Over the past couple of weeks, I had several posts on the topic Revenue Under Contact.   Telecom is a recurring revenue business.  Most services are under 1-, 3-, or 5- year terms.  The gist of the posts was that the amount of revenue under contract is an important metric–one that should be measured and tracked.  I showed how Zayo uses Salesforce.com to capture the data.

How is the information used to improve the business?  As an example, take a peek at the following table:

This table gets published each month as part of our executive review deck.  Month-to-month means that the original term has expired and the service is no longer under a longer term contract.   At any point in time, the customer could decide they no longer need the service and send us a disconnect notice.

Ian Gilyeat posted a comment earlier in the series:  “If I’m managing revenue under contract wouldn’t I want to see how much of that revenue is set to expire in the near future?”  In a response to Ian’s comment, Jeremy foreshadowed “Something like an evaluation of ‘high risk’ circuits might be very appropriate. This evaluation could … tell you what large circuits would be coming out of term in the near future.”

The table above is one piece of the puzzle.  It highlights–systematically–those large services that are no longer under longer-term contracts.  It provides a subjective risk assessment and a comments column.  No simple rule-of-thumb guides what to do with a “month-to-month” service.  The great account executives are able to ascertain the best course of action through conversations with their customers.  Should we let a sleeping dog lie?  Should we offer a modest price discount in exchange for a new term?  Should we suggest an upgrade to a higher speed service?   Should we raise the price with an offer to reduce it if and when the customer is able to commit to a longer term service?

Depending on the circumstance, any of these might be the appropriate course of action.  I applaud those account executives and product managers who, working in collaboration, show command of the detail and a knack for choosing a good path.

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Revenue Under Contract
Remaining Days in Term
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Not surprisingly, lots of Zayo employees are on Facebook.  Like other companies, we keep a Zayo Group group site.  We don’t do much with it though.

I had a thought.  (Shocker, huh?)

Facebook (and other social media) threaten to cross the boundary between personal and professional lives.    Some people prefer to keep their personal lives private.   Others don’t.

I think Facebook is an ideal platform for letting employees learn about one another.   As such, I’d like to see all Zayo employees use Facebook and be part of a Zayo Group community.  However, I don’t want anyone to feel obliged to share personal information with co-workers. This creates a dilemma.   How do you strongly encourage employees to use Facebook and become members of a Zayo group without the employees feeling pressured to to expose personal lives to co-workers?

Here is my thought (it is simple, so expect to be underwhelmed):

1. Strongly encourage Zayo Group employees to open a Facebook account.  (But at the end of the day, it is up to each employee.  It won’t be counted against them if they choose not to join.)
2. However, make it crystal clear that the account need not be the same Facebook account they use for personal networking.
3. In their Zayo Group Facebook account, we would ask that the following info be populated:   name, photo, work location, job title, job description, and a little about your career background.     Any additional information is 100% optional.   Though it would be great to share interests, it is really up the individual.
4. We’d also ask that the Zayo Group Facebook account become a member of the Zayo Group community.
5. We’d do our best to only have current Zayo Group employees in the Zayo Group Facebook Community.
6. If an individual would like to use a dual personal/professional account, that is fine.   If at anytime, a different employee complains that something they consider inappropriate was in someone’s account, we’d remove the individual from the Zayo Group Community and encourage them to open up a separate Zayo Facebook account.

Thoughts?

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A recent post was a repeat of “Did We Learn Anything?“  This question was the central theme behind Bearonbusiness itself.  Jot that down, as it  might be important trivia to remember if “Who Wants to Be a Millionaire?” makes a comeback.

Simple Tennessee Country Boy posted the following comment  on yesterday’s post:

Did We Learn Anything?”  Yes we’re all to blame and yes…some of us did learn something.  What we learned–I hope–is to think for ourselves and not get caught up in the hype.  Two examples:

1) Remember the “fact” that everyone was stating back in the late 90s/early 2000s: Bandwidth demand is “doubling/tripling/quadrupling every month”…can’t put fiber in the ground fast enough to keep up. Turned out that “fact” was based on faulty statistical data from UUnet.   And today the number of on-net devices and bandwidth-hog applications are legions greater than in 2000 and yet less than half the fiber laid remains unlit today.

2) Remember Mr. Crowe’s Level 3 mantra: “We’re going to bring silicon economics to telecommunications?”   We all drank that kool-aid for awhile. Then it dawned on a few of us that silicon economics only works when your start-up overhead is a basement or a garage endeavor–HP and Apple come to mind.  Silicon economics doesn’t work with a $6B up front investment.

So yes we did learn something…to use some common sense and if it sounds too good to be true…well, you know.  And in our heart of hearts, we all knew those days would end. It was too good to be true.

I can’t fuss with many of the statements made by Country Boy.  I must confess, though, that I might be sipping on leftover Kool Aid.  I believe the basic premise of Silicon Economics is playing out.

The cost of bandwidth has gotten ridiculously less expensive.   And it is a good thing that it has.  For low cost bandwidth has been the essential fuel of the continued explosion of the Internet.  Without exponential decreases in bandwidth pricing, video applications would be a pipe dream.  No YouTube.  No Telepresence.   No massive multi-player online gaming.  No Hulu.  No MVaaS (Managed Video as a Service).  Etc.

Silicon economics might not have sparked the need for extra conduits, but it does drive a thriving market for those who manufacture bandwidth.  It inspires companies like Zayo to find innovative ways to drive down the cost of bandwidth so as to spur the growth of bandwidth intensive applications.

Part of the lesson of the great meltdown was that the fundamental theme was correct.  The problem was hype and a lack of investor/management discipline caused a bubble.

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A bearonbusiness reader by the name of Marcio posted a great comment to yesterday’s The Power of Accurate Data.  He wrote:

I think you nailed the major requirements for data accuracy…but I want to expand a bit on your last point: extreme ease of access to the data.

The ease of access is absolutely necessary, but it may not be sufficient.  What I really believes makes a difference is having as many eyes as possible on the detailed data.  Obviously, w/o ease of use this isn’t possible.

Marcio, I am glad you pointed this out for two reasons.  One, I agree with you.  Two, it is 6:48pm and I needed a post for tomorrow.

At Zayo, we have a whole lot of eyes on the data.   We do this because of how it is used both in the detailed work flow of the business and in the operational finance reporting of governance.   The same data flows seamlessly through these steps.  The data flows from one work process (e.g., sales), to a downstream process (e.g., billing).  The data also flows from those using it to get their work done to those who are sharing results with upper management and the board.

Hence, eyeballs are constantly on the data.  It is easy to drill down.  It is easy to summarize into macro-trend lines.  Data problems are uncovered quickly.  Fortunately, the Salesforce.com tool also enables on the spot corrections.

Hey, there is another Salesforce.com plug.   When will Salesforce start comp’ing Zayo for all this great P.R.?

So Marcio, I agree with you.  Lots of Eyes are crucial to accurate data.

With it, managers can tailor weekly and/or monthly reporting programs that “facilitate” (if not force) the account execs to look at the data regularly. We’ve found this to be necessary in our usage-based business (admittedly more complex than the MRR-based part of the business) where the high-level trends sometimes mask underlying issues. Thus getting more eyes on the data is way to “de-average” w/o having to create reams of detailed reports that no one can possibly digest as well as foster greater ownership for the acct execs.

Generally a win-win as you get both improved data accuracy and acct execs that become more empowered (by the ease of access to the data) to own and manage the business the company gets from their customers.

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Yesterday’s Remaining Days in Term post was more important than might have been gleaned from a casual read.   Revenue Under Contract is important to telecom service companies.  However, accurate tracking is elusive.

In the post, I illustrated how straight-forward it is to gain visibility into the numbers.    With a couple of clicks in Salesforce.com, I can find Revenue Under Contract.   Just one more click and I get all the individual orders that compile this number.   And just one additional click takes me to any one of the individual orders–and allows me to see the detailed information such as the original contract date, the term, and the calculation of how many days are remaining in the term.

As my former colleague Jon Yount used to say far too often, “Yada.  Yada.  Yada.”  and with a skeptical voice, I can hear him asking “But how do you know the data is accurate?”

Well, I am sure it isn’t 100% accurate.   Hell, the data only was entered into the system over the past six months.  However, it important to recognize the following:  the data is ZB’s only database of record for this info.  It feeds the billing system.  Account Executives have complete access to it and use it for account planning.   It feeds our monthly financial decks.  And, as I illustrated, anyone–including me–can drill down and sanity check the numbers.

Data Integrity is driven by the combination of:

• Transparent data
• Single database of record
• Integrated database architecture (that is, same data persists through opportunity, activation, account management, and billing)
• Data Accuracy Accountability (for example, the account exec is identified on each record, and they have no excuse for letting inaccurate data persist in their customer account records)
• Consistent monthly reporting (so if data is messy, the trend lines will reveal inconsistency)
• And, most importantly, extreme ease of access to the data

Oh, and one more thing.    Management cares!    If not, would I be writing this blog post?

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Arming your Account Executives
Remaining Days in Term
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In four posts last week, I discussed Revenue Under Contract.   Recurring revenue is extremely important to telecom services companies.   The durability of the recurring revenue is influenced by how much revenue is under contact.   Given its importance, it is highly desirable to know the total amount of revenue under contract.  Also desirable is to know the pace in which Revenue Under Contract is growing or shrinking.

In the posts, I showed a graph of the past five months of data for Zayo Bandwidth.  The commentary showed that the five-month trend line provides insights into the business.   Before I get into ways that the data is used–some of which were hinted about in blog comments–I want to address the following questions:

How do we capture this information?

How do we know it is accurate?

How big is the army of people who do the tabulation?

And was I serious when I said we track this daily?

Salesforce.com–I hope you are reading this, as you are about to get another big plug from me.

As I was writing this post, I opened up my Salesforce.com account.  I clicked on Reports and scrolled down to the section called “Revenue Expiration (Erickson/Cheedle)“.   Erickson as in Matt Erickson, head of Zayo Bandwidth Product; Cheedle as in Brad Cheedle, head of Zayo Bandwidth Sales. (Erickson/Cheedle) as in if the data isn’t accurate, I know which direction to growl.

Within this Revenue Expiration (Erickson/Cheedle) section of Reports are seven reports, including:

• Remaining Contract Value Embedded Base
• Contract Value Gross Install Pipeline
• Remaining Contract Value Gross Disco Pipeline
• Remaining Contract Value Revenue Commitments

I clicked on Remaining Contract Value Embedded Base.  When I clicked on it, three numbers popped up.  The first is the number of “records” (specifically 8,673), which is the number of service instances for which  ZB issues invoices each month.   The second is the amount of MRR that is associated with these 8,673 service orders–for illustration purposes, let’s say this amount is $11,000,000 / month (hypothetical number).    The third number is the total amount of Remaining Contract Value, which (hypothetically) might be $250,000,000.

$250,000,000 thus is the amount of Remaining Contract Value associated with the Embedded Base, at this precise moment.  If a disconnect is processed later today, the number will go down.  If a new install is made–or a contract term extended–the number will go up.

The next thing I did was click on the Salesforce.com button called “Show Details”.  In seconds, all 8,673 records are listed–showing me the contract value for each one.  The fourth one is a DS3 from NYC to PA with a price of $900/month and a Remaining Contract Value of $9,468.

Its circuit ID is 034029.  I clicked on this number and it took me to the details of this particular service order.  It turns out this order has a one year term and was signed on May 1, 2009.  “Remaining Days in Term” is also shown–and in this case there are 320 days of remaining life.

Voila:  $900 MRR/month * 320 remaining days / 30.41 average days in a month = $9,468. I repeat:  Voila!

…more to follow…

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Related posts:

Revenue Under Contract
The Power of Accurate Data
Month-to-Month
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Think back to the year 2000. Were you in the middle of the big Internet and Telecom Boom?  Frenzied was the pace.  Staggering amounts of money were being raised.  Start-ups with barely defined business plans had little trouble getting funding.  Companies went public while losing large sums of money and their stock prices rose sharply.   This nostalgia brings back the lyrics of an old song:

“Those were the days my friend.  I thought they’d never end.”

How young were you?  How experienced were you relative to the job you had?  What about your boss?  Your boss’ boss?  Your CEO? How many people were really qualified for the job they had?

And the investors: what did they know? They were raising money without bounds.  The quicker they put it to work, the more they could raise.  Just as with management, the investors who understood the Internet happened to be young and, as a group, not all that savvy at investing.

Fast forward two years. It’s now 2002.  Enron.  Worldcom.  Global Crossing. Pets.com.  The medieval ages lasted for 1,000 years.  The aftermath of the tech meltdown seemed to last even longer.  But as bleak as the sector looked in early 2005, the renaissance was right around the corner.

Now it is 2009.  Even the meltdown seems like a distant memory.   Telecom stocks are holding up well in this worldwide financial crises.  Infrastructure–fiber, wireless, content distribution networks–is in strong demand.  If you are in telecom or Internet, the future (even in the midst of a recession) looks dandy.

Perhaps never before has a large group of very young professionals experienced a dramatic boom, an catastrophic bust, and a strong resurgence in the span of less than 10 years.  Armed with all the experience of this complete cycle, this group of entrepreneurs, management and investors are now entering the prime of their careers.  And the strong resurgence is probably only in its infancy.

The question is:

“What have we learned?”

Certainly we have had the benefit of a lot of mistakes.  Are we taking full advantage of the learnings of the boom and bust?  Or, now that we have the opportunity, will we repeat the same mistakes of the late 1990’s.

I continue to be amazed at how many in our industry blame everyone but themselves for what happened during the boom. It was Bernie Ebbers’ fault.  Jeff Skilling poisoned the industry.  Joe Nacchio was a crook.  Blame the bankers: Jack Grubman, Frank Quattrone, Mary Meeker and Henry Blodget.

Certainly all these folks shoulder a huge burden.  But for every one of them, there are hundreds of the rest of us.  And most of us would do well to reflect on our own actions and behavior.

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Would you like to know what other people are thinking about a post?  Or would you share your thoughts?  The comments section on bearonbusiness is meant to stimulate discussion with readers.

Comments are very important.  One, it let’s me know that readers are out there and paying attention.  I get emails sent directly to me and people bring the blog up in conversations.  But there is nothing better than a posted comment.

Comments also spark ideas for future posts.   This is very helpful to me–as writer’s block is a battle at times.

Also, readers have a lot they can learn from one another.  Comments are a great way to share these thoughts.   Below is a “businesstoolsblog-style” tutorial on how to view and post comments.   Thanks Katie for putting this together.

To read a comment just click on “Comments” at the bottom of the page.

Now you can read comments posted by others.

You can also leave a comment of your own.

Just scroll down to the bottom of the page to the section called “Leave a Reply,” fill in the blank fields, add your comment and click “Submit Comment.”

Your comment should appear with the others!

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The past three posts focused on revenue under contract–an extremely important but rarely tracked metric in telecom services companies.  Yesterday, I posted the following graph:

The first bar is labeled 1.15.09 (January 15, 2009).  This is the first date we tracked Revenue under Contract.   For monthly reporting, we record the data mid-month.  The graph gives us a quick view on whether the total is growing, staying the same, or shrinking.

Each bar consists of three segments.  Green is the actual services that are provided as of the date of that particular bar.  A $10,000 per month OC48 with a 3-year remaining life would contribute $360,000 toward this bar.

Blue is the Net Pipeline.  These are orders that have been received from customers but not yet processed.  It is the net of  Install Pipeline (new service) and Disconnect Pipeline (services that are being terminated).  If a $5,000 OC12 new service order with a five year term is in the pipeline, it will contribute $300,000 to this bar.  A $20,000/month service with no remaining life (that is, the term has expired) that is being disconnected will reduce the bar by $20,000–causing the net to be $280,000.

Lastly, the orange is Take-or-Pay Commitments, which represent obligations by customers to purchase service in the future.   These have not yet turned into specific actionable orders–so they are not part of the Install Pipeline.  Nonetheless, including these in the tracking is extremely important.

So what does the graph tell us?

• Over this four month period, the bars are getting bigger.  This is good.  The pace in which it is growing is encouraging.

• Over four months, the green bar became 13% bigger–implying a 52% annual growth rate (which is clearly a non-sustainable growth rate).

• Interestingly, the blue segment did not change much.  The reason for this is that we improved our service activation interval during this time, causing revenue to sit in the pipeline for a shorter period of time.  (Good job ZB!)

• The orange segment grew materially over this time.  We signed up a few material Fiber to the Tower projects in this period.

For Zayo Bandwidth, the news so far is good.   This chart serves as a very early indicator of the longer term growth rate of the business.  If revenue under contract is shrinking, the growth rate several quarters from now is likely to slow.  If it is increasing, it is likely foreshadowing an acceleration of growth.  It is only one such indicator–but it is among the most important.

How do we capture this information?  How do we know it is accurate?  How big is the army of people who do the tabulation?  And was I serious when I said we track this daily?  You know what words are next…

Stay tuned…

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Related posts:

Revenue Under Contract
Pending Revenue under Contract
Tracking Revenue under Contact
Remaining Days in Term
Month-to-Month

The past two posts focused on recurring revenue–the life blood of telecom services companies.  A $10,000 per month OC48 with a 3-year remaining life has a contract value of $360,000.   If you add up all the services under contact, what would the aggregate contract value total?    How much did this total amount of contracted revenue grow over the past month /quarter?

Yesterday’s post went a step further.  Install Pipeline is orders for new service that have been received but not yet installed; Disconnect Pipeline is disconnect orders that have been received but not yet completed.  Net Pipeline = Install Pipeline minus Disconnect Pipeline.  How will Revenue under Contract be impacted once the Net Pipeline is processed?

Take-or-Pay Commitments are obligations by customers to purchase service in the future.   Though less prevalent today than in the boom times, take-or-pays–such as Fiber-to-the-Tower–can be meaningful.  What is the Revenue under Contract associated with Take-or-Pay Commitments?

Zayo Group acquired 11 telecom properties over the past two years–and completed due diligence on several more.   With perhaps one or two exceptions, Revenue under Contract was not tabulated.  Nor was it tracked in my prior telecom lives–ICG Communications, Level 3 Communications, Worldcom, and MFS Communications.

At Zayo Bandwidth, it is tracked.   Accurately.  Comprehensively.  And, for those who care to know it at any precise moment, in real time.  As part of our monthly financial deck, we share the information with our board as well as with Zayo Bandwidth employees.  And today we will share it with Bearonbusiness readers:

Okay, I realize that the numbers were removed on the left axis.   I want readers to understand what is tracked –but the absolute value of Zayo Bandwidth’s numbers are not relavent.    Tomorrow, I will comment more about the graph and how we use it to better understand our business.

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Related posts:

Pending Revenue under Contract
Discussing Revenue under Contract
Revenue Under Contract
Remaining Days in Term
Zayo Bandwidth’s Pipeline Bust