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IP protocols/software

Genband Plots Funding of TDM Death March

NATIONAL HARBOR, Md. -- TIA 2013: The Future of the Network -- Genband has launched what it believes is a unique way of encouraging telecom network operators to replace their TDM networks faster. The gear maker is working with an energy audit firm and Wall Street financiers to help operators finance the total cost of a TDM replacement, based on the money saved on power and water and the potential benefits to the environment.

The one catch: Network operators have to use Genband Inc. as their general contractor and agree to exclusively deploy its next-gen network gear, including softswitch, gateways, and session border controllers, as well as a 10-year maintenance and support deal.

Genband Chairman and new CEO David Walsh unveiled the new strategy in a keynote speech at the TIA event, for which his company is the major sponsor and an inescapable presence. It differs greatly from vendor financing deals of the past, he insisted to Light Reading in an interview, because Genband is taking no financial risk -- that lies with the banks it has enlisted. But Genband is helping its operator customers prove that they can pay off the financing of their next-gen networks based on the money they save on energy and water costs. (See Pulling the Strings at Genband.)

To do that, Genband is working with TelEfficient, a unit of CoEfficient, a company which can come in, do an energy audit of a telecom operator, and prove their operating cost savings. Those energy cost savings -- which according to Walsh are as high as 70 percent -- are then used to insure the financing of the new network purchase.

"We have been building the technical infrastructure to allow telcos to migrate from TDM to IP multimedia," he said. "The obstacle here is how do you finance it? What we have come up with is a no-money-down operating expense, paid from avoided cost."

There are other potential financial benefits to telcos -- real-estate requirements are cut by up to 90 percent and in some cases the freed-up real estate can be sold, reducing property tax liability as well. Tax credits, utility company rebates, and government incentives for adopting green technology may also be available. But those are seen as additional perks and aren't factored into the basic equation.

Genband installs and maintains all of the equipment and those costs are part of the financing process. At the end of 10 years, telcos can decide how to proceed -- whether they want further upgrades or replacements, Walsh says.

"This approach is new in this industry but it's not new in other industries," he insists. "This is how GE and Siemens finance CAT scans and MRI machines for hospitals, it's how Boeing and Airbus help finance airplanes."

Walsh also stresses the inherent risks in simply allowing TDM switches, which are anywhere from 10 to 35 years old, to die a slow death. He said they waste power and water and generate carbon dioxide emissions, while in some cases they are beyond maintenance windows and potentially become unreliable.

One reason that GenBand chose to go public with the strategy now is that the company is "well down the road" with a number of telcos in lining up financing deals and expects to begin to announce customers soon. The TIA event was a chance to bring the plan to a broader audience.

GenBand says the math works for any telco with a substantial installed base of TDM switches. As part of his keynote, Walsh presented a case study of a telco with 86 Central Offices and 104 switches that could be consolidated into one switch and 39 gateways. The replacement could be done in three years and would then generate $8 million a year in savings by cutting the power usage for the entire network in half, while also reducing real estate costs and taxes.

If interested customers have competitors' equipment in their networks today, say a Metaswitch Networks softswitch or an Acme Packet Inc. (Nasdaq: APKT) SBC, GenBand is willing to work around that and incorporate it into the long-term plans. Walsh, though, quickly adds that there is also a business case to be made for "rip and replace" strategies. But the financing assistance is otherwise based on going end-to-end GenBand.

"We aren't in the business of helping finance our competitors' products," Walsh says.

— Carol Wilson, Editor-at-Large, Light Reading

Telco 10/10/2013 | 4:19:30 PM
Re: Savings calculations DOshea, actually the accounting is a little difficult if your TDM purchase was done with rate-payer cost of recovery methods in your regulator accounting methods.  Still though, this is a greate option for CLECs who all but two were ETCs and they did not have TDM switches.  While Rate-of-Return/Cost-Recovery rules have accelerated depreciation on some of the equipment, the note payment from the rate-payers is not clear to me. 

I like FuturePhil's comment though about the GE Capital equipment financing underwriting.  They put up the money, the vendors co-sign a portion of the purchase, the carrier puts up the numbers.  Here it is a little safer though, I do not believe anyone will be using this model to launch a business, it is for replacement of TDM equipment.
gleavieboy 10/9/2013 | 7:11:37 PM
Re: Fixed Model Can Work Carol - I presume that the prospect isn't obligated to go Genband once the savings are projected? After all, if a vendor runs the basic math to show me that solar panels will reduce my electricity bill, I'm not obligated to use their brand for my neighborhood eyesore.  Of course, to Dan's point (above) I'm going to want to check the math for myself as well - and am probably smart enough to do so. Electricity costs vary hugely from state to state so it's not always going to stack up, and business/space leases are hardly liquid assets in this economy, nationwide.  So while it might sound enticing at first blush, (those windows that offer to reduce my aircon bill did as well - until I got a $30K quote for $100/mth savings), it'll be interesting to see how the corner cases get rounded in the meantime.  

Steve

PS

A tad disappointed to learn that GB won't be funding any of our installations :( - but good to see that they're willing to work around any Metaswitch incumbency.  I'm sure Oracle/Acme will be relieved as well.
DOShea 10/9/2013 | 1:06:36 PM
Savings calculations Is the math here too difficult fo service providers to do it on their own? I don't understand why they need GenBand and its auditor to calulate the savings from environmentally progressive technology.
futurephil 10/9/2013 | 11:51:55 AM
Re: Fixed Model Can Work Not just a former PE guy, but a former Global Crossing exec who sold his shares while the company was hurdling towards bankrtuptcy. GC had a huge vendor financing program in the late 90s. But, hey, I'm sure this is just fine. Nothing to see here. Moving along...
[email protected] 10/9/2013 | 11:44:51 AM
Re: Fixed Model Can Work That sure is a tempting carrot.... but what is at the other end of the stick?

It was a compelling idea until it the conditional element was introduced.

For sure, there should be more done to examine the ways in which more power-efficient operations can be introduced - why not start with the biggest and best carrot in the world - staff bonuses that are tied to utility-linked efficiencies?
Sarah Thomas 10/9/2013 | 11:17:21 AM
Re: Fixed Model Can Work Really interesting model. It's easy to tell the company is now run by a former PE guy. 70 percent energy savings seem idealistic, but would make this very compelling if it pans out. 
jhodgesk1s 10/9/2013 | 10:26:09 AM
Re: Fixed Model Can Work Carol,


I don't like to reply with it depends, but it does, unfortunately. There are two replacement options, replace only the core and leave the legacy peripherals which is transparent to the end-user, but results in lower power savings, or replace both the core and peripherals which can deliver very significant power savings since peripherals were designed to be extemely redundant.  
brookseven 10/9/2013 | 10:20:55 AM
Re: Fixed Model Can Work Also, has anybody ever funded capex with opex savings?  Especially if there is a personnel cost (training etc) that delays the opex gain?

seven

 
Carol Wilson 10/9/2013 | 10:12:15 AM
Re: Fixed Model Can Work So, Jim, do you think the energy savings are as substantial as GenBand is claiming and will it be enough to fund the financing deals?
jhodgesk1s 10/9/2013 | 9:57:32 AM
Fixed Model Can Work Carol, glad to hear this is now in the public domain. Money is always tight, but bringing in a third party to help with the financing and business case should provide the impetus for a number of carriers to take GenBand up on its offer given the infrastructure is now at the end of its useful life.

We also covered a number of these drivers in the TDM Replacement Industry Initiative we did in 2011.

http://www.heavyreading.com/document.asp?doc_id=207567&site=tdmreplacement
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