Net Neutrality Thursday

I had a couple of people forward me these emails to speak out about Net Neutrality.  Since I do that and have done that, well here is another post on that topic.  I want to start with that everybody that comments on this has an agenda.  So do I.  My agenda is to try to change the primary issue to Universal Broadband Access and away from Net Neutrality.

I want to change this for 2 reasons:

– No Tier 1 has been shown to violate Net Neutrality (Comcast – Netflix was shown to be a problem with Cogent; a Netflix vendor)
– We still have a divide and no plan to provide escalting bandwidth and our existing methodologies have failed

This lack of broadband exists in some city neighborhoods and some rural areas but is generally not a problem in smaller cities and suburbs.  The problem I have with our current version of Net Neutrality is more technical and comes from two places as well.

First, I think we ought to redo our rules around residential service to make them common for all Service Providers independent of last mile technology.  The basic services are converging.  It seems silly to me to have multiple paradigms to regulate this under.  By having a common code, we have a more level playing field.

Second, I think we need to take a closer look at services and spectrum allocation.  Right now all of our broadband technologies support at least 2 and sometimes 3 services.  Many of these have multiple streams running in different bandwidth allocations over the same infrastructure.  For example, Cable Modems occupy 1 or more of the modulation groups on the cable.  The others are occupied by Linear TV and Pay-Per-View services that are not available for broadband.  The thing is that all of our networks would benefit from a retirement of older technologies and using a unified method of deploying services.  That way we can more flexibly allocate bandwidth and provide better service.

My proposal would be 100% penetration and conversion to IP delivery by 2025.  We could use the USF and other support mechanisms to make this happen.  This is the kind of infrastructure investment that we require for the 21st Century.  I would also add into this a requirement that all lines support 100 Mb/s symmetrical service at 2025 and that we have a plan to grow this over time with new numbers set in either 5 or 10 year increments.

This would spur massive investment in the US communications industry and make our network the envy of the world.  So if I were in charge, that is where my focus would be.  There is nothing wrong with making sure we have common carriage for most services.  But we need investment, and this is where it should go.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

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Net Neutrality Thursday

This Sunday Game of Thrones starts its 7th Season.  This has reminded me of the change in tone at the FCC.  The new administration has brought a new viewpoint to the Iron Throne as it survey’s the Communications Industry Landscape.  I want to talk about a couple of the challenges along this line and then be clear about what I think should happen.

DSL, Cable and Fiber in the general case can have multiple networks running over the same medium.  They do this by using different parts of the frequency spectrum to run different services.  DSL is the simplest case of this and the spectrum from 0 – 4KHz is used for voice.  The rest of the spectrum (and it varies based on the technology) is used for Broadband Data.  This is similar to having many radio stations sharing the air to deliver different music, news and talk.  How this spectrum is used is not part of the debate.  What we will talk about is the usage of the Broadband Data part of the spectrum.  You can see immediately there are gaps in what we are going to discuss, for good or ill.

The question that really drove the Net Neutrality debate is this part about “Fast Lanes” or in Communications parlance – parts of the traffic with a Higher Quality of Service.  This is very standard throughout many networks today regardless of the technology used.  Within that Broadband Data, our current rules have that function unavailable.  That was the entire debate over the last few years.  Smaller companies argued that they might be able to deliver competent services over the network if you were allowed to pay for better service.  Note, that video in Cable and in Fiber often runs outside the Broadband Data part of the spectrum and thus can have whatever Fast Lanes it likes.  That is why you don’t see buffering from Cable offerings.

The flip side of this is whether the very high performance video – 4K and 8K TV – will actually work at scale as deployed without a “Fast Lane”.  There is no obligation for ISPs to make this work.  It will cost them a lot of money to do so at large scale so it might take a long time to get there from here.  What would be the recourse then?  We can’t make them build new networks.  It is pretty clear that nobody is about to install a 3rd or 4th competitive network (or it already would have happened).  By the way, I believe that it will be too much work to create “Fast Lanes” for it to be worth it.  Nobody is paying more without a guarantee.  And meeting a guarantee is a lot more than where we are today.

In the long run, I think the bandwidth providers will fall further and further behind their ability to apply strict rules and make them stick.  The best thing we can do on this is NOTHING.  If predatory practices happen, then crack down on them with all speed. I am much more concerned about deploying better infrastructure more broadly.

So watch Game of Thrones whether it is on your OTT service like Sling TV or on your Cox Cable and have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business – Change Your Life!

Sonoma County: News and Notes

It was the best of times.  It was the worst of times.  It could be the “Tale of Two Cities” or it could be the Q1 Earnings report from Calix.  The raw numbers are that the company had $117M in Revenue and lost $0.57 per share (non-GaaP).  We need to dig a bit into these numbers to understand where the company is and what it is up to.

The $117M in revenue is up significantly from the past year.  The challenge is that it includes $26M of Service Revenue up from $6.6M the Q1 of last year.  This left the Product Revenue almost completely flat.  Additionally, this Service Revenue comes at what is an apparent Gross Margin of less than 1%.  But this can be deceiving and may not actually represent the actual Costs here.  One of the challenges under Sarbanes-Oxley is that you report Cost of Goods Sold (COGS) when they happen.  You recognize the Revenue when the customer accepts the service.  This means that there can be a delay from the reporting of Costs to the recognizing of Revenue.  The conference call stated that there will be a decline in this type of Revenue in Q2 and that it should return to more historical levels.  This implies that the Cost and the Revenue all happened in Q1, but I don’t think this is as clear as it should be.

Now, I would generally rail against adding in a 0% Gross Margin business.  It certainly should not be the cause for celebration and growth pinned to it is disingenuous in its marketing of the results.  However, we know that Calix is in very competitive situations at its major customers with Adtran.  If this was a way of securing a chunk of footprint for later additional work, then it is a good deal.  I need to caveat this now.  Calix’s primary products are chassis that generally are installed partially filled.  The sale of add-on cards is a great deal of the Gross Margin of this kind of business.  If this was about securing footprint for that kind of work, then this was a great move.  If on the other hand it was for the box products that are complete as installed, then I think we need to view this business with great concern.  The analysts on the call should have pursued this but did not.  In the latter case, it would say that this kind of work is what keeps Calix competitive.  If true, then that is a problem.

The real downside comes on the Operational Expense (OPEX) front.  The company $67M in OPEX, including a 50% jump in year over year R&D expenses. This is coupled with a $10M decline in Gross Margin from Systems to make the company extremely unprofitable in Q1.  This wiped out about 50% of Calix’s cash reserves.  The Q2 guidance suggests that this should reverse based upon the growth in Accounts Receivable in Q1.  There is supposed to be growth, but I will want to see growth in Systems and not in Services in Q2.  We shall have to see how this works out, but the company is spending too much money based on the return this is bringing shareholders.

Jim Sackman
Focal Point Business Coaching
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Net Neutrality Friday

Well, now that the new FCC Chairman is in place we have a number of NPRMs being floated and issues being discussed.  In the grand scheme of things, I don’t think the outcome of all of this will amount to much in practice.  As you are probably aware by now, that the way I feel about the implementation of Title II for Internet Service in response to the question of Net Neutrality.  I don’t think that Service Providers have slowed the rollout of new services and networks.  I don’t think that anybody was slowed and now sped up.  I think this whole thing was much ado about nothing.

I do have one thing that troubles me with the discussions as they are held now.  The changes seem to have some political methodology in both the old FCC and the new one.  They have models of economics (which in this context is a political exercise) with more or less regulation and control.  I think that having these models is a wondrous thing but really don’t apply to this little branch of the world.  I have two reasons for saying so:  Technology and Natural Monopoly.

To address this first point, there is an ongoing evolution of technology.  If you go back 30 years, we had separate cable and phone networks and they served different purposes.  Today, these networks serve essentially the same purpose and that purpose is converging.  In the long term, there will be no residential and few business services not delivered over the Internet.  Some things will take more or less time to get there and it will be decades for this transition to complete.  Now, the only question is if there will be something to replace this connectivity that gets invented in the next 20 years or so.  It is possible, but going over the Internet is the trajectory we are on today.  There is significant change going on in the transmission world with the rise of mobile devices.  Internet connectivity of embedded devices under the IoT moniker is another change.  All of this and more will keep froth around the whole network in technology.

The second point is that there is this notion of Competition to drive behavior.  This works in some parts of our business and not in others.  Capitalism wants lots of competitors and allow them to compete with differentiation in the marketplace.  We work in a business of significant capital outlays.  Service providers work very hard to evaluate the Return on Investment on that Capital Outlay.  It has turned out to this point that we want more people choosing to deploy than are actually deploying.  I don’t think there is much we can do to change this.  If municipalities choose to add to the competition, it will likely mean the withdrawal of other Service Providers over time.  I think a more practical approach is to assume 2 – 3 (or some other low number) of providers in any area and manage to those numbers.  That is the method to overcome the Natural Monopolies in the Service Provider business.

So, I implore those in the regulatory world to be more practical and less dogmatic when they approach regulating the network.  The economy needs the network to be growing and robust, but also broadly available and affordable.  Those should be our common goals.

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

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Net Neutrality Friday

Last week I talked about defining a vision of what we want.  Today, I want to outline the major choices for this vision and then we can explore these choices deeper over time.

As we have looked at the problem of getting more universal broadband at higher speeds deployed, there are fundamentally two camps.  The first camp wants this to be done by increasing competition.  The second camp wants to do this with additional regulation.  In order to get additional competition, there might actually be a requirement for increased regulation.  By changing the regulatory paradigm, we might actually get increased competition.  Let me start with the additional competition camp.

You probably have read about or know some folks that want overbuilders or municipal networks to be created.  This is how people see additional competition being created.  Overbuilders are those non-incumbent providers who build their own facilities.  The largest example would be Google Fiber, but there are many regional and local examples of this type of player.  Some of these players work with or are started by the local community.  Project Utopia in Utah is such a network.  There has been mixed results with these types of networks, often blaming the incumbents for the failure of the network.

The alternative is to go back in time and create a regulated utility network like we had with Phone Service prior to the breakup of AT&T.  In this case, regulators (State PUCs and FCC) would have to build a plan to have the utility follow in order for it to operate effectively.  The challenge with this is structural.  These utilities are now mixed in with non-utility elements of the business.  The good news is that if could define a common way for this network to be built, we might be able to spur additional service competition.

I want to note that this is focused on Residential Networks.  Business networks have had both a wholesale and retail component for some time.  The question is how do you choose which path to follow.  By default, we are on the attempting to increase competition path.  I would argue that not much is going to change on this front unless people get exasperated by the cost and availability of high speed networks.  For all the complaining about this topic, it has not actually generated a lot of will for change.

So, I will expand down this branch first.  Have a great weekend!

Jim Sackman
Focal Point Business Coaching
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Net Neutrality Friday

Well, it has been relatively quiet so far this year. I know some folks that have started pushing an old idea again, trying to make it new. This is what is called Open Access. Access is good. Open is good. Open Access is not so good, at least in this new flavor.

Open Access is the idea to separate your services from your physical access and be able to have multiple service providers bid for your services on a network produced by someone else. The latest twist on this comes from the Metro Ethernet Forum (MEF), which is trying to find a reason to stay in business. The MEF built standards and got them adopted. The technology and standards are widely used and essentially won. The problem with winning is that there is no reason for your group to exist. So, the MEF is trying to create another battle.

Here is the problem. The old days of Open Access were all about different kinds of services. This is particularly true with video. The video is the one service that takes lots of bandwidths. If you go back 10 years, it was not common to find streaming services. In some places, you could have multiple video providers. That setup was not common, but Project Utopia was an example of that.

Here is the thing. Bandwidth has grown tremendously and all services are now becoming purely Internet Based. There are use cases for non-Internet Services in the Business World. But in the consumer market, we can all see the convergence of all services heading to being Internet Services. Yes, there are still a phone and video services that are not based on the Internet. We can all see that in the future this will not be true.

So, why would the MEF try to resurrect a model that is no longer relevant? I know they are trying to keep themselves around, but seriously the Internet is our common bandwidth utility. You can no longer build a service of any scale without it. So, making non-Internet Services for consumers makes almost no sense for the Service Owner.

I find this whole thing very odd and hope the MEF realizes that this is a battle that is already won and there is no point in continuing.

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

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Net Neutrality Friday

As we enter 2017, there is a big change coming. We have a new FCC coming with the new Administration. There will probably be some changes coming with that new FCC. Instead of a 3 – 2 Majority for Democratic Politicians, it will be a 3 – 2 Republican majority. By the way, that should tell you something. Being an FCC Commissioner is a political position. In general, those folks are worried about being reelected or positioning themselves for their next appointment. We don’t have 5 Engineers there that make the best technical decisions. We have 5 Politicians that make political decisions. They are backed up by a Bureaucracy. That is called the FCC Staff and it is mostly lawyers. Very little technology understanding goes on there either, but at least they have no formal ties to parties or next steps up the political ladder. If it is not blatantly obvious, I am highly cynical when it comes to politicians. I have visited the FCC many times and have not come back with a great deal of respect.

The one thing that we do know is that President-Elect Trump has taken a negative view on the AT&T-Time Warner Deal. People in communications services probably forget that the FCC has jurisdiction over the broadcast industry as well. I am not sure if it will go through, be modified, or blocked by the FCC or DOJ.

What I hope we don’t see is a repeat of CAF and CAF-II. CAF stands for the Connect America Funds and was intended to help get us to Universal Broadband coverage. We have allocated Billions of dollars and essentially nothing happened. There were some networks built but in the grand scheme of things we have not seen the kind of gains on this.

I have recently run into the second push I have seen for Open Access, particularly funded by Municipalities. This time it comes from the MEF (Metro Ethernet Forum). One of the problems with Forums like this is that they try to keep going after they have won. They want this notion of services over Ethernet instead of over the Public Internet. For residential services, I think this is a failed approach equivalent to the old walled garden services of the feature phone era of cell phones. That ship has sailed and we now have completely viable OTT (Over The Top) video services on the public Internet including Netflix, Hulu, Sling TV and many others. That kind of approach is a step into the past and I think it is a bad idea. The MEF should probably just throw a victory celebration and declare itself defunct. The former CEO of Vinci Systems had an ATM concentrator company that he exited out of cleanly as ATM died. There was no bankruptcy and all the employees were laid off with severance. Now that is a clean death for an organization that has lived past its useful life. The MEF should do the same. It created standards, promoted them and got them adopted by the industry. It won and that means it is done.

So, we are probably up for another eventful year. I look forward to sharing it with you!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

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