“The Bear” on Business

Level 3 was formed in late 1997. San Diego choose Ryan Leaf over Peyton Manning in early 1998. Though a reasonable argument can be made that this draft day decision was the worst in the history of the NFL, this article in Yahoo Sports suggests the verdict might still be out.

Peyton Manning has had mostly ups and Ryan Leaf has had mostly downs. Level 3, by contrast, has had both very big ups and perhaps equally as big downs. Their quarterly earnings report this week is cause for genuine optimism. Congrats. We will have to wait a few years to find out if Level 3 turns out to be a Manning or a Leaf.

The past couple posts set the stage for the Fiber Telecom Texas Holdem Tournament.  Let’s start by identifying the four most obvious seats at the final table.  

Who would have guessed 7 RBOCs (Verizon, SBC, Ameritech, Bell South, US West, Pacific Telesis, and Bell Atlantic), the three largest independent ILECs (GTE, United Telecom, and SNET), and the three main IXCs (AT&T, MCI, and Sprint) would dwindle down to 4 remaining entities (AT&T, Verizon, Sprint, and Qwest)?  Not me. 

How did this happen?  It is all captured in the following chart:

Though somewhat chilly, yesterday was a beautiful Sunday morning in Boulder. I was standing on the tee box of hole #3 at BCC’s Fowler Course. (Most members refer to it as “the Par 3″, but Fowler Course sounds much more appropriate for this blog post.) As I clutched my sand wedge, I watched the ball travel through the air. It bounced just in front of the green, hopped onto it and began to roll. It was clear immediately that it was heading toward the hole; good pace; right line. Could it be? I didn’t utter a word. Neither did my playing partner, who was also standing on the tee box with a club in his hand. I’m sure he noticed the promising line and pace.

A slight slope from left to right stood between the ball and the pin. We watch the ball follow this slope and steer itself at the cup. Click. We hear the ball hit the stick gently and drop into the hole. Hole-in-One. We jumped up, yelled, high-fived and even hugged one another.

The ball is sitting in my golf ball collection in my home office. It sits right next to my three eagles, including the 165 yard 5 Iron I sunk at Black Wolf Run to win $50 from my good friend Lynn Refer in 1995. I decorated yesterday’s ball with a blue marker; it reads “April 29, 2008. Danny Caruso. Hole 3 at BCC. 85 Yards. 6 Iron.”

I’ve long wondered what it would feel like to get a hole in one. I guess in some ways I am still wondering. In case you didn’t notice, I had a sand wedge in my hand, yet I wrote 6 Iron on the ball. This was a clue. That I hugged my playing partner was another clue. When I visualize my first hole-in-one, I don’t foresee hugging my playing partner. In this case though, my playing partner was my son—Danny Caruso. When his 6 Iron shot fell into the hole, I was every bit as excited as if it was my hole-in-one.

Congratulations D-Boy. I hope some day, when I get a hole-in-one, you are standing on the tee box with me.

I will use the following format for my tournament. I will assume the goal is to get to the final table, and stay there. I will identify those whom I believe have a seat at this final table today. Criteria for final table is revenue, scope of fiber assets, financial stability, and anything else that suits my purpose.

I will also poplulate two or three additional tables with fiber-based telcos that are still active—these will be smaller companies in the industry, but those with enough chips (fiber/bandwidth revenue) that they are active participants in the ongoing industry consolidation.

Since this is my tournament, I will define the focus to be U.S.-based carriers that have substantial fiber assets and who focus on providing bandwidth services to commercial customers. Carriers who are predominately focused on wireless, colo or residential are not included; RLECs or RLEC-owned carriers are not eligible, nor are CATV companies. 

I will begin with the notion that there are 12 companies currently at the final table. They will be revealed over time. The weakest of those will be identified as the “short stacks”. If other entrants emerge who are not part of the final table—the short stacks could be bumped.  

Tables two and three will be populated with other fiber-based providers. As you will see, the size and scope of those sitting at tables two and three is modest.   

As M&A activity continues, I will collapse the tables.   

Okay, I think that is enough for now. I will modify the format (remember—my tourney) whenever I see fit. Tomorrow, the initial seats at the final table will be revealed.

Peter Boriskin, VP of R&D for Tyco’s access control division wrote this article on Security as a Service. Boriskin provides good context for what Envysion is up to. Managed Video as a Service (MVaaS) more accurately captures Envysion’s area of focus.

Perhaps ADT and Envysion can find a way to collaborate.

Let’s see if Eliot Soft-Spitzer comes down as hard on AT&T as he did on the Bear.

At a Web 2.0 forum in London, an AT&T representative spoke on the topic of Internet bandwidth growth. CNET posted this summary. I agree it is hype. I also suggest that this isn’t necessarily inconsistent with 60% annual growth in bits. A compound growth rate of 60% is powerful over the course of several years. So Ike, no arrows at me for sharing this, okay?

Matt Erickson strikes again. (See these posts for context: Guru of Stack Ranking and Stack Ranking Guru.)

2. Every physics student understands and remembers everything the first time…

That is if his first name is Albert and his last name is Einstein. Repetition is important in any organization; it’s especially important in a dynamic organization like Zayo Bandwidth. Do you know what you’re repeating? With a focused, targeted list of customers the messages that we share both across the organization and to our customers become clear. Without that focused, targeted list of customers, we’d need to actively recruit only Einsteins.

I left Level 3 years ago, just as the Travel Channel sparked the Texas Hold’em craze. I TiVo’d it for the first couple of years and watched most episodes. I was already familiar with Texas Hold’em, but the TV series made me enamored with the game. See KOH, there is life after Level 3. Kevin Dundon still jabs at my transformation from crazed telecom exec to connoisseur of cable TV reality shows.

In big Texas Hold’em tournaments, players start out at multiple tables, each table with ~12 players. For example, if 60 players are in a tourney, initially five tables will be used. As players drop out, the tables collapse. After ~12 players drop, players move to four tables. When only 36 players remain, three tables are the result.

When you get down to the final 12 players, you move to one table. “Final Table” is the expression that is used. Everyone wants to get to the final table. Once you are there, anything can happen. You might not win the tournament, but you will likely end up “in the money”, meaning one of the players who receives part of the winnings. But, with a bit of luck and some smart maneuvers, even the weakest player can win.

Many dozens of telecom companies built or acquired fiber networks in the 1990s and 2000s. Way too many, we know now with the benefit of the meltdown. The fiber, though, did not melt. What happened to all these companies? How many remain? With consolidation continuing, who will be the survivors?

Sounds like one big Texas Hold’em Tournament to me. We will set forth the tournament format tomorrow.

The telecom meltdown was caused by supply getting way in front of demand. One of the tenets of Zayo’s investment thesis is that the balance between bandwidth supply and demand is much better today and will steadily improve in the future. To explain this premise, I will turn to one of my passions—the Texas Hold’em tournament. It will start tomorrow.

Matt Erickson was nice enough to offer an explanation of his first example. (See these posts for context: Guru of Stack Ranking and Stack Ranking Guru.)

1. John Scarano (Zayo’s COO) won’t let me hire a couple of ex-Soviet planners to track sales activity…

Understand that to be truly successful selling fiber-based bandwidth to 10,000 target customers (probably representing 100 different verticals), you would require several of Gorbachev’s finest. Managing 300 targets (across no more than 10 verticals) is achievable. The higher the customer ranks, the more Zayo Bandwidth actively reviews the account and asks questions such as:

• How does funnel activity/account penetration look (are we making progress with the right customers)?
• Are we effectively selling across regions (are top customers purchasing across the Zayo footprint)?
• What key drivers are enabling sales (what is working, what isn’t)?

Maybe Matt will be kind enough to explain #2 though 7 as well.