Feature Stories - August 2009

Industry Focus

Telecommunications

Recently, executives representing the telecommunications sector in Nevada met at the law offices of Holland & Hart, LLP in Las Vegas to discuss issues facing telecommunication in the Silver State.  The telecommunications industry is struggling through the same economic difficulties as most companies but also faces challenges within a highly competitive market.  Connie Brennan, publisher of Nevada Business Magazine, served as moderator for this monthly event that brings leaders together to discuss issues pertinent to their professions.  Following is a condensed version of the roundtable discussion.

Editors Note: Due to the complex nature of telecommunications, the editors have provided an index of the different acronyms used in the industry, and in this feature. Please see the end of the article.

How competitive is the telecommunications industry?

Steve Schorr: The competitive marketplace is substantial.  The CLEC competitive community in Nevada, especially Southern Nevada, has been very competitive.  The problem has been that the turnover of companies has been dramatic, and I think that creates a certain amount of distrust on the part of the consumers.  The issue remains building the customer base while remaining who and what you are.  I think the marketplace itself is very competitive and that benefits the customers.  The belief all along has been if you open up the marketplace to competing companies, then the marketplace itself will determine successes and failures.

Mike Ballard: It is very competitive.  We operate in both Reno and Las Vegas and it appears to be more competitive in Southern Nevada than it is in Northern Nevada.

Colin Sturtevant: What we are seeing right now is when customers get to a decision point they say, “I want it now, implemented yesterday and you just go make it work with what I have”.  Because margins have eroded over time and we are more competitive, the first thing that’s gone is training programs, and education.  We probably don’t even compensate our salespeople properly to spend the time in advance and really drive the process.  We have three, four, five, six competitors on any deal.

How does the technical knowledge of customers affect the industry?

Ben Dubler: The whole concept of the voiceover IP, SIP and all of that goes back to the customers needing to be educated.  They are doing their own research and looking at the different solutions and they feel that they must buy the latest and greatest in features.  Most of our customer base can actually access every one of these features with their Legacy PBX, with their older phone systems.  So it just comes down to education.  If customers would talk to me and say, “Hey, this is what I’m looking to do, I’d like to accomplish this,” I can actually accomplish 99 percent of what they want to do with their current phone system.

Schorr: There are four key words that drives consumers today.  I think they become confused with the overall technologies because they don’t understand the nomenclature.  Here’s four words they continue to use, bigger, better, faster and cheaper.  They’ll move to wherever they think is bigger, better, faster and cheaper.  At the same time, it’s a different world today.  It’s no longer web 1.0, it’s now web 2.0 and that involves a whole bunch of other scenarios which we’ve never thought about before.  Web 2.0 is really the social networking of the world.  That’s changing the way people look at what happens in the telecommunications they utilize.  There’s a phrase that has now been coined called “Generation C”. “Generation C” is the connected generation and that’s not driven by age but more by what they do and how they do it.  I think “Generation C” sees the things that we all provide in this room as the key to their success in life and their connection to the world.  It’s no longer a bigger world, it’s their world.

Clark Peterson: There’s really something important to understand, people don’t understand voice over IP.  If customers have low band width and they look at voice over IP as a broadband connection, in other words, DSL or a cable with non-broadband width, that’s going to be an issue no matter what service you’re on.  Voice over IP is a language that allows you to share voice and data on the same pipe.  SIP is a DSL connection, cable modem or could be a dedicated T1.  That’s really what’s critical and what people don’t understand is how big their connection is, and is it sufficient for their needs versus are they connecting to a host provider?  How are they sharing voice and data service?  That band width is always going to be a key part of the equation.

Cheri Hickman: That all comes in with the education, too.  People going on the internet, finding solutions that they think might be a solution for them.

Ballard: Three years ago, people said T1 was more than enough for what their needs were.  But, bandwidth consumption is growing at 35 percent a year.  So, if one meg was good enough this year, two megs isn’t good enough two years from now.  The challenge is getting the right connectivity. People don’t understand how much more they’re consuming when they’re laying on those hosted systems or even legacy systems.  If people are using salesforce.com or LoopNet or web.exe or some of these online solutions, then they need a lot more bandwidth.

Schorr: The problem is two megs is not even considered applicable today.  And, the pipe that all the providers have to make sure is available is getting larger because the consumer demands a bigger pipe.  They want more and more.

Kim Salinas: For less money.

Do you see a shortage of true professionals, whether technicians or sales people, in this industry?

Salinas: Absolutely.

Schorr: The number one problem in the industry right now is finding skilled individuals and it goes as far as customer care individuals to the technical individuals involved.  There is a huge shortage and it’s a competitive market.  

Jonathan Snyder: You think about what a field technician has to know now.  My field technicians have to know how to configure homes that have internal wiring and it’s not as easy as just putting in a modem.  It’s the level of sophistication where a customer says, “I want all my computers hooked up. Why can’t I get my computers hooked up?  You’re the broadband carrier, why can’t you do that?”  And they’re entitled to ask.  If someone calls up and says, “I’m experiencing latency.” A Tier 1 technical person or a Tier 1 customer service person needs to understand what latency is versus jitter.  You have to either pick it up or you have to get trained for it and it’s expensive to do that.  Getting that level of talented people is hard.

Toni Thorburn: Not only that, there is an issue with legacy knowledge versus current knowledge. Current knowledge is great, but it has to integrate back into that legacy knowledge.  Unless you’re like me and have been in the business for a long time, the legacy knowledge is not there.  The new people coming out of the computer training classes, or even starting up as a new telecom technician, they don’t have that legacy knowledge to be able to bridge the gap with some of our customers.  It can become an issue and it can cause problems.

Schorr: It’s a minimum of 90 days for a technician to be trained.  And that’s them having the knowledge to get hired initially.  We don’t want to hire anybody that doesn’t have knowledge.  Once you hire them, plan on 90 days just to bring them up to a Tech 1.

Thorburn: We call that a show up and smile.  Just show and smile and call the office, we’ll get you through it.

How intensely is telecommunications scrutinized by government agencies?

Schorr: I always fear what the Federal Communications Commission does.  They are so very powerful in the decision making that they have.  I don’t know if they understand truly how the lack of regulation has pushed this industry forward.  The more you regulate, the more you’re going to control.  Neither the Keyons nor the Velocities of the world nor any of those companies would be here today if there had been the strict regulation that was there prior to ’96.  Ninety-six changed the world.  If they go back to that, you’re going to shut it all down.  This idea that you have to regulate the Internet is a very dangerous proposition.  I think what will happen if they go to that direction, is your going to see companies go away.  You’re going to see growth being stifled.  The things that we look forward to tomorrow won’t be there.  There’s no way to know what the industry is going to look like five years from now because it’s moving that quickly.  If you regulate it and over-regulate it, you’ll stop it.

Salinas: I agree.

Hickman: I agree.

Peterson: This industry was built by people who were pioneers and who are really entrepreneurs in the business.  There’s a lot of great energy out there growing.  Really when you see the government get involved, it becomes more of a ball and chain and a bottleneck for these great entities to come through.

Lynn Folkersen: Look what’s happened since ’96.  Where were we before that and where have we come since ’96 and since the competition was introduced?  Mandated at the time, but since it was introduced we’ve come a long way.

Ed Kinsella: There’s another big hole because they were there first and the government comes in, regulates and says you have to sell to the XO’s of the world.  Isn’t that kind of hypocritical?  If you build your own network, now you don’t have to sell it back to them.  And then, you make the decision what to do or not.  These guys built this technology, but now the government comes in and says you know what? Now you have to sell it to him.

Ballard: But basically, they had a monopoly to build the infrastructure.  They had the government sanctions where they were the only ones.  Look at the 1996 Telcom Act, it allowed for competitors to come in, but they’ve been weaning the competitors off of that.  You’re charged a lot more for Embarq today than you were two years ago.

Folkersen: I’d love to have ’96 pricing back.  I would.

Ballard: But people are building their own networks like you have.

Kinsella: Maybe the true incentive is to do that, build your own.  Not to tell somebody you’ve got to have a price for me.

Folkersen: That’s right.  That’s valuable because it seems like the weak link that we encounter with our customers is that access piece.  Whoever has access to the customer, controls the piece.

Snyder: That depends on what side of the coin you’re on and if you’re fortunate enough to have a franchise you paid for in the 1970’s and been able to generate a lot of cash for having a very prime position. In order for competition to truly be there and for the government to really level the playing field, the capital has to be there.

Ballard: Exactly.

Snyder: So we’ve got challenges that sometimes we want to see more regulation on the big boys because that’s the only thing we have because they have so much capital.  That’s the down side to being a startup because we aren’t well capitalized to do the things we want to do, but we want the playing field to be level to do it.  But, I don’t believe there should be regulations.  I’m not for it.

Ballard: One of the things that relates and has really been affecting Southern Nevada more than anything has been, because of the cost of capital and because we’re a fast growing community, our local market was a challenge to Sprint and they spun off all the local markets and became just a wireless and a long distance company.  And then Embarq goes two years and sells to Century Tel.  The question is: What does that do to our local incumbent phone company and the changes that are occurring because of the capital needs and the regulations that changed?

How does the broadband stimulus program affect Nevada’s telecommunications companies?

Snyder: If they’re handing out money so we can extend our network and do the capital efficiently, I think that’s a good thing.  We’ll see how they administer it and how they hand it out and how that’s going to all play out.  Within the American Reinvestment Act, there is $7.3 billion that’s been allocated to telecom serving vulnerable populations, rural populations.  So there are areas in town that maybe Cox couldn’t build-out without stimulus money but they’d be able to do it in vulnerable areas.  That would help us send our footprint into the more rural sparsely populated areas, such as Pahrump and other areas outsite of Las Vegas, that don’t have broadband.

Schorr: I think our biggest fear as a company is that the money will be used for the wrong purposes.  There are rural communities of Nevada that are severely underserved or non-served.  I think the stimulus dollars should go specifically to make sure those communities are served.  In the metro Southern Nevada/Las Vegas area, there are a great number of competitors and I don’t think those dollars should be expended to build more competition.  That’s the wrong place to spend it.

Petersen:  There will be some benefit.  Let’s hope it gets put to good use.  I think we’re all very fearful, and I think we’ll be right, that the majority of it will become a money grab because of the timeline the government has given themselves to distribute it so quickly.  It’s very unlikely that it will be done in a very efficient way and to the proper places.

Telecommunications Definitions

Byte: Basic unit of measurement of information storage in computer science.

Competitive Local Exchange Carrier (CLEC): A telecommunications provider company that competes with other already established carriers, generally the ILEC.

Digital Subscriber Line (DSL): A technology that uses existing telephone lines and advanced modulation schemes to provide high-speed telecommunications to businesses and homes.

Hosting: The business of housing, serving and maintaining files for one or more web sites.

Incumbent Local Exchange Carrier (ILEC): A local telephone company in the United States that was in existence before the Telecommunications Act of 1996.

Legacy Network: A network that uses earlier technologies.

Local Area Network (LAN): A network linking two or more computers and peripheral devices in a specific geographic area.

Meg: Refers to megabyte, which is one million bytes.

Session Initiation Protocol (SIP): A standard protocol for initiating an interactive user session that involves multimedia elements.

Voice Over Internet Protocol (VoIP): The transmission of voice traffic over a WAN or the internet using the IP signaling standard (also known as IP telephony).

Wide Area Network (WAN): A network of linked computers covering a multi-site, national or even global area.  This can be used to link computers at different office sites, even hundreds of miles apart, so they can share information and peripherals, such as a printer.