application alliance, and carriers announcing increased after-sales support for smartphone users. These all demonstrate the importance of smartphones to the carriers and the pressure that all carriers, manufacturers and software developers are under to get ahead of the pack and differentiate their smartphone service offerings. Although much of the initial adoption of the more innovative services (such as the iPhone and Apple's application store) has been driven by consumers, the carriers, manufacturers and software developers now have business users firmly in their sights. Google has already been talking about a version of its Nexus One aimed at business users, and in the UK, Vodafone is specifically targeting business users in its iPhone adverts. The bottom line is that we are already seeing business end-users at our clients pressuring their telecoms departments to offer an increasing array of smartphone devices, not the least of which is the iPhone, as well as a rich variety of new services and applications. A BlackBerry that only provides voice calling, email, calendar and contact directory functions is no longer enough! Mobile device management, rather than getting easier, will become exponentially more challenging. On the other hand, when the world ultimately moves to a single global mobile standard -- LTE -- the job of managing your enterprise's global mobility requirements should become somewhat easier, though I'm afraid that the impact of LTE will be a ripple on the ocean compared to the tsunami of challenges presented by user demands for an ever increasing range of smartphone applications and functionality.

LTE triumphant? Barcelona brings CDMA carriers into the GSM Association

Thu, 18 Feb 2010 12:45:00 -0400

The following is a guest post by TC2 managing director Ben Fox, who is based in London. This week's 2010 Mobile World Congress in Barcelona has been the setting for a number of significant developments in the global mobile marketplace. One of the most significant for enterprise users is the announcement that China Telecom, KDDI and Verizon Wireless, three of the world's largest CDMA operators, have joined the GSM Association (GSMA). The force that is bridging the CDMA and GSM worlds is the worldwide adoption of the Long Term Evolution (LTE) 3+G (or 4G, depending on the day) standard. This week's GSMA announcement is further proof that the world is moving to a single global mobile standard, which would bring benefits to all parties, including mobile device manufacturers, carriers and end-users. All parties, that is, except those who don't adopt the standard! Device manufacturers will be able to focus all their efforts on a single technology platform. Carriers will be able to seamlessly interwork with each other -- even Verizon Wireless and Vodafone, whose incompatible technologies have made them strange bedfellows up until now. And ultimately, we hope, end users won't need to worry about their Verizon Wireless smartphone not working when they travel to Europe (although they will undoubtedly still need to worry about the cost of international roaming). U.S. users also should not overlook the importance of China Telecom and KDDI joining at the same time as Verizon Wireless. China Telecom is the largest state-owned telecom operator in China, and KDDI is Japan's second-largest cellular operator. We're going to be watching China Telecom's next steps in this space very closely, because historically Chinese carriers have specifically avoided adopting western technologies and instead sought to develop their own solutions. This could signal the beginning of the end of that policy. Of course the elephant in the room that the announcement ignores is WiMax, the competing 4G technology. Despite being first to market, WiMax does not appear to reach the projected speeds of LTE and, much more importantly, has far less backing from heavyweight global carriers. Thus describing it as an elephant is probably far too generous. WiMax no doubt has a future in certain key areas such as fixed wireless and greenfield infrastructure builds, but the fact is that the major players are all lining up behind LTE, which makes LTE the hot favourite for the future global mobile standard. In fact, in a number of ways the world's leading carriers are either acknowledging or finally catching up to technological reality, and this isn't the only announcement from Barcelona that bears this out. Verizon Wireless and Skype have announced that Verizon Wireless will enable Skype calling over its network. I'll have some thoughts about that for the enterprise segment tomorrow.

Google wants to be your carrier ... or at least sound like one to get what it wants

Fri, 12 Feb 2010 16:33:00 -0400

It used to be an article of faith that telecom carriers knew how to be Washington players and IT vendors didn't. Decades of Washington experience gave the "RBOCs" and "long distance carriers" hooks into the regulatory scene. A CEO like Ed Whitacre of SBC, the forerunner of today's AT&T, spent much if not most of his day on public policy and regulatory matters, including all those lawsuits SBC used get into with other carriers and the FCC. I'm sure all that focus on federal issues comes in handy now that Whitacre runs the essentially government-owned GM. Software and hardware vendors, by contrast, were babes in the woods when it came to politics. Typically their CEOs wanted to spend all their days working on their company's products ... silly them! When the U.S. government hauled Microsoft into court in the 1990s for trying to perpetuate a monopoly in operating software, much was made of Bill Gates' shock and ignorance over the ways of Washington. In fact, it was the Microsoft antitrust case that began to radically change this perspective among IT vendors. Now the big, famous players have become heavy hitters inside the Beltway. It's partly in that light that telecom managers should understand this week's headlines about Google wanting to get into the telecom business by building ultra-fast broadband connections. Google sits on one side of a debate in Washington over the concept of "net neutrality." That's the notion, which Google supports, that providers must be essentially "agnostic" about the applications sent over their networks. The companies that control the pipes -- the telcos and the cable companies -- pretty much all oppose this idea, saying that net neutrality is an appealing-sounding euphemism for outlawing traffic engineering. The carriers are happy to assert that the same concept applied to enterprise networks would get in the way of your making sure that voice, video and certain data apps get expedited treatment. Of course, you buy these services from the carriers, so traffic engineering is necessitated by the resource constraint you face -- your budget for buying overall bandwidth to dozens, hundreds or thousands of sites. The carriers build these networks, so arguably they're in control of rolling out as much capacity as they want. Naturally they can claim that money doesn't grow on trees even for them, but part of Google's point appears to be that the carriers can do better and Google's going to show them how. But in order to do that, Google is going to have to go through the slog of partnering with municipalities for rights of way, franchise fees and all the flora and fauna of facilities-based telecommunications down to the last mile. And even they say it's really a testbed, not coincidentally announced just before the FCC is due to release a National Broadband Plan. Whether Google would really push for net neutrality after building a network of their own is clearly the impression they want to give, but not at all certain in reality. So it's easy to toss Google's initial announcement to the side as being impractical and short of any scale to matter to enterprises. But there are a couple of things to keep in mind as more news comes out about this. One is that IT vendors really do get peeved at the telecom industry for what they see as insolence and manipulation of the timeline for rolling out universal high-speed access. Some years ago Cisco CEO John Chambers castigated the RBOCs for purportedly costing him measurable earnings per share by being more interested in merging with one another than building out fiber to the home (and indeed, it took cable entry into high-speed Internet access to get the telcos off their duff). The other thing is that Google has enormous capital, even by telecom standards, to do the obvious alternative to building a network: buying a network. When Qwest appeared to get into a failed negotiation over selling its long-haul network to Level 3, the talks reportedly broke down over a price gap somewhere in the neighborhood of $1 to $2.5 billion. A back-of-the-napkin calculation at the high end of that range shows that a Google could step into such talks for lunch money. They'd simply have to issue about 4.7 million shares of Google at today's stock price, hardly any dilution for current holders of Google's 317 million shares. Of course, Google almost certainly realizes that the real key to network entry is the local loop. So it would either have to leverage its investment in the Sprint-backed Clearwire 4G network to complete the connection, or pair a local build and long distance buy. Regardless, when you keep in mind that Cisco is now a leading PBX supplier, the famous names of the IT industry are buzzing all over telecom. If they have mixed motives, not always sincerely expressed, in doing so, let's face it: That would be entirely consistent with the culture of the telecom industry! Google and some others may not be making an impact yet, but they're certainly welcome to the club, and welcome to keep telling us what they think they have to offer.

AT&T, the harvesting instinct, and the end of POTS

Tue, 02 Feb 2010 09:19:00 -0400

For as long as anyone can remember, AT&T has been the carrier that's held on the longest to legacy products. In recent times, AT&T has been happy to let users continue to subscribe to its global business dial-up Internet service until they're ready for AT&T's broadband virtual tunneling service. AT&T has also let corporate WANs sail along on frame relay without putting out a marker on ending frame relay orders or contract renewals, as first Sprint and then Verizon have done. And there will probably be some companies using AT&T for straight-on, long-haul, T1/T3 private lines in the year 2030 just as in 2010. So it was jarring when AT&T grabbed some publicity at the end of last year with what looked like a request to the FCC to retire the public switched telephone network. AT&T severing itself from POTS, or Plain Old Telephone Service? It didn't seem right. Understanding AT&T's about-face on maintaining legacy networks requires an understanding of the concept of financial harvesting. One of the best illustrations of harvesting came during an odd period in telecom carrier finance back in the mid-1990s -- basically a few years before and after enactment of the Telecommunications Act of 1996. Back then, the Internet was emerging in its browser-enabled incarnation as the World Wide Web, the corporate telecom deal culture was thriving, and TV airwaves and telemarketing lines were buzzing with pitches for 10-cent, 7-cent, and 5-cent long distance minutes. Yet when AT&T held its quarterly earnings conference calls, the first question Wall Street analysts would invariably ask was why AT&T had only raised its basic, no-plan long distance rate from 25 cents a minute to 26 cents, not 27 cents. Wouldn't Aunt Mary from Kalamazoo, who would never in a million years switch to MCI or Sprint, overlook a larger increase and happily pay the bill? AT&T was essentially harvesting its no-plan customers for a revenue stream for as long as these customers existed. And the analysts, almost to AT&T's annoyance, wanted them to do even more of it. Not until somebody rang a bell around 1997-1998 and the analysts realized that AT&T had to compete elsewhere for voice and data business did the harvesting issue start to fade. Now look at AT&T's situation today. AT&T Mobility is thriving and sales of the iPhone are zooming. AT&T's share of the enterprise networking market is basically what it's been for years, and with the decline of Sprint it's even threatening to establish a virtual duopoly with Verizon. But AT&T's consumer telephony business seems to be slipping away. Like the incumbent local businesses of Verizon and Qwest, AT&T is losing residential landlines at a remarkable pace, now edging close to 1% a month. The result is the reverse of harvesting: AT&T says it's bleeding from the need to maintain all-copper loops in a mass market that's beginning to reject them, and it wants to get out rather than stay in as long as possible. Of course, AT&T, Verizon and Qwest get some of their landline customers right back when the same households buy their broadband packages. And the broadband and telephony customers that the cable companies win instead represent fair-and-square marketplace losses for the telcos. But that only seems to reinforce the reverse-harvesting instinct, feeding AT&T's argument that it needs to massively shift resources. Aside from the fact that AT&T in the meantime hasn't lost its near-monopoly dedicated access business in its local territories, here's the problem with simply accepting AT&T's conclusion that the PSTN should be retired: From a business user standpoint, there's a little more to the legacy network than consumer migration to cell phones and broadband. As our friend Eric Krapf of VoiceCon/NoJitter has already pointed out, AT&T hasn't quite defined the PSTN to be retired, leaving us to assume they mean everything. But what about Class 5 switches and their unique functionality that's still in the process of being emulated in various VoIP services? What about the fact that many of the poles, trenches and conduits are the same for both older and newer services? And what about all the people who make calls to the businesses who make up the enterprise market? If they don't have a cell phone or a broadband triple-play package, are they out of luck, and your business out of a sale? Many business customers would benefit enormously if AT&T does what it says that PSTN retirement will free it to do: help create universal, affordable broadband. Widespread remote-agent call center functionality, broad-based telecommuting, and many facets of unified communications do rely on a pervasive broadband network. But it's important to realize that AT&T is responding in a classic "lobbying" fashion to the current broadband stimulus, which requires the FCC to develop a national broadband plan. In effect AT&T is saying that if there has to be universal broadband, there can't be universal narrowband. That's either one of those unintended consequences that can result from regulatory initiatives, or an unproven assertion of investment motivation by an experienced Washington player. At this point I think there are two key things for corporate telecom professionals to remember. One is that AT&T, with all of its legacy pressures and characteristic behavior patterns, has many piece-parts. In this case we're clearly talking about an AT&T whose heart is the former RBOC SBC, not the former interexchange giant. The other is that some of the regulatory nuance got lost in some of the initial reports. What AT&T is supporting, in the context of a question posed by the FCC, is the initiation of a Notice of Inquiry about the PSTN, which is a more preliminary proceeding than even a Notice of Proposed Rulemaking, which itself has many procedural checkpoints before it results in new rules. It's unlikely that AT&T really wants to lose all its POTS customers in one fell swoop right now. More likely, it's just drawing a line in the sand. So we'll have some time to watch this, and the market will invariably shift more along the way. Let me know if you have thoughts of your own on this fascinating matter that threatens to turn the tables of telecom history upside down.

AT&T huffs and puffs to keep up with the power of its brand

Fri, 29 Jan 2010 11:49:00 -0400

In the telecom industry, life is different when your name is AT&T. Recent network difficulties that iPhone users have experienced in big cities such as New York and San Francisco are reminiscent of any number of past capacity and congestion incidents with AT&T services. So is AT&T's stated determination to furiously catch up -- and, in the current situation, also blunt Verizon's "war of the maps" 3G claims now that AT&T has dropped the legal attack on Verizon's ads. Going back many years and generations of technology, AT&T has often given the impression of being constantly surprised by the popularity of the new services it brings to market. Incredibly, this tendency seems to carry over to whatever entity newly obtains the AT&T moniker as the makeup of the company changes. Is there something about hanging the old "American Telephone & Telegraph" legacy around your neck that causes this phenomenon? Perhaps it's really because the AT&T brand is so powerful that it pulls in users beyond what the company originally plans for or, sometimes, merits. During my time as a writer at Network World from 1994 to 2001, this kind of thing happened at least three times, and veteran telecom managers may remember all of these incidents: -- AT&T was late to market on frame relay, having been beaten by the "first WilTel," an innovative carrier that later got sucked into the vortex of WorldCom mergers, and then by Sprint. AT&T executives had poor visibility into the popularity of the service, and within a year or two ran out of capacity and had to quickly order up more "Stratacom" (later Cisco) switches to catch up. -- Later in the decade, AT&T management missed the speed of a trend by branch offices to move from switched to dedicated access. (Believe it or not, back then the only dedicated connection to interexchange carriers that even some sizable offices had was a 56K bit/sec frame relay link.) Rapid price-downs on dedicated-to-switched voice, plus growing data bandwidth demands, led many offices to finally order T1s. AT&T literally ran out of T1 ports in a number of POPs and had to hustle to recover. -- Around the turn of the decade/century, capacity problems bedeviled the original, pre-Cingular AT&T Wireless network. This caused significant embarrassment for a veteran AT&T wireline executive who had lost a battle to become CEO of the main company -- that prize went to an outsider, Michael Armstrong, which is a whole other problematic story -- and who tried his hand at the wireless operation instead. Make no mistake -- AT&T is responding now. In fact, AT&T's huge $18-$19 billion capital expenditures budget for 2010 includes a doubling of wireless network investment. That throws light on the capex-vs.-"free cash flow" paradox that we've highlighted as a key financial point in evaluating carriers. A modern-day carrier can almost never declare its networks "finished" and push away from the table. There's another factor driving AT&T's situation besides capacity, and that's the urgency of the applications themselves. For significant portions of your end-user base, gone are the days when they considered mobility a second choice to fixed lines. We've noticed this in increasingly strict service management requirements demanded by enterprises in wireless competitive bidding -- device delivery, line activation, feature and call plan changes, that sort of thing. Often telecom managers who do recognize the difference in maturity between wireline and wireless services say they're nevertheless driven to demand stricter wireless metrics by their end-user base. Not only AT&T but the other wireless carriers are learning this quickly as well. And AT&T's 2009 earnings announced yesterday? They came in at $12.5 billion. And look at this: $17.1 billion in free cash flow even after capital expenditures. How about that? Obviously there's no shame in asking for a great deal and a great network all at the same time -- even from, or especially from, the greatest legacy name in the telecom industry and one of the most enduring brand names in the history of business.

SIP trunking is bubbling up from the bottom

Wed, 20 Jan 2010 13:25:00 -0400

A growing number of large enterprises are reporting various experiences in sounding out and testing AT&T and Verizon on SIP trunking services. The big carriers are moving at sometimes uncertain speeds to completely leap into the market with aggressive proposals that actually leverage the replacement of legacy elements in their own incumbent infrastructure. But there's no question about the speed of SIP trunking's ramp-up at the other end of the carrier market -- the small-business CLECs and alternative carriers. One after another they are jumping head-first into the SIP trunking pool. And if past experience with new carrier products is any guide, you'll be hearing about sales calls from these companies to your business units and branch offices, no matter how many protections you have in place for who's authorized to buy telecom services. A key point came in early December with the announcement of SIP trunking from XO Communications. XO is a fixture in the telecom industry that's hung on through Chapter 11, mergers, technology migrations and strategy shifts. It's primarily seen in the small business market, although it has a clear strategy to move substantially into the middle market and occasionally provides circuits or hosting to large enterprises (and would like to do more). But XO is hardly alone. Individual companies with no particular play (yet) in the enterprise market, and much less of a legacy in the 1990s CLEC boom and bust, are clearly putting SIP trunking front and center. Speakeasy out of Seattle, which began as an Internet cafe company and is now actually part of Best Buy, offers an "Integrated Voice" package that neatly offers SIP trunking provided you have an IP PBX at a centralized voice location (or old-fashioned PRIs if you don't). Cbeyond out of Atlanta offers what it calls its BeyondVoice with SIP service, boasting its early role in helping develop the "SIPconnect" standard. SIPconnect, as we've previously discussed, is a kind of global certification label that IP PBX makers and carriers can use to specify that they adhere to a certain approved subset of SIP procedures, and may be appropriate for locations without large-enterprise, mission-critical requirements (like full-featured contact centers) or strict testing requirements. And our friends at Network World just reported on the new "Dynamic Office" service from Windstream Communications based on SIP trunking. This one is particularly intriguing because Windstream is actually an independent ILEC -- an incumbent, not alternative, local carrier based in North Carolina that serves areas that the big incumbents either never served or offloaded. Clearly there are some cautionary items with regard to these new services. Most small SIP trunking carriers will in fact rely on SIPconnect or other methods to ensure compliance rather than engage in individual carrier-PBX certification tests. Some of them don't offer MPLS, so what you're basically buying is integrated voice-data access over dedicated Internet lines to bring voice streams from branch offices to the SIP trunking core and out to the public network. And you have to be aware of any alternative carrier's financial status -- XO, for example, has an odd set-up where it's 89% owned by Carl Icahn and his affiliated companies. It's still not really profitable and probably not independently viable without this single backer, which doesn't need to be a large concern until you start using them strategically rather than tactically. But all of these SIP trunking carriers are leveraging the now solid penetration of pure IP PBXs from Cisco, Avaya, ShoreTel and others. And they're certainly less beholden than the big carriers to separate voice trunks, unconverged dedicated access lines, and old ISDN infrastructure. It's great to see them pressuring the market from below, and that can only bode well for the acceleration of SIP trunking into the large enterprise market in a truly competitive, financially compelling way.