Bear On Business - Tracking the Telecom Industry

Posted by Dan Caruso
June 16, 2009

Remaining Days in Term

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…

So Now What?

Leave a response (0 so far)

Subscribe via RSS

Subscribe via by Email

Did we learn anything?

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.

So Now What?

Leave a response (4 so far)

Subscribe via RSS

Subscribe via by Email

Comments on BearonBusiness

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.

read-comments-11

Now you can read comments posted by others.

read-comments-21

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.”

leave-reply1

Your comment should appear with the others!

your-comment1

So Now What?

Leave a response (7 so far)

Subscribe via RSS

Subscribe via by Email

Discussing Revenue under Contract

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:

revenueundercontract2

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…

So Now What?

Leave a response (3 so far)

Subscribe via RSS

Subscribe via by Email

Tracking Revenue under Contact

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:

revenueundercontract2

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.

So Now What?

Leave a response (2 so far)

Subscribe via RSS

Subscribe via by Email

Pending 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 natural to assume that telecom companies feverishly track revenue under contract. Specifically:

What is the total amount of revenue you have under contract?

Did the total amount of contracted revenue grow over the past month /quarter? Or did it shrink? By how much?

The tracking could be taken a couple steps 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 from customers but not yet completed. Net Pipeline = Install Pipeline minus Disconnect Pipeline. An additional question could be:

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. In Telecom Boom times, take-or-pays were plentiful. Today they are less frequent. But in many cases–such as Fiber-to-the-Tower–they are material and meaningful. This brings up yet another important question:

What is the Revenue under Contract associated with Take-or-Pay Commitments?

As a Take-or-Pay Commitment is converted to revenue, the commitment goes down but the Revenue under Contract increases. Wouldn’t it be helpful to see this careful tracked–with accurate and real time data?

…to be continued…

So Now What?

Leave a response (0 so far)

Subscribe via RSS

Subscribe via by Email

Revenue Under Contract

Many bearonbusiness readers work for or are investors in a telecom services company. Recurring revenue is the life blood. Contract durations might be one year, three years or five years. As contracts expire, revenue reverts to month-to-month status. If it is renewed, price might drop but the reward is a new 3- or 5-year contract.

So here is my question:

What is the total amount of revenue you have under contract?

Is it $50M? $100M? Knowing the answer would seem to be important to management and investors.

Let me ask a few related questions:

Did the total amount of contracted revenue grow over the past month /quarter? Or did it shrink? By how much?

Ideally, the revenue under contract is growing each month. New multi-year contracts offset the aging of the base. Re-terming month-to-month bolsters the number as well.

Does your company track “Revenue Under Contract”? If so, how precise is the measurement? How frequently is it measured? Are there discussions about what is being done to accelerate the growth of contracted revenue? Or if it is shrinking, is there discussion about what could and should be done to turn this around?

to be continued…

So Now What?

Leave a response (3 so far)

Subscribe via RSS

Subscribe via by Email

Crowdsourcing

Seth Godin did it again. In his Learning from the MBA Program post, he showed great creativity. Zayo Group perhaps will try something similar in the future.

Seth decided to launch an alternative MBA program. He began with a post on his blog. It would be unaccredited, residential, free and six months long. He positioned it as a new way to learn about doing business.

More than 48,000 people visited the page that described the program and 350 people applied. He picked 27 finalists and they spent the day together. Seth says “the conversations that day were stunning. Motivated people, all with something to teach, something to learn and something to prove”.

Seth had to select ~9 people out of the 27. So he asked each person to interview as many other people as they could. After three hours, everyone privately ranked their favorite choices… “who would you like to be in the program with you?” Nine or ten people kept coming up over and over in the top picks — and his “Class of 2009″ was formed.

I had crowdsourced the selection, and the crowd agreed.

Seth further observed: “It’s interesting to realize that the way I did the application process certainly changed the list of who applied. Same thing happens with jobs, I bet. Your applicants reflect your methods.”

In his post, Seth reports on the results of the program. It sure sounds like it was a success.

So Now What?

Leave a response (0 so far)

Subscribe via RSS

Subscribe via by Email

Contrarian Investing Blues

[Re-print from a long ago bearonbusiness post--but one I think is appropriate for the times...]

So you are sold? You want to be like Warren Buffett–a contrarian investor. The expression “easier said than done” is apropos.

First, simply being contrarian isn’t nearly enough. You also have to be right. The overwhelming percentage of contrarian ideas are not just wrong, they’re downright horrible. Said differently, there is a reason why most people believe otherwise. It is why the style of investing is named based on the word root contrary.

Second, even “right” contrarian views tend to sound wrong. This isn’t a problem for Warren Buffett, but it probably is for you. Why?

Do you feel compelled to run your contrarian ideas by others for validation?

Do you need to convince others to back you financially to pursue your contrarian ideas?

If the answer to either of these is a “yes”, the fact that your idea is viewed by most people as flawed poses a problem. Most other people won’t validate it for you–hence you will lose confidence and become discouraged. Most financial backers will dismiss you, hence raising money will be difficult. Some might even poke fun at you behind your back.

Let’s review. Your ideas have to be right, even if they sound wrong. You have to raise money, even though most money sources think the idea is flawed. You have to trust your convictions, even as others chip away at your confidence.

Do you still want to be a contrarian investor?

So Now What?

Leave a response (0 so far)

Subscribe via RSS

Subscribe via by Email

My Clips

Steve Wilson, the veteran account executive at Envysion, wrote a blog post titled The Right Tool for the Job.

We funded Envysion a few years’ ago. The underlying investment thesis was that a Software as a Service approach to video surveillance would be superior for customers who wanted to view video from dozens or hundreds of locations. A consistent question we faced was “will there be any features or capabilities that cannot be done through a traditional solution?”. This turned out to be a hard question to answer.

Certainly a SaaS approach promised dramatic efficiencies to administrators and users. Many of these are proving to be game-changers. But most of the capabilities could be provided via a traditional solution (albeit in a far inferior way). However, identifying capabilities that simply can’t be replicated was less obvious.

Enter My Clips. Envysion’s MVaaS solution allows a user to point-and-click a interesting video clip to a personal folder in the computing/server cloud. The URL for this clip can then be sent to other users. Also, a “friends” list can be maintained to allow others–such as all the store managers in California–to view certain clips.

MyClips enables video to be viewed and shared in ways that traditional systems simply aren’t equipped to handle. MyClips is becoming one of the most tangible answers to “what features does MVaaS enable that are unique?”.

Thanks Steve for the post.

So Now What?

Leave a response (0 so far)

Subscribe via RSS

Subscribe via by Email

Remaining Days in Term

So Now What?

Related posts:

Did we learn anything?

So Now What?

Related posts:

Comments on BearonBusiness

So Now What?

Related posts:

Discussing Revenue under Contract

So Now What?

Related posts:

Tracking Revenue under Contact

So Now What?

Related posts:

Pending Revenue under Contract

So Now What?

Related posts:

Revenue Under Contract

So Now What?

Related posts:

Crowdsourcing

So Now What?

Related posts:

Contrarian Investing Blues

So Now What?

Related posts:

My Clips

So Now What?

Related posts:

Recent Comments

Categories

Blogroll

Archives

Meta