UPDATE ON CYREN CALL

3 Comments

1. 

   Shun

   January 24, 2008 at 5:47 pm

   I read this piece, and the previous piece by Harold. Looks like we have a comment by Anonymous. Who could this be?

   “Cyren Call is planning to be an MVNO (Mobile Virtual Network Operator) for the PSST. Under this model, Cyren Call assumes the roles of an out-sourced sales force, provisioning and billing system, and 24/7 call center operation.”

   OK, but who appointed Cyren Call to be the one and only MVNO for this network? Shouldn’t these negotiations start after the network builder is established? Picking a sole-source MVNO this early in the game raises some serious questions.

   “These are functions that an operator like Frontline would not have to build, develop and maintain.”

   No argument here. MVNO’s add value to the network. My question is: who decided Cyren Call was to be the sole-source MVNO for this network? When was this decided?

   “Nationwide broadband networks today charge $60-70 per month for unlimited data. A portion of that revenue is absorbed by the cost of subscriber acquisition (sales commissions), customer care and billing.”

   The rest goes to line the pockets of the CEO, I’m assuming? OK, kidding aside, this misses a crucial point. First responders are not individual subscribers. Entire agencies would be buying service, probably at inflated prices, judging from their previous purchases. So, the per month charges could be much higher; no one knows. Anyway, the point is, the $60 per subscriber price point is fictional. The important number is: What is the average price each agency is willing to pay to ensure coverage of all of its first responders?

   “If you assume the public safety broadband network captures only a third of the 1.5M first responders, there would be about 500K subscribers. The $50M per year works out to be only $8.33 per month per subscriber which would be a variable expense.”

   Again, you are missing the point. The MVNO model assumes is that the MVNO pays the network operator the wholesale rate to compete in this space. So, in order to fall into the category of a traditional MVNO, Cyren Call would have to pay Frontline a per month fee for the privilege of offering its services to first-responder customers. $8.33 per subscriber per month sounds like a reasonable rate, but the payment should be going in the opposite direction. It appears that Anonymous is attempting to change the laws of physics by commanding water to flow uphill.

   “If Frontline were to build these capabilities internally, it may cost a little less per year due to scale and synergies, but it would be a fixed expense and much riskier.”

   Why would it be riskier? Are first responders suddenly going to quit, en masse? Do emergency response agencies experience a lot of churn?

   “While I believe being forced to work with an MVNO is scary to an operator as they would own the customer, there are many other things to scare off investors besides Cyren Call: the cost of the public safety spectrum lease, the 99.3% coverage requirements, the cost of hardening the network, and the financial penalties for failing to negotiate the network sharing agreement with the PSST, to name only a few.”

   No, being forced to work with a single, designated MVNO is scary. Not being able to negotiate contracts without fear of being hit with a $100 million dollar penalty is scary. Finally, being forced to guarantee Cyren Call’s profits to the tune of $50 million a year for the next ten years is scary.

   The balance of payments is all wrong. If we are to imagine Cyren Call to be an MVNO, Cyren Call should be paying Frontline for access. Instead, the opposite is supposed to happen. Justify this payment structure, please. Use small words because I don’t understand how this differs from graft.

   The more I look at this situation, the more it looks like a traditional RIAA contract. No risk to Cyren Call, but all the risk and penalties accrue onto Frontline. Notice there are two poison pills in this: the $100 million penalty for not playing nice, and a mandatory $500 million pay out to Cyren Call, regardless of network performance, subscribers, etc.

   Imagine this scenario: Frontline builds the network to spec. Cyren Call moves into the retail space. Cyren Call then proceeds to do nothing, all the while collecting $50 million for the next ten years. I am not saying that this will happen. I am asking, though, what’s to prevent it? (As an aside, if I were being paid $50 million to do nothing, I’d do as much nothing as possible.)

   Frontline’s investors did the only rational thing. “The only smart move is not to play the game”.

   I haven’t been following this as closely as Harold, but any fool can see that you don’t pick your MVNO’s before you determine who gets to build the network. This whole “cart-before-the-horse” mentality is the reason this country is in such deep doo-doo.
2. 

   publius

   January 25, 2008 at 12:11 am

   this all sounds plausible — but i would note that the sources are probably self-interested and no fans of o’brien. perhaps they even used to run the FCC.

   the other element of this is public safety’s naivety. they were playing a game they didn’t understand, and got used as pawns to support things that ultimately will leave them with squat.

   (disclaimer – i used to be an interested party in this stuff too, but it’s been many months now and htis is just a personal opinion).
3. 

   Harold

   January 25, 2008 at 8:06 am

   Obviously, I can’t comment on whether the sources are self interested or not, although obviously the information on the meetings goes back to only self-interested sources. Certainly one of the possibilities I (or anyone else) must consider is how much of this is sour grapes.

   But that is why we do investigations. If these allegations are true (and the fact that Cory Boles, working independently, came up with the same thing dramatically increases the credibility of this for me) we are looking at:

   1) Ripping off the government to the tune of hundreds of millions, if not billions, of dollars in lost auction revenue;

   2) Taking what should have been the most important, transformative spectrum auction in FCC history and throwing it to the incumbents by eliminating the one bidder committed to wholesale; and,

   3) Violation of a fiduciary trust to rip off public safety to gain billions.

   I am rapidly reaching the conclusion that the FCC ought to stop the auction, or at least yank D Block, pending investigation of this matter. That may sound extreme, but I annot see how you fix this after the fact. Especially if a Bell ends up as the license winner. That will make it politically impossible to repair things.

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