Monday, October 17, 2011

"LUS Fiber, Sprint announce partnership" (Updated)

The Advertiser carries a short wrap-up of this morning's Sprint-LUS Fiber event. Turns out it's mostly a marketing—and more subtly, a defensive—move. (My speculations—and a day of intensely pondering and researching the history and technology strategies—turned out to produce a lot of hooey. At least this time. C'est la vie.)

It's not a bad marketing scheme for Lafayette—all Sprint customers, not only new users, get a 10% cut in their Sprint bill if they are LUS customers. Business customers also get waived activation fees for their employees, discounts on upgrades, and a 20% discount on accessories if bought at the time of activation. Over the course of a year a 10% discount can add up...the average US cellular bill seems to be about 600 dollars a year. While the regular joe residential figure, is nice (and I know one guy who just cracked his phones casing who says he's planning to take advantage of it when he gets his new iPhone 4s) it probably isn't where LUS sees its greatest upside. The dollar figure for businesses can add up rapidly—and LUS has been having already been having unplanned-for success in the business sector. Back in August G4S started "to provide network deployment and customer fulfillment services" For LUS Fiber. The company is focused on the business market and this sort of deal can get a foot in the door at businesses. It's easy enough to imagine the sales pitch that would feature going with a superior local network and getting a nice break on your nation-wide cell service.

In the longer run the payoff is likely two-fold. First partnering up with Sprint opens up a dialog with a company that, among other things, both provides long-haul fiber but needs local backhaul. Lafayette is ideally situated to provide local backhaul but needs long-haul connections. There's a nice symmetry there that growing a little trust could help develop. And then there are those other possibilities...

The second long-term consideration, the defensive move, however, is really nice. Cox, we all know, is eventually coming with its relabled Sprint service—it's already launched that addition to its triple play in markets across the country. At one point Cox was geared up to launch its own independent network using (expensive) spectrum it bought at  Federal auction that would be synched tightly to its cable offerings and form a basis for a Cox "third screen" strategy. That's fallen through and a much less ambitious plan to resell Sprint service is what now being offered in limited areas. When Cox gets to Lafayette with that service they'll not have a clear field where they are offering something that the local competition can't match. LUS can, correctly, say that they are getting you a deal on the full range of Sprint services and all the nifty new devices Sprint has in its portfolio while Cox is offering some white-label subset of the the full Sprint network.

Not a bad move.

Update, 10:30, 10/18/11
The Advertiser, the Advocate and KATC have stories this morning on yesterday's Sprint-LUS Fiber announcement. KATC reports that Sprint credits the unique deal to the community's FTTH project:
According to Lori-Anne Hill, Director-Federal & Public Sector Sales for Sprint, this relationship is the first of its kind for Sprint -- partnering with a utility to offer wireless services at a discount. Sprint's decision to partner with LUS Fiber stems largely from the city of Lafayette's impressive Fiber-To-The-Home-and-Business infrastructure and the city's foresight to bring that technology to the city.
If you only have time for one I'd recommend the Advertiser version. The reporter  apparently spent some time talking to LUS' Terry Huval and some bits of the history leading up to the agreement—including the information that Sprint approached LUS Fiber with the deal and is taken with the gumption implied by building our building our own fiber network. Companies like Sprint, who are laboring to extend their own fiber-optic  backbone, understand the start-up expense involved and the long-range vision that implies. That story concludes with a tantalizing hint of future benefits:
This pact with LUS Fiber also extends Sprint's reach directly to LUS Fiber's valued customers and it opens the door to other mutually beneficial business opportunities for Sprint and LUS."

Huval agreed, saying that LUS Fiber and Sprint already are talking about other possible ways to benefit customers of both services.

"We have some ideas, but nothing we can state publicly right now," he said. "But this does give us a platform to move forward in the future."
Hmmnn.

11 comments:

Anonymous said...

"hooey" is right. It's a means LUS Fiber "the citizens" fiber company has teamed up with the a wireless provider that will compete with other wireless providers. Now we have expanded our government competition to favor one company over others. And the reason for the "unplanned success in the business sector" is that Huval and Durel reneged on the deal they had with the locale ISP wholesalers not to go after the businesses. Ask them if you don't believe it. But I suspect you already know that.

John said...

anono,

There's no pleasing some people. Some of the nay-sayers want to claim that LUS Fiber is somehow not a real business but turn around and pretend that when LUS does what every business would love to do and executes strategic business partnership with a major national player in a complimentary branch of the telecomm industry...why that is somehow wrong and unfair. Really? It would somehow be nobler not to compete?

As to the local wholesale resellers...yup, I've heard the whining. And frankly I'm not impressed. LUS Fiber as a retail business might never have come into being if the wholesale providers had actually become wholesalers of bandwidth that was planned instead of simply reselling secondary services (mostly VOIP) and arbitraging the savings in bandwidth costs offered by the local Lafayette alternative to make their add-on services appear cheaper than the competition's. I know of only one wholesale reseller who actually went out and tried to really sell bandwidth—the ISP model. If LUS Fiber is successful now it is by taking business from the out of town corporations AT&T and Cox, NOT by taking the nonexistent market that wholesalers were supposed to develop but didn't.

Anonymous said...

that "whinning" you're hearing is the sound of small independent businesses going out of business because of government being the competition. The fact is that they supported LUS Fiber based on a promise from LUS. But hey that's just business, right?

They got screwed John, and you of all people know it.

John said...

Brave anono,

What I know is exactly what I have said. To the degree the old wholesale resellers supported LUS it was because they needed to support their provider of inexpensive, high quality bandwidth. It was always the open intent of LUS to offer a retail business product...no one was ever deceived on that basis. I knew, they knew, it was in the business plan.

Anonymous said...

no, it was not. LUS told us along they would not market to any business wanting more capacity then t1. which means "The most common legacy of this system is the line rate speeds. "T1" now means any data circuit that runs at the original 1.544 Mbit/s line rate."
I guess its our own fault for trusting politicians.

John said...

anono,

We've gotten into the range of things where you and I are disputing what we "know" as a consequence of "being there." I write this blog under my own name and my reputation is on the line each time I write. Will you stake your reputation or will you choose to continue make anonymous accusations?

To recap the conversation so far: You no longer dispute: 1) My assertion that LUS Fiber's partnership with Sprint is well within the norm for competitive businesses. 2) That the original set of wholesalers failed to actually adopt the ISP model of selling naked bandwidth and therefore did nothing to develop that market. 3) that LUS always said that it would serve businesses.

You claim now that they told you that they'd not sell to businesses wanting more than a T1. I can't speak directly to that claim, not having been in those negotiations. And you can't substantiate credibly unless you are willing to put your reputation on the line by using your name.

What I can say is that T1 lines did not mean the same thing as we today mean by bandwidth—of any size. They belong to the era of switched phone circuits and provided a _guaranteed_ direct connect between two points at pretty much the maximum that the technology could support. Only large businesses or institutions like Universities could afford the connection. Today's functional equivalent is dark fiber.

No small business nor individual could afford a T1.

T1 was antiquated by time the FTTH project was before the public. It seems very unlikely to me that any discussion at that moment would have been framed in terms of T1 lines—especially if such discussion meant "bandwidth capacity" rather than "open line." For LUS to have accepted a limit of 1.544 as the top bandwidth it would offer businesses (and we agree that they were open about planning business packages) would have been absurd. They could never have sold a single one. In contrast the smallest _bandwidth_ package they sell to homes is 10 megs.

I just don't think this charge makes sense.

Anonymous said...

1 No I don't dispute that the sprint/lus deal is within the norm and as a "business", so they will. 2. no I don't dispute that the original wholesalers failed to establish a market. 3. LUS did say the only where going to market to small businesses and residential customers and had no plans to go after large commercial customers wanting "T1 and above". So no we are not in agreement on what they said about the "business plan". But I do agree it was stupid to think that LUS would not go after all of the market, like they are doing now. And i was warned, it would happen, so my bad. And this I can prove, in writing.

But, if I did would that change anything? Would that change your support? Politicians going back on their word is not big news. But you know who the wholesalers were, just ask them. They are whiners that are no longer in business.

John said...

Ok, so it comes down to us agreeing up to and including the idea that LUS was always going to offer business packages. We even agree that LUS has not stolen a market developed by older wholesalers.

I say that it would have been totally irrational to think that they could have meant limiting their business offerings IP speeds to 1.5 megs when that was not at that time an IP speed that anyone could have found attractive. (When T1s to T3s reigned nobody talked about meg speeds—often it was how many phones could be supported!)

You say that, regardless of how impossible it would have been to sell a T1's worth of bandwidth to a business in an IP environment, they did use the term T1. I still have to doubt it.

I suppose it is barely possible, given the way the wholesalers actually used their LUS bandwidth to supply highly specialized services that were subsidized by LUS' affordable local bandwidth to see how confusion about all this might arise. LUS' bandwidth allowed those companies to price their packaged services very attractively. These were especially attractive to medium sized businesses with multiple sites that had had a hard time affording the latest and greatest before this opportunity came to market. So wholesalers were often replacing T1s or those that couldn't formerly afford T1s but wanted equivalent services with LUS bandwidth and new, fancy business-grade VOIPish stuff.

I actually have talked to folks who feel injured (but not driven out of business) and it is hard not to notice that they don't dispute the points I made above—as you do not. They've kept businesses that truly valued their specialized services first and the bandwidth deals second and lost those that found that breaking up those packages into separate bandwidth and services deals benefited them when the environment changed. There have been some businesses developed since LUS entered the market that find their margin by offering new services that businesses value—including virtualization—that weren't practical when a lot of clients didn't have a lot of bandwidth at an affordable price. They established their value independently of the bandwidth provider and flourished.

You're probably right that we are not going to agree...but I do think we've located the points where we differ and the points where we agree and that is always useful.

Anonymous said...

Agreed. And I also agree that LUS was subsidizing those businesses,in that it was not profitable to LUS. However, I don't believe that was because the model doesn't work, but rather the way LUS went about it.


Why do think it didn't work?

John said...

Just for the record: LUS Powered Network, the wholesale arm, was profitable and, as I understand it, still is.

Why did the wholesalers fail to move beyond the easy money and on to reselling naked bandwidth? Why do we all prefer to own high margin businesses to low? Until the resellers were convinced that market was saturated there was no incentive to move beyond it.

What else could LUS have done? It's hard (for me, anyway) to know. There's a trap here for LUS...normally you'd say that if you want to encourage resellers to expand you'd lower the price of the product being resold. LUS, however, was in the position of seeing that what was being done with its lower-priced, higher-quality product was that resellers mostly were not sharing that lower cost with the end consumers and so enlarging the total market for bandwidth. Instead they were ONLY bundling it with premium services and selling the resulting service packages at a discount that did develop their market—but that was a much smaller market for specialized business services over IP. To have lowered their prices further would, from LUS' perspective, only further encouraged the dead-end development that was already stunting the growth they hoped was possible. And while the wholesale arm was profitable its margins were already thin.

One solution would have been to establish a lower price for bandwidth sold naked than for that sold bundled. That is the sort of thing that gets endlessly gamed though. And if successful would have been as bitterly resented as LUS itself entering the market. Companies willing to sell and support bandwidth-only would have been seen as being unfairly favored...

Or LUS could enter the bandwidth market itself.

That, of course, is what did eventually happen.

(Incidently, this sort of trap isn't all that rare: The CLEC/ILEC relationship followed a similar path. The US Govt had hoped that allowing CLECs to leverage local ILEC connections would, in the fullness of time, provide them with the resources and customers to motivate the CLECs to build themselves into full competitors to the older formerly government-protected monopolies. The most profitable (short-term) just sold services (AOL, etc) and almost none actually built their own networks and established an independent capacity. When the political winds changed the environment their empires blew away--because they built their success on another's capacity. AOL et al lasted the longest because some valued their services and the services could stand alone. But most went under.)

Anonymous said...

Now that's an answer. It will take some to to digest, but I will try. thanks for your perspective.