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.
Leave a response (2 so far)
Subscribe via RSS
My curious mind has one undying question on the topic of “revenue under contract” specific to sales compensation and value generation. I am always intrigued by sales compensation plans and the association between the behaviors companies expect them to generate paralleled with the interpretation by the sales teams of how they need to behave to succeed. In some cases, I believe there is a reason the company doesn’t see the results they expect to see because unintentionally the plan might not motivate the desired actions as they believe it does. Zayo’s financial approach is by far the most intricate and detailed (and trustworthy) approach that I have ever experienced in a telecom company. I would overwhelmingly endorse what I see as an employee even though I don’t always understand the “why’s”. That’s why I would pose this particular question here.
My question is this: How would value of “revenue under contract” correlate with a company who had compensation plans with seemingly no multiplier incentive in the sales comp plan for securing business under longer term?
In my mind, the longer term equates to better predictability and more stability to the revenue base, as well as greater value creation. If a comp plan actually pays less for term because the 5 year rates in telecom are going to be less than the 3 year rates–is a sales person just a goof for pushing term under that plan in the name of trying to do the right thing? If the plan was intentional in seemingly disincenting sales for term business–it would seem imperative then that the sales team understand why term business isn’t more highly valued or how that plan does incent term business. My simple mind believes selling on term actually holds the price (value) of the company higher when we have seen a steady decline in most market rates in telecom. From a simple perspective, if the company sees prices declining–term would make sense on the sell side. If the customers expect prices will increase–term would make sense to them on the buy side and companies should possibily push against term selling. Many companies answer to this is a “churn” portion of the plan; however, that answer never really solves the dilemma in my head. I believe these issues to be separate, as do some plans I’ve seen.
As a sales person, if I were in this situation and kept pushing customers to buy on term regardless of the plan, (believing it was the right thing to do) and not realizing the company had great reasons for not wanting term–then I might be actually hurting the company and would need to be educated immediately on my erroneous, although well-intentioned, methods. If I were under this plan and I were correct–and the increase in total contract value was as important to the company’s value creation goals as I believe it is today–then, I might find myself occasionally frustrated that the true value creation was not being recognized and/or compensated. Most industries recognize total contract value as a factor in sales compensation, but in telecom, it seems to fluctuate from one extreme to the other from plan to plan.
I’m not a financial guru by any stretch–and more often than I expect–I find that what feels like common sense misleads me in the financial realm. However, I need some perspective on this one as I just can’t reconcile this question on my own. Can you possibly include something on this in future posts?
T
Teresa, thanks for the comment. You have a point, I agree we the logic, and the comp plan is something we should (and will) review to see how we can properly incentivize and reward longer contract terms.