State of Florida Telecom Business Model

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Comprehensive report of who the Division of Telecommunications is, what we do, why we do it and how we do it.

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State of Florida Telecom Business Model

  1. 1. Division of Telecommunications Business Model and Value 1st Edition, Version 2.0
  2. 2. DivTel Business Model and Value 2.0 Table of Contents  Table of Contents .......................................................................................................................................................... 2  Executive Summary ...................................................................................................................................................... 4  General Document Layout ............................................................................................................................................ 6  SUNCOM Telecommunications Services .................................................................................................................... 8  SUNCOM’s Functions .............................................................................................................................. 8  History .................................................................................................................................................. 8  Services ............................................................................................................................................... 14  Customers ........................................................................................................................................... 18  Standards ............................................................................................................................................. 20  Unbillable Support of the Florida Government Enterprise ................................................................. 20  SUNCOM’s Purpose ............................................................................................................................... 23  Enterprise Cost Savings ...................................................................................................................... 23  Interoperability .................................................................................................................................... 26  Security ............................................................................................................................................... 26  Accountability, Customer Empowerment and Stakeholder Transparency ......................................... 26  Catalyst for Technological Transition................................................................................................. 27  SUNCOM’s Approach and Principles .................................................................................................... 28  Establishing Standards ........................................................................................................................ 28  Developing Services ........................................................................................................................... 28  Cost Accounting.................................................................................................................................. 30  Order Processing, Inventory and Billing............................................................................................. 38  Public Safety Telecommunications ............................................................................................................................. 39  Purpose of the Bureau of Public Safety Telecommunications ................................................................ 39  Statutory Obligations .......................................................................................................................... 39  Bureau of Public Safety Telecommunications Functions ....................................................................... 40  History ................................................................................................................................................ 40  Services ............................................................................................................................................... 42  How the Bureau of Public Safety Telecommunications Performs Its Mission ....................................... 45  Leveraging SUNCOM ........................................................................................................................ 45  Planning .............................................................................................................................................. 46  Keeping in Touch ................................................................................................................................ 46  Printed 2/4/2011 9:39 AM  Page 2 
  3. 3. DivTel Business Model and Value 2.0  Balancing Needs versus Cost .............................................................................................................. 46  Engineering for Reliability with Performance Standards ................................................................... 47  Specialized software and data management tools ............................................................................... 47  Coordination ....................................................................................................................................... 47  Partnerships with Government and Industry ....................................................................................... 47  Committees ......................................................................................................................................... 48  Testing and Inspecting ........................................................................................................................ 48  Training ............................................................................................................................................... 48 Future of Telecommunications in Florida Government .............................................................................................. 49  Technology Convergence ....................................................................................................................... 49  Technology Convergence Opportunities for the Enterprise................................................................ 49  Convergence of Wireless ........................................................................................................................ 53  911 Modernization .................................................................................................................................. 55  SLERS Coverage Improvements ........................................................................................................ 55  Need for Telecommunications Convergence for Public Safety .......................................................... 56  Network Convergence ............................................................................................................................ 58  Intelligent Transportation System (ITS) ............................................................................................. 58  Florida LambdaRail (FLR) ................................................................................................................. 58  How Florida’s Telecommunications Assets could be Optimized ....................................................... 59  Local and Regional Governments ....................................................................................................... 60  Extending Customer Empowerment ....................................................................................................... 60  Enhancing Florida’ Economic Competitiveness with Broadband .......................................................... 61  DMS’s Broadband Statutory Mandate ................................................................................................ 61  General Strategy.................................................................................................................................. 61  Consensus Building and Partnerships ................................................................................................. 61  Mapping .............................................................................................................................................. 62  Broadband Strategic Planning ............................................................................................................. 62  E-rate Assistance to Schools and Libraries ......................................................................................... 63 Table of Attachments .................................................................................................................................................. 64 Endnotes...................................................................................................................................................................... 96 Printed 2/4/2011 9:39 AM  Page 3 
  4. 4. DivTel Business Model and Value 2.0 Executive Summary  The Division of Telecommunications within the Department of Management Services provides Florida government enterprise level telecommunications strategic planning and services in two broad categories: 1) Voice, data and conferencing communications services for government under the brand name SUNCOM. 2) Planning, coordinating and fostering effective public safety telecommunications throughout the state at all levels of government. SUNCOM’s primary purpose is to reduce costs and minimize unnecessary usage of telecommunications services for the State of Florida. It achieves this from economies of scale, volume discounts, reducing vendor costs and risks, pooling services and focused expertise on getting the best value. Using product design and cost accounting techniques and a robust inventory/billing system, SUNCOM brings transparency, accountability and incentives to motivate and empower government customers to save. SUNCOM provides a variety of voice, data and conferencing telecommunications services over wires and wirelessly for a wide range of public sector customers. SUNCOM’s state agency customers are required by Florida Statutes to use SUNCOM, but the Legislature, Judiciary, counties, cities, universities and some private nonprofits are patrons as well. For users of its services, SUNCOM establishes interoperability and security standards both formally through Florida Administrative Code and informally through consolidation of common services. SUNCOM also acts as a catalyst for bringing the benefits of technological change through self- funded investments without incurring the cost premiums of early adopters and straggling participation. Despite periodic difficulties, SUNCOM has brought long term savings, innovation and standardization to Florida government since 1975. Its strategies have included use of a dedicated backbone when the market was restricted and expensive, then dismantling that backbone as competition grew. SUNCOM continues to enhance its contribution through its inventory and invoicing system, extension of Internet Protocol (IP) technology and further aggregation of government telecommunications like mobile services. The Bureau of Public Safety Telecommunications has five major statutory mandates:  Offer a single statewide radio system for use by all state and participating local law enforcement officials. The Bureau has met this requirement through the Statewide Law Enforcement Radio System (SLERS) under a public/private partnership contract.  Coordinate Florida’s public safety radio communications so that state, local and regional authorities can effectively communicate with assurance that they will not interfere with, or be interfered by, their neighbors. The Bureau meets this requirement through settings standards and frequency assignments, and providing assistance to local entities. Printed 2/4/2011 9:39 AM  Page 4 
  5. 5. DivTel Business Model and Value 2.0   Set standards to enable state and local public safety entities to communicate with each other when they need to work together. The Bureau has met this requirement through standards for common “mutual aid” channels and by implementing the Florida Interoperability Network (FIN) which translates between disparate radio systems statewide.  Develop, enhance, and ensure the reliability and consistency of 911 services throughout the state. The Bureau, as the administrative arm of a board for this purpose, has met this requirement through setting standards, collecting and distributing funds and developing strategic plans for improvement.  Provide telecommunications support to the state during disasters. DivTel meets this requirement by planning and establishing standards of disaster communications and making its assets, services and staff available during disasters.In the future, DivTel faces significant challenges such as dilution of Florida’s enterprisetelecommunications infrastructure, necessary innovation in public safety telecommunicationsand the requirement to extend the reach of broadband throughout the state. But with the supportof effective public policies, DivTel has the right strategic approach, resource managementmethods and business culture to meet those challenges.Printed 2/4/2011 9:39 AM  Page 5 
  6. 6. DivTel Business Model and Value 2.0 General Document Layout  This document is divided into three major sections: 1) SUNCOM Telecommunications Services, 2) Public Safety Telecommunications and 3) The Future of Telecommunications in Florida government. The first two sections are designed to answer the questions;  What is the Division of Telecommunications (DivTel)?  Why does it exist?  How does it perform its missions? The sequence of information presented gives the basics in the beginning then builds to more complex information. For example, in the section on SUNCOM, knowing what it does is a practical foundation for understanding why and how it does them. For public safety, knowing why it exists first leads to a better understanding what it does and how it achieves its purposes. With the context of what, why and how, exploring the future of Florida government telecommunications makes more sense in the last major section. Challenges and opportunities are presented there for public policy adjustments and adapting to new technologies. But not all readers need a comprehensive view of DivTel. For some, the whys may matter more than the hows, or SUNCOM’s history may be of no interest. Thus the document is segmented to allow readers to skip around or use it as a reference. The above Table of Contents and more detailed version in Attachment 2 will help readers find topics of interest. Printed 2/4/2011 9:39 AM  Page 6 
  7. 7. DivTel Business Model and Value 2.0 Finally, this document makes extensive use of endnotes that elaborate, give additionalexplanations, refer to detailed sources or cite legal authorization. Because such supplementalinformation can be a distraction, endnotes rather than footnotes were used and the document isinformative even if they are never read. However, reading endnotes that elaborate is necessaryto achieve a more complete understanding of DivTel. The best way to do so is to separate thosepages to use as a companion document while reading the body.Printed 2/4/2011 9:39 AM  Page 7 
  8. 8. DivTel Business Model and Value 2.0 SUNCOM Telecommunications Services  SUNCOM’s Functions  This section describes what SUNCOM does. The subsequent sections describe why and how SUNCOM does these things and the future direction SUNCOM expects to take. History  Early Local Phone Service Consolidation and Establishment of  SUNCOM  From recognition that enterprises as large as Florida government could achieve economies from internally coordinating telecommunications, the legislature appropriated funding for a few positions at the Department of General Services in 1973 to study and develop strategies. At the time, the focus was on a regulated, highly concentrated and profitable voice communications industry. This led to the 1975 establishment of SUNCOM in Florida Statutes. In that same year, DGS’s SUNCOM implemented its first multi-agency local phone system with consolidated billing to achieve savings. Establishment of the Dedicated Backbone  After the extension of the shared local service model to many state agencies, SUNCOM established a leased long distance backbone in 1986. Florida government was able to achieve long distance savings because these statewide circuits pooled long distance minutes outside the expensive market prices. This was also the genesis of the seven digit “SUNCOM number” in which no area code was required because calls traversed a network that was used by no customers other than SUNCOM’s. Data Communications are Added  The next major SUNCOM milestone came in 1989 added data communications to the dedicated backbone. Mainframe computers began to send messages through the same long distance circuits used for phone calls thus the state was able to achieve savings by simply using its infrastructure for both purposes. This ultimately led to the development of the SNA backbone on which IBM mainframes were not only able to communicate with their connected “dumb” terminals, but also with other IBM mainframes and their dedicated terminals. This brought huge interoperability savings to Florida government. 1 The Internet Revolution  The Internet was spontaneously recognized by everyone for its revolutionary impact in the mid 90s. Its universal communications language of computing (known as the Transmission Control Protocol/Internet Protocol or TCP/IP) was an innovative and open alternative to proprietary networks like the SNA backbone.2 But while still widely viewed within Florida government as a toy for college kids and tech-cowboys, SUNCOM with its sister DMS division, the Technology Resource Center (now the Southwood Shared Resource Center) designed a reliable and robust Printed 2/4/2011 9:39 AM  Page 8 
  9. 9. DivTel Business Model and Value 2.0 State Intranet using TCP/IP in 1993. It ultimately served all state agencies as a viable businesstool. SUNCOM eventually established several Internet Protocol services on its backbone.State Technology Office Setback The State Technology Office (STO) was created in July of 2000 with the goal of achievingenterprise efficiencies for state computing. It was initially comprised of the Division ofCommunications (SUNCOM’s parent organization) and the Technology Resource Center. STOwas slated to aggregate all Florida government information technology, but was widely viewedas hastily planned and poorly executed. Hence it was dissolved between 2005 and 2007 througha series of budgetary and statutory actions.During the STO era, much of SUNCOM’s funds normally used to design, develop and managetelecommunications services were repurposed to STO enterprise information technologyconsulting and projects. This depleted SUNCOM’s trust fund, from which approximately $12million was disbursed monthly, to a balance of $15,500 by July 1, 2005. SUNCOM camedangerously close to the public sector equivalent of bankruptcy that would have required anunprecedented cash appropriation to pay SUNCOM vendors.MyFlorida Network: The MPLS Service Despite the loss of some focus in of the STO era, SUNCOM engineers were able to design anetwork to use innovative Internet Protocol (IP) technology known as Multi Protocol LabelSwitching (MPLS). MPLS held the promise of bringing all of the best features of existingSUNCOM IP services into one at considerable savings, faster speeds with more capabilities.Under the SUNCOM brand known as “MyFloridaNet” (MFN), the MPLS contract was awardedto AT&T in September 2006 and all customers were migrated by April 2008. MFN hasdelivered approximately $14 million in annual cost savings ever since.Dedicated Backbone Retired Simultaneous to implementation of MFN, SUNCOM dismantled its dedicated backbone. TheMFN contract used vendor infrastructure thus needed no state backbone to carry datacommunications. And the newly competitive voice long distance market offered prices thatovercame the advantages of internal infrastructure. The dedicated backbone was completelyretired by June 2008 leaving SUNCOM largely reliant upon vendor infrastructure and thecompetitively open market.SUNCOM’s Thriving Contribution With rededicated focus on SUNCOM’s core mission it reemerged from the STO era as aneffective enterprise provider. Despite a series of rate reductions3 that included $14 million inannual savings from MFN, SUNCOM realized additional unexpected savings fromimplementation of MFN and elimination of the backbone.4 The SUNCOM trust fund accruedbalances that led to a $10.2 million reduction through rebates and further rate reductions tocustomers over calendar year 2010.Printed 2/4/2011 9:39 AM  Page 9 
  10. 10. DivTel Business Model and Value 2.0 Diminished School Support In August of 2008, the Department of Education attempted to reprocure the Florida InformationResource Network (FIRN) without SUNCOM involvement. 5 Prior to that, FIRN was aSUNCOM service.As the data communications network for Florida’s schools, FIRN was almost exclusively fundedthrough federal grants known as “E-rate” (averaging 70%) and a state match (averaging 30%).In October 2008, vendor bids were submitted to DOE with the lowest being 39.5% higher thanexisting SUNCOM services. DOE abandoned the effort and SUNCOM was compelled toquickly develop a replacement service.Less than a year later, DOE discontinued providing assistance to schools to help them obtainthese complicated grants and the 2010 General Appropriations Act eliminated direct funding ofFIRN with its state E-rate match in favor of giving those funds directly to schools.SUNCOM continues to provide E-rated services to schools and libraries that now seek E-rategrants without DOE assistance. But the assistance must come from billing and engineering staffthat are not experts and have competing duties.Florida Schools and libraries have applied for over $1.4 billion in funding since inception of theprogram. Over half of the funding requests were rejected. In comparison, the state of New Yorkwith a similar student population, received twice the amount of Florida’s E-rate funding in 2009.Since the beginning of E-rate New York has averaged 13.4% of the national E-rate funding whileFlorida has averaged 3.25%.Order Processing, Billing and Inventory Innovation SUNCOM’s centralized order processing, billing and inventory systems have been powerfultools for controlling telecommunications costs from almost the beginning of SUNCOM.Customers have been able to obtain detail billing information and place orders electronicallysince 1998 and 2000 respectively.But in 2006 it became clear that, after years of ad hoc development to accommodate the everchanging SUNCOM portfolio of services, SUNCOM had two choices; 1) implement a wholesalereplacement of these systems with one comprehensive integrated system (commonly called anEnterprise Resource Planning system or ERP) or 2) reengineer SUNCOM’s foundationalcomponents (“backend”) gradually and implement new user interfaces along the way.ERPs cost tens of millions of dollars, are very complex, require years to design and develop,require a risky “flash-cut” implementation (i.e. on a given day, old systems are turned-off whenthe ERP is turned-on), and often result in failure.6 SUNCOM chose the other approach bycreating the SUNCOM Open and Shared Information System (OaSIS) using a small team at lowcost and with periodic low-risk release of enhancements.After two years of reengineering, the first OaSIS user enhancement of SUNCOM bills wasreleased in April of 2010. A second inventory component was released in Beta in October 2010.Printed 2/4/2011 9:39 AM  Page 10 
  11. 11. DivTel Business Model and Value 2.0 OaSIS has already achieved widespread popularity among agencies with its innovative featuressuch as the customer ability to permanently tag charges with plain language labels. It willultimately empower customers to control charges to an extent that is uncommon to both thetelecommunications industry and ERPs.A Complete Mobile Telecommunications Offering Near the end of the STO era, DMS management decided to offer mobile telecommunicationsservices through two different DMS divisions. SUNCOM provided smart phones and air cardswhile the Division of Purchasing established a State Term Contract for standard cell phones.This diluted enterprise purchasing leverage and economies of scale, and gave the state no centralrepository of mobile services usage and costs. 7 Worse yet, the distinction between smart phonesand cell phones became increasingly difficult thus obscuring the assignment of these servicesbetween the two divisions.In 2009, DMS decided to consolidate these services under SUNCOM under its existing authorityto provide enterprise telecommunications. This led to the release of SUNCOM’s MobileTelecommunications Services Invitation to Negotiate in September of 2010. Through thisprocurement and use of OaSIS, SUNCOM expects to implement a contract akin to a “familyplan” for all enterprise mobile charges in which call minutes are cheap, few of them are wastedand all of them are accountable.Federal Support for Expanding Broadband In 2008, a new Federal program was established to expand consumer and institutional access tobroadband. This program was initially funded for a nationwide inventory of broadband to befollowed with grants to expand it. States were to coordinate their respective efforts and DMSwas chosen to do so during the 2009 Legislative Session through establishment of Section364.0135 F.S.8In December of 2009, DMS was awarded $2,568,458 to establish a statewide inventory ofbroadband services. The funding has provided for an online mapping system that is accessible tothe public at www.connect-florida.org.In September, 2010 DMS was awarded another $6,308,570 to establish the “Broadband Florida”initiative to be managed by a “Broadband Program Office” (BPO). The BPO will  Continue the broadband inventory and mapping project through the year 2014.  Manage the development and implementation of Regional Broadband Planning project in partnership with Florida’s 11 Regional Planning Councils (RPCs). Using regional planning processes, toolkits and training, the project will inventory local and regional broadband assets and demand. The process will be inclusive of residents and businesses, and local, regional and state institutions.Printed 2/4/2011 9:39 AM  Page 11 
  12. 12. DivTel Business Model and Value 2.0   Establish a Florida E-Rate Team to assist and coordinate support to schools, libraries and health care entities that seek Federal grants provided through Universal Service Fund programs such as E-rate.  Establish a Broadband Grant Team that will coordinate and support Florida anchor institutions seeking to identify and apply for grant opportunities to expand the availability and use of broadband services at lower costs.  Assess the 180 Florida public libraries in rural and underserved communities to identify gaps where support is lacking for libraries in their grant funding applications.Printed 2/4/2011 9:39 AM  Page 12 
  13. 13. DivTel Business Model and Value 2.0 FIGURE 1Printed 2/4/2011 9:39 AM  Page 13 
  14. 14. DivTel Business Model and Value 2.0 Services Abbreviated Service List Voice  Local Phone Service (Centrex)  Long Distance Phone Services  Toll-Free Phone Services  STEPSData  MyFloridaNet (MFN)  Metropolitan Area Network (GMAN)  Remote Broadband Services (RBS)  Florida Internet Resource Network (FIRN)  Southwood Shared Resource Center (SSRC) Ports  Other Data ServicesConferencing  Reservationless Voice Conference Services  Video Conference Services  Web Conference ServicesInfrastructure  Telecommunications Infrastructure Project Services (TIPS)Mobile  Wireless Data Services  Smart PhonesDetailed Service List Voice Local Phone Service (Centrex) SUNCOM provides local phone access primarily through a service known as “CENTREX”. Inaddition to providing toll free local calling within each Local Access Transport Area (LATA),CENTREX provides features and options like access to SUNCOM’s long distance service, callerID, voice mail, call forwarding, etc. Incumbent Local Exchange Carriers (ILECs) such asAT&T, CenturyLink and Verizon provide this SUNCOM Local Service within their designatedLATAs.SUNCOM’s local service also provides alternatives to CENTREX for customers that own andmaintain switching equipment on site known as Private Branch Exchanges (PBXs; see “STEPS”on page 15) move some of the functions and features from telephone company facilities to thecustomer’s site. This allows customers to use fewer access lines, or “trunk” lines that sharePrinted 2/4/2011 9:39 AM  Page 14 
  15. 15. DivTel Business Model and Value 2.0 access among their staff. PBXs also give customers more direct control over features such asvoice mail and call routing within their organization.Long Distance Phone Services SUNCOM Long Distance Service allows local service customers to place calls outside a localarea (known as a Local Access and Transport Area or LATA) throughout the United States andInternationally. For large customers, SUNCOM can provide “Dedicated” circuits to make longdistance calls. Smaller customers use SUNCOM’s “Switched” Long Distance at a slightlyhigher price.Toll‐Free Phone Services SUNCOM offers customers the ability to establish in-bound toll free services with available"vanity" phone numbers. Customers can establish toll free numbers for in-state, national and(limited) international toll free calls. Offered with many enhanced service feature options, thisSUNCOM service terminates on local telephone lines/trunks and handled like any otherincoming telephone call.STEPS The SUNCOM Telecommunications Equipment on-Premise Service (STEPS) offers telephoneswitching equipment known as Private Branch Exchanges (PBXs) at the customer’s site. PBXsmove some of the functions and features from telephone company facilities to the customer’ssite. This allows customers to use fewer access lines, or “trunk” lines that share access amongtheir staff. PBXs also give customers more direct control over features such as voice mail andcall routing within their organization. PBXs have been around from near the beginning oftelephone services but modern PBXs almost exclusively provide Voice over IP (see “Voice overIP (VoIP)” on page 51).STEPS partners include Avaya, Cisco and Siemens.Data MyFloridaNet (MFN) The technology at the core of MFN, known as Multi-Protocol Label Switching (MPLS,) isconsidered the current standard for the best enterprise data networks. When MFN wasimplemented through SUNCOM, it combined all of the best features of several SUNCOM’s dataservices into one, with more features, better security, and higher reliability at lower cost.Through MFN, customers can get equipment and local access to a dedicated enterprise networkfor one price with the independent ability design and manage their sub-networks, makeconnections, and monitor their security, regardless of their location within the state.Metropolitan Area Network (GMAN)  SUNCOM’s Metropolitan Area Network (GMAN) provides the Tallahassee area multi-site,high-speed networking/connectivity between user local area networks (LANs), with controlledgateways to common state applications and connects them to wider area networks such as MFN.Printed 2/4/2011 9:39 AM  Page 15 
  16. 16. DivTel Business Model and Value 2.0 The GMAN service is currently available in the Tallahassee area only through CenturyLink,where the majority of SUNCOM customers are headquartered.Remote Broadband Services (RBS) SUNCOM’s Remote Broadband Service (RBS) provides customers access to the Internet fromlocations outside large customer offices. RBS utilizes the latest broadband “best-effort”transport technologies common to the consumer (rather than the business) market. RBS providescost-effective remote broadband access via Digital Subscriber Lines (DSLs), which is digitaldata transmission over the wires of a local telephone network. Eligible SUNCOM customersworking from small offices and homes will be able to connect via the Internet to work-relatedresources.Florida Internet Resource Network (FIRN) FIRN provides a data communications to K-12 schools. Schools pay for FIRN services almostexclusively through federal subsidies known as “E-rate” (averaging 70%) and a state match(averaging 30%).E-Rate subsidies come from the Universal Service Fund (USF) which is financed through feescharged to every user of telecommunications services throughout the USA. Erate is one of foursupport programs funded through a USF fees charged through companies that provide interstateand/or international telecommunications services.FIRN uses the MFN infrastructure provided by AT&T but includes some E-Rate qualifiedfeatures, like email and special filtering, that are not a part of MFN.Southwood Shared Resource Center (SSRC) Ports Because the SSRC and DivTel were a part of one organization in the past and collaborated toprovide some integrated services (e.g. the SSRC housed the hub of the State SNA backbone andthe State Internet firewall), SUNCOM provided data communications services to the SSRC andits customers within the SSRC facility. This relationship is unique because SUNCOM’sstatutory authority and business model do not include services beyond the point (the router)where a building or campus connect to the State Network. This SUNCOM service was codifiedin the 2010 General Appropriations Act and SUNCOM is now required to meter usage (ratherthan charge flat fees).9Other Data Services SUNCOM also provides a small quantity of other services that are small and/or near end-of-lifelike centralized Fax, Router (a legacy service known as Routed Transport Service, State ofFlorida Internet Access (SOFIA) and Local Area Network port management at the CapitalCenter Office Complex (where DMS is housed).Printed 2/4/2011 9:39 AM  Page 16 
  17. 17. DivTel Business Model and Value 2.0 Conferencing Reservationless Voice Conference Services SUNCOM Reservationless Voice Conference Services gives on-demand conferencing, 24 hoursa day, 7 days a week for up to 125 participants without the need to make a reservation.Video Conference Services SUNCOM provides video bridging and gateway services which enable real time audio and videointeraction between three or more locations equipped with video conference equipment.Web Conference services  Web Conferencing is used to conduct live meetings, training, or presentations via the Internet.This enables customers to share projects, data, presentations, and ideas from and to any computerconnected to the Internet and a telephone.Infrastructure Telecommunications Infrastructure Project Services (TIPS) TIPS assists customers in procuring, installing and project managing telecommunicationsinfrastructure (e.g., cabling and wires) for communication services, including voice, data, video,Close Circuit TV, imaging, and wireless LAN within a building or campus. TIPS establishescontracts and monitors performance of installation vendors, and simplifies contracting andproject management with a single point of contact from start to finish.Mobile Wireless Data Services SUNCOM’s Aircard service enables laptop computers to mobile access the Internet or the StateNetwork through SUNCOM’s secure and encrypted Virtual Private Network service.SUNCOM’s mobile services partners include AT&T, Sprint and Verizon.Smart Phones SUNCOM’s Smartphone contracts provide more robust SUNCOM sanctioned alternatives to theState Term contract for cell phones. SUNCOM’s mobile services partners include AT&T, Sprintand Verizon.Printed 2/4/2011 9:39 AM  Page 17 
  18. 18. DivTel Business Model and Value 2.0 SUNCOM Revenue by Services FIGURE 2Customers Sections 282.703-707 F.S., authorize SUNCOM to serve state agencies, universities, privatecolleges, the judiciary, cities, counties, schools, libraries and private-not-for-profit entities thatare primarily funded by the state.In accordance with 282.703 F.S., state agencies are required to use SUNCOM fortelecommunications services unless they obtain an exemption from DMS verifying thatSUNCOM cannot meet their needs.The inclusion of other Florida public sector customers in DivTel’s customer base creates theopportunity for them to get SUNCOM discounts and maximizes SUNCOM’s bulk purchasingleverage and economies of scale.Printed 2/4/2011 9:39 AM  Page 18 
  19. 19. DivTel Business Model and Value 2.0 SUNCOM Revenue by Customer Type FIGURE 3SUNCOM Revenue from State Agency Customers  FIGURE 4Printed 2/4/2011 9:39 AM  Page 19 
  20. 20. DivTel Business Model and Value 2.0 Standards SUNCOM establishes state telecommunications standards both explicitly and implicitly.Explicit standards are established in Florida Administrative Code per SUNCOM’s rule writingauthority under p. 282.702(2) and (9) F.S. Those rules cover the security and compatibilityrequirement of the state network, customer ordering and billing, and vendor relationships.Additional explicit standards can be found through operating guides for SUNCOM services andcontract terms with vendors.SUNCOM’s implicit standards come from the mere existence of SUNCOM’stelecommunications services and the statutory requirement that state agencies use them. The factthat vendor services delivered through SUNCOM are centrally designed, delivered andconfigured in routine ways leads agencies to buy services that are compatible and meet the costand security requirements of the state.Unbillable Support of the Florida Government Enterprise Among DivTel’s obligations is support for some ongoing public services and periodic projectsfor which there is no specific billable customer or direct appropriations. DivTel must recoverthese costs from customers through payments for SUNCOM services. While these activities areimportant and valued, the associated subsidies inflate SUNCOM charges.State Directory Information Starting in 1986 when the dedicated backbone for voice services was established, SUNCOMpublished lists of state telephone numbers and staffed an information line (866-693-6748 toll freeor 850-488-1234 from within Tallahassee) to help callers contact state offices and employees.SUNCOM is also the source of Florida government listings to all local telephone bookpublishers.The printed SUNCOM telephone book was replaced in 1996 by a Web site(http://411.myflorida.com/apps/411/tel411.public_411) but SUNCOM continues to answercallers to State Information and provide local listings in accordance with statutory requirements10at a cost of approximately $327,000 annually.State Emergency Services Telecommunications (ESF‐2) DivTel is assigned responsibility for Emergency Support Function-2 (ESF-2) by the Division ofEmergency Management’s Comprehensive Emergency Plan11,12). This means that any and all ofDivTel’s staff, services and assets are available to help during disaster and DivTel must sustaindisaster preparedness. When declared disasters occur however, DivTel is often able to obtainsome compensation through federal disaster grants.Southwood Shared Resource Center Support Until 2007, DivTel and Southwood Shared Resource Center (data center; SSRC) were a part ofthe same department (Management Services) and collaborated to offer joint services. Forexample, the SSRC was used as a central hub of state networks dating from the early 1990s.13Because these resources were so tightly intertwined, it was not possible to distinguish betweenPrinted 2/4/2011 9:39 AM  Page 20 
  21. 21. DivTel Business Model and Value 2.0 the State Network and SSRC customer data traffic that moved through these circuits. SUNCOMwas able to only partially recover these costs by charging SSRC customers small flat fees.Technology changes have eliminated the need for SSRC to act as a central State Network hub.14This means that the data communications hardware inside the SSRC and the associated circuitsnow serve the SSRC and its customers exclusively. Therefore, SUNCOM has sought todiscontinue subsidizing maintenance of the SSRC’s internal hardware since 2006 but has beenunable to do so. The ongoing cost of this subsidy is $365,000 annually.SUNCOM recently developed a state-of-the-art method for metering SSRC customer’s usage ofthis equipment and circuits. Because this approach will attribute charges precisely in proportionto customer resource usage (as opposed to flat fees that over-charge minimal users and under-charge heavy users), it is more equitable and provides customers clear economic incentives (see“CAREIVA Principles of Product Design and Chargeback” on page 33). SUNCOM hopes toimplement these charges to fully recover the associated costs in the future and turn responsibilityfor doing so to the SSRC as is the standard for all other SUNCOM data center customers.School District Grant Assistance All K-12 schools in America are eligible for federal grant subsidies for their telecommunicationsservices. The program known as E-rate can cover as much as 90% based upon the poverty levelof students (the average for Florida is 70%). Prior to the 2010 Legislative Session, Florida’sstate government paid the other 30% for school’s data communications through an appropriationto the Department of Education (DOE). DOE used these funds to pay SUNCOM for use of theFlorida Information Resource Network (FIRN the K-12 data network) while schools paid the restwith E-rate funds or E-rate credits.By federal rule, SUNCOM is ineligible to receive e-rate funds even to cover its administrativecosts to serve schools. Thus SUNCOM administrative fees were covered by the State match(which also covered related DOE administrative costs). But because the law limited thosepayments to only 7% of the state match was provided (or approximately 2% of total K-12charges) SUNCOM was compelled to subsidize the rest of its administrative support of schoolcustomers.SUNCOM’s subsidy of this effort increased in 2010/11 when the state discontinued funding theDOE E-rate office which helped schools wade through the complicated E-rate grant process.Because all schools use E-rate to pay for SUNCOM services, SUNCOM must replace theassistance that DOE provided.15 SUNCOM has federal approval to use its broadband grants forthis purpose and, as of this writing, is seeking legislative approval to do so (see “E-rateAssistance to Schools and Libraries” on page 63).Expanding Broadband Access The 2009 Legislature enacted section 364.0135 F.S., designating DMS as the lead Agency topromote broadband deployment. This legislation was written in conjunction of Federal programsand grants to foster wider availability to broadband in “unserved and underservered regions”.Among its duties, DMS is to “Encourage the use of broadband Internet service … through grantprograms”. DivTel is meeting its statutory obligation and has obtained Federal grants butPrinted 2/4/2011 9:39 AM  Page 21 
  22. 22. DivTel Business Model and Value 2.0 without any initial funding for the effort. See “Enhancing Florida’ Economic Competitivenesswith Broadband” on page 61. DivTel’s ongoing efforts will be funded mostly from Federalgrants but DivTel must satisfy the State’s in-kind contributions to be eligible.Data Center Consolidation Project In 2007, the State of Florida began to consolidate computing services. In most instances thisrequires moving servers and mainframes from office buildings where computer users are locatedto one of three Primary Data Centers within Tallahassee.When users are collocated with this equipment, communicating with them is fast and does notrequire use of circuits outside of the building. After the equipment is moved across town,SUNCOM circuits must then carry these communications and these circuits must be substantialto meet the daily demand of users.16SUNCOM has engaged in a substantial effort during data center consolidation to design,implement and test the new IT environment for each affected customer. No funding wasprovided to SUNCOM for this costly effort.Data Center Circuit Consolidation Project Twenty SSRC customers had established separate SUNCOM connections from within the SSRCto the outside. After DivTel mangers described this condition to legislative staff, a requirementwas added to proviso language in the 2010 General Appropriations Act9 compelling these SSRCcustomers to move onto a common SUNCOM circuit. See “Pooling” on page 24 for adescription of the savings. No funding was provided to SUNCOM to implement this project.Printed 2/4/2011 9:39 AM  Page 22 
  23. 23. DivTel Business Model and Value 2.0 SUNCOM’s Purpose This section describes the reasons SUNCOM does the things described in the previous section.In essence, it confirms why SUNCOM was created through the benefits it brings to Floridagovernment.Enterprise Cost Savings Internal service providers, like SUNCOM, have business models that are very similar to theprivate sector, but they differ from vendors in its key purpose: Success for Vendors comes when customers pay as much as possible, SUNCOM’s success comes when customers pay as little as possible.17SUNCOM’s business model is designed to save money for Florida government in four generalways: 1. Getting services at the best price. 2. Achieving enterprise economies of scale. 3. Helping consumers get the right service. 4. Helping consumers get the right amount of service.Cost Reductions verses Cost Avoidance Cost savings come in two forms; cost reductions and cost avoidance.Cost Reductions Cost reductions occur periodically when there is a change to SUNCOM services that enableslowering prices to SUNCOM customers. Derived from technological advancements,marketplace changes, new or amended contracts and redesigning services, they are realized onetime; then become unseen perpetual cost avoidance thereafter. Achieving cost reductionsrequires vigilant study, innovation and a constant stream of new and/or amended contracts.Cost Avoidance The daily cost avoidance delivered by SUNCOM is more subtle, yet far greater. Conservativelyestimated to be over seven times the annual SUNCOM administrative costs, these savings arederived from the costs that would be incurred if SUNCOM did not exist. Without SUNCOM, allof the services it provides would be purchased individually by separate government entitieswithout the expertise, negotiating leverage and economies of scale SUNCOM delivers.18Because cost avoidance is an estimate of what was not spent, it is intangible. The question,“what would it have cost if it had been bought another way?” is impossible to answer withoutactually duplicating the purchase. Since such duplication is contrary to the enterprise purchasingpolicies set forth in Florida Statutes (for state agencies)91 the lack of comparative examples maylead some to the mistaken assumption that cost avoidance is not real, thus devaluing the largestbenefit of the enterprise model. In spite of the policy however, there actually is one salientexample.Printed 2/4/2011 9:39 AM  Page 23 
  24. 24. DivTel Business Model and Value 2.0 In October of 2009, the Florida Department of Education (DOE) alone sought to replace thestatewide education network known as the Florida Information Resource Network (FIRN).FIRN is used primarily by K-12 schools which are subsidized by a Federal grant program knownas E-rate. Prior to DOE’s attempt to replace FIRN, it was a SUNCOM service. Because the bidsto DOE were significantly higher than existing SUNCOM services, DOE ultimately came backto SUNCOM for those services.At DOE’s request, SUNCOM established a new FIRN contract to meet specific DOErequirements rather than use existing SUNCOM services.19 The resulting SUNCOM prices are39% lower than the best offer to DOE20 even when SUNCOM’s mark-ups to recoveradministrative costs are included.21 Extrapolating these 39% savings to all of SUNCOM’sservices suggests savings of approximately $71.8 million annually. This is over seven timesSUNCOM’s administrative costs meaning the state receives at least a 700% return on its annualinvestment in SUNCOM.22Cost Savings Mechanisms SUNCOM cost savings come from a variety mechanisms listed below. Almost all of them arecost avoidance.Volume Discounts Volume discounts are achieved simply from the bulk size of SUNCOM’s contracts. Throughone procurement, vendors provide standardized services to all SUNCOM customers. They arewilling to discount heavily to secure bulk sales that would otherwise go to competitors and toachieve efficiencies in doing so that would otherwise be impossible. This leverage can only beachieved through an entity that can aggregate the buying power of the state like SUNCOM.Pooling Volume discounts can be increased when SUNCOM commits to buy23 large blocks ofhomogenous services and resells them incrementally.With these pools, the excess capacity customers must normally buy becomes unnecessary. Theyonly pay for what they use thus giving them clear incentives to use less. SUNCOM alone takesthe risk that too many or too few services have been bought in the pool and uses the Law ofLarge Numbers24 to minimize that risk.25Vendors are willing to give the greatest discounts for pooled services because of thepredictability and efficiencies derived from fixed quantities of homogenous services.26 And thestate enterprise achieves a high degree of cost saving by rendering large blocks of services intosmall units to be used exclusively where they are needed. See how pooling compares to otherenterprise purchases in Figure 6.An example of this is now being implemented at the Southwood Shared Resource Center(SSRC). Several customers maintained 20 separate connections to the SSRC. Through a jointeffort between SUNCOM and SSRC staff, these were combined into one for an enterprisePrinted 2/4/2011 9:39 AM  Page 24 
  25. 25. DivTel Business Model and Value 2.0 savings of 50% ($512,544 annually). To achieve this, SUNCOM must make a considerableinvestment to develop metered billing so each customer pays their fair share of the consolidatedconnection. But once in place, this new approach can be ultimately replicated at other datacenters and foster incentives for further savings through peak-load pricing (see “Peak LoadPricing” on page 34).Economies of Scale  State Enterprise Economies of ScaleSUNCOM’s consolidated procurement of telecommunications services eliminates the need forprocurements among state agencies. Simply allowing agencies to order services throughSUNCOM’s existing contracts prevents duplication of effort throughout the enterprise.27The standardization SUNCOM provides also brings technical economies of scale. Without it,the technical approach of every state agency would be unique. Interconnecting agencies into acommon network would drain effort and resources. And when problems arise, diagnosis andresolution would be more difficult and lengthier without a consistent technical approach.Finally, as staff move between agencies and agencies reorganize, the standardized knowledge ofSUNCOM telecommunications is transferred as well thus avoiding costly relearning anddowntime.Partner Economies of ScaleVendors save as well from SUNCOM economies of scale. The processes for ordering, installing,invoicing, collecting payment and trouble management are standardized under SUNCOM. Forsome services, SUNCOM assumes many of these responsibilities because it is in a better positionto do so.28 For the rest, there is savings from uniformity of the processes. In this sense,SUNCOM acts as a partner to vendors, achieving mutual efficiencies that translate into vendordiscounts.Vendor Risk Mitigation Without SUNCOM acting as a single customer for the enterprise, vendors must bill and collectfrom all Florida government customers directly. Some customer payments would trickle in,others require extra collection efforts and dispute resolution, and still others might not evercome.SUNCOM audits and pays these consolidated invoices timely, in one lump-sum; before beingpaid by SUNCOM customers.29 And when there is a problem (e.g. disputable charges),SUNCOM staff stands between the end user and the vendor as a consistent experiencednegotiator with the leverage of SUNCOM’s bulk contract.By reducing thousands of vendor invoices into one, running standard audits, ensuring timelypayment with float, eliminating the risk of nonpayment, abolishing vendor collection efforts andacting as a good faith partner, SUNCOM provides saving to vendors that translate into lowerprices to the enterprise.Printed 2/4/2011 9:39 AM  Page 25 
  26. 26. DivTel Business Model and Value 2.0 Specialization and Expertise Without SUNCOM, each state agency would need to design, procure and managetelecommunications services from the ground up. For most, this would be a part time job andeach effort would come in periodic cycles. And for all, the prerequisite knowledge would belimited by agency needs at a specific time.SUNCOM has a team of telecommunications engineers with careers dedicated to studying,designing, procuring and supporting telecommunications. They are engaged in such projectsevery day for a variety of customers giving them knowledge they use to the benefit of allcustomers and the enterprise as a whole.Interoperability Telecommunications by definition requires compatibility between sender and receiver. The bestway to ensure this is to set standards that all adhere to. To some extent the industry does thisnaturally when standards do not impede profits.SUNCOM is statutorily charged30 to foster interoperability so Florida can realize savings fromstandardization and prevent wasteful extra efforts to overcome incompatibilities between Floridaagencies.Security SUNCOM implements network security at an enterprise level for Florida government. Thisallows the state to have a common network on which agencies can communicate with eachothers with reasonable freedom from the chaos and predation of the Internet. But SUNCOM’ssecurity also provides a level of security for each customer and opportunities for them to useSUNCOM tools to monitor their security conditions.31, 32Accountability, Customer Empowerment and Stakeholder Transparency SUNCOM’s business model includes the collection and centralization of detailed invoicing datafrom vendors. This enables verifying vendor charges and rebilling of SUNCOM customers.But the way SUNCOM presents invoicing data also gives customers the opportunity to view,manipulate and report this data in ways that are uncommon to consumer billing. This givesFlorida agencies extra ability to scrutinize charges.Because this data is comprehensive of telecommunications charges and usage, SUNCOM and itsstakeholders can also use it in strategic planning, negotiations and policy setting. Without thisdata, the state would be disadvantaged during negotiations in which vendors are better informedof than the state about enterprise requirements, trends and opportunities. Policy makers wouldalso be unable to get comprehensive and accurate reports on the state’s telecommunicationsneeds. 33Printed 2/4/2011 9:39 AM  Page 26 
  27. 27. DivTel Business Model and Value 2.0 Catalyst for Technological Transition Telecommunications Strategic Planning No single state agency, focused upon its specific mission to serve citizens, would necessarilyadopt telecommunications strategies that are good for the whole state enterprise. And achievingconsensus through a consortium of part time participants with parochial priorities would be tooslow and ineffective to keep up with technological and market opportunities. This is whySUNCOM is statutorily charged with enterprise telecommunications planning and does so with abroad and long term perspective.34Self Funded Investments SUNCOM receives no direct General Revenue appropriations or other tax revenues.35 Rather, itis self funded through charges to customers for the telecommunications services SUNCOMprovides. This means the Legislature does not need to provide cash infusions to keep Floridagovernment current with telecommunications progress. Instead, SUNCOM establishes contractsthrough which vendors and SUNCOM float these investments with incremental payments fornew services. Vendors often accept pay-as-you go returns based upon SUNCOM’s enterprisevolume commitments.36 This allows the state to reap the rewards of new technology withminimal penalties from early adoption.Buffering Costs Outside the Mainstream Imposing premium costs on customers using technologies outside of the mainstream is commonto the marketplace.“Early adopter” prices are higher due to the lack of economies of scale and vendors are able touse their lead (temporary monopoly) over a technology to quickly recover Research andDevelopment costs. In spite of these premium costs, some of these technologies can producesignificant rewards from early adoption. Thus, with its ability to design and float new servicesthat leverage the latest technology on a large scale, and by acting as a partner to vendors makingotherwise risky investments, SUNCOM becomes a catalyst for these savings.36,37At the other extreme, some customers cannot afford to keep-up with mainstream technology.Once out of the mainstream, economies of scale are lost, many vendors stop supporting thetechnology and competitive pressures on pricing diminish. SUNCOM buffers these costs sothese customers can redirect resources to adopting current technologies rather remaining trappedin paying premiums for old technology.Printed 2/4/2011 9:39 AM  Page 27 
  28. 28. DivTel Business Model and Value 2.0 SUNCOM’s Approach and Principles This section describes how SUNCOM performs it duties in a manner that achieves its purposes.Establishing Standards SUNCOM both implicitly and explicitly establishes standards for the enterprise to ensure:  Interoperability to mitigate costly incompatibility throughout the enterprise.  Quality to mitigate costly compensation for deficiencies and downtime.  Security to mitigate data breaches and malicious attacks.Service Normalization Telecommunications standards are established for Florida government from the mere fact thatbulk services are offered through SUNCOM. Broad use among agencies limits instances whennon-standard technology is used that could lead to incompatibility, and security and qualitydeficiencies.38Florida Statutes and Florida Administrative Code (“Rules”) Florida Statutes charge DMS with creating telecommunications standards for the enterprise andgives it rule writing authority through Florida Administrative Code.30 Through a nine monthprocess in 2007, SUNCOM engaged in a major rewrite of these rules to create 60FF, F.A.C.DMS went beyond the requirements for public hearings, the time it dedicated to the process andsolicitations for comment. The results were both detailed and extensive rules covering enterprisenetwork standards, security and associated business processes that have proven to be reliable andtransparent while granting customers and vendors the flexibility they need.Developing Services SUNCOM strategically plans for services long before developing them. But unlike the privatesector, strategies are not focused on a marketing perspective and profits. Rather, they are basedupon the value that emerging technologies will bring to Florida government.Two Ways for Internal Providers to Deliver Services Internal service providers like SUNCOM can 1) buy assets and pay staff to use those assets todeliver services, or 2) buy services from the private sector and make them available to internalcustomers. Today, SUNCOM chiefly uses the later approach thus rendering it 93% outsourced.Another 2% is paid to other government entities with the remaining 5% used to plan, design andprocure these services, and manage orders, inventory and billing for them.39 It should be notedthat the 93% that is outsourced is demand driven; i.e. SUNCOM customers determine how muchis paid to vendors based upon the services they order and use.Printed 2/4/2011 9:39 AM  Page 28 
  29. 29. DivTel Business Model and Value 2.0 SUNCOM’S Cost Distribution  Paid to other  Internal  Government  Operations, 4.9% Entities, 1.8% Paid to Private  Sector, 93.3%FIGURE 5  Printed 2/4/2011 9:39 AM  Page 29 
  30. 30. DivTel Business Model and Value 2.0 Service Development Criteria Here are the primary criteria SUNCOM uses during the strategic planning to develop newservices. 1) Is there likely to be sufficient demand for the service? SUNCOM customers ultimately determine what technologies will be used because their business needs drive demand. SUNCOM must be careful to avoid attractive technologies that have little practical value to its customers. 2) Is providing the service within SUNCOM’s statutory authority? SUNCOM draws a bright line between the telecommunications services it provides and other information technology based upon the confines of legal its authority. 3) Can SUNCOM do it better than the alternatives? There are opportunities where SUNCOM could establish services that comply with reasonable statutory interpretations of SUNCOM’s duties, but SUNCOM should not do so because it is unlikely to do it well and/or there are valid enterprise alternatives. SUNCOM defers to better alternatives after confirming that the integrity or security of the enterprise model will not be jeopardized. 4) Will the technology achieve critical mass in the broader market-place? If the technology is not widely adopted, economies of scale and wide-spread compatibility will not occur leaving SUNCOM to sell a nonstandard and expensive service. 5) How will the service fit with other SUNCOM technologies, services and infrastructure? Some new services may complement existing SUNCOM services. Others can become preferred substitutes. Many can leverage supporting SUNCOM services and infrastructure to save costs. These factors can make a service more or less viable for SUNCOM. 6) How will the service fit the SUNCOM business model? SUNCOM must be able to render technologies into billable services using the principles of CAREIVA (below). 7) Is investment in a new technology less than its returns? Services that appear attractive may actually be undesirable to SUNCOM customers because the cost of transition to it will be less than the benefits, or better replacement technologies are emerging, or substandard quality will create costly upheaval. SUNCOM must be cautious to avoid picking dead-end technologies that will undermine the value it brings to the state. 8) Is the underlying technology proven to be scalable and reliable? Regardless of how elegant a technology is designed, taking it outside of controlled conditions on a small scale into the real world can make it untenable as a business tool. 9) Are the claims regarding the benefits of the technology sound? The creators of new technologies often lay claim to lofty improvements in productivity and cost. But they sometimes fall short of the promise because the narrow conditions necessary to realize them.Cost Accounting Seven Ways to Buy Services There are at least six major ways to fund enterprise services using internal service providers likeSUNCOM. The below chart depicts the relative advantages of each with one additional optionfor a non-enterprise approach (i.e. the first one titled “Isolated Purchases”).Printed 2/4/2011 9:39 AM  Page 30 
  31. 31. DivTel Business Model and Value 2.0 Cost Recovery Models for Enterprise Services        Enterprise Resources          Internal Billing              Metered Billing  Isolated Purchases  State Term Contract  Single Funder  Fixed Shares Distributed Blocks Proportional Shares  Pooled Services  Cost Recovery  Type            Each state agency buys  An enterprise contract is  All services are funded from a  Each customer pays a fixed  Each customer buys a block of  Each customer pays a share  Each customer pays for the  services on their own directly  established through which all  source other than customers.  share regardless of how much  services through an internal  proportional to the amount of  incremental units they use  from vendors.  agencies buy services.  For example; a shared  service they use from a pool  provider.  the resources they use from a  when they use them from the  Description  network is established under  based upon willingness or  pool.  internal provider’s shared  a single contract with no  ability to pay, or proxies.  pool.  charges to user agencies.  Charges are dependent upon  Agencies pay contract prices  A single entity pays a flat fee  Service prices are irrelevant  Customer charges are fixed,  Prices per unit and total  Prices per unit are fixed, total  vendor contracts with each  directly to the vendor.  or bulk prices that are  since total charges are fixed  unless the capacity of the  charges change every month  charges adjust with usage.  Prices/Charges  agency.  irrelevant to customers (since  until renegotiated.  customer’s block is upgraded  for every customer.  someone else pays).  or downgraded.  Bulk Purchasing Leverage              Economies of Scale              Economic Usage Incentives              Shared Excess Capacity              Vendor Costs Minimized              Equitable             Shortages & Rationing Unlikely             Enterprise Cost/Usage Reports              Simple Chargeback              Buffered Transition Cost               Compatible & Secure              Specialization & Expertise              True    Mostly true    Partially true    Mostly untrue    Untrue See the companion explanation to this figure in Attachment 7 on page 89.  Figure 6Printed 2/4/2011 9:39 AM  Page 31 
  32. 32. DivTel Business Model and Value 2.0 The Simplicity/Savings Trade‐off  Single Funder Enterprise Resources Fixed Shares Internal Billing from Pool Distributed Blocks State Term Contract Metered Billing Proportional Shares from Pool Pooled Services Isolated Purchases Savings Enterprise Resources Internal Billing Metered BillingFIGURE 7The Limits on Imitating the Private Sector As mentioned above, SUNCOM’s purpose differs from the vendors because it is successful whencustomers pay as little as possible while vendor’s success comes when customers pay as much as 40possible. Thus, many common vendor practices are inappropriate for SUNCOM. For example:  Setting prices based upon what the market will bear, rather than costs, maximizes profits by taking more than necessary from customers.  Marketing designed to induce unwarranted enthusiasm distorts customer priorities.Printed 2/4/2011 9:39 AM  Page 32 
  33. 33. DivTel Business Model and Value 2.0   Bundling services and offering loss-leaders to entice customers to pay for things they do not genuinely need enhances income by encouraging waste.  Creating perpetual dependency on imbedded technologies is a costly impediment to progress.  Price discrimination based upon the relative availability of alternatives or customer willingness to buy enhances profits at the expense of targeted customers.  Permitting customers to make unnecessary purchases increases profits at the customer’s expense.  Producing vague invoices and contracts diminishes the opportunity for true cost accounting and comparisons.CAREIVA Principles of Product Design and Chargeback SUNCOM services, pricing and marketing are designed to give customers the information, means andincentives to save money. To achieve this, SUNCOM follows the principles known by the acronymCAREIVA. C Resource usage must be discretely Countable: the number of units consumed can be measured. A Resource usage must be Attributable: the customer who uses them can be identified. R Counting and Attribution must be done Repeatedly: determining how much each customer uses is possible for every bill. E Prices must be Equitable: charges are proportional to cost of resources used or the enterprise value usage creates. 41 I Prices should give customers clear Incentives: customers are rewarded with savings when they consume fewer resources or foster benefits to the enterprise.41 V Charges must be Visible: customers can readily see the fiscal consequences of their purchases and consumption. A Saving money must be Actionable: customers can easily and quickly do something to reduce or eliminate unnecessary charges.There is cross-dependency between these principles. For example, it is pointless to count usage if theconsumer cannot be identified. And it must be done every month if the service is to be billable. If pricesare not proportional to the resources used, consumption will not be directed to save money, regardless ofhow effectively SUNCOM bills. And none of this is useful if the customer cannot see nor do anything toreduce costs.In most instances, the CAREIVA principles can best be applied when charges are attributed at the lowestlevel possible. Paying by the drink rather than the jug minimizes unused capacity and gives customers thegreatest visibility into the consequences of their demands and provides them the incentives and ability todo something about it.Printed 2/4/2011 9:39 AM  Page 33 
  34. 34. DivTel Business Model and Value 2.0 Designing SUNCOM Services using CAREIVA SUNCOM services must consider CAREIVA principles from inception of a service in order to deriveCAREIVA benefits. Application of CAREIVA is universal for all SUNCOM services. But how they areapplied depends largely upon the mechanisms available for chargeback and whether the service is pooledor non-pooled.Redesigning Pooled Services  All customers need excess capacity for most services so they have enough during peak demand. This means they commit to a size larger than they typically need. When excess capacity is held at the enterprise level it can be shared and each customer need not make any volumecommitments.In a pool, at the moment one customer needs more, there is a likelihood others will not, and still otherswill need less than they normally do. The larger the pool, the more likely this is true by the Law of LargeNumbers.24 The extra capacity required for one customer can be obtained from the unused capacity ofothers. So every customer buys only what they need, when they need it from the pool. This sharedcapacity reduces costs for the whole enterprise.FIGURE 8Pools however, require a provider like SUNCOM to hold each customer accountable for usage from thepool. Otherwise, costs will escalate. So SUNCOM breaks pooled services into increments, counts(“meters”) and attributes to them to customers for billing. When these increments are repeatedlycountable and attributable, and equitably priced, they provide customers the clearest Incentives availableto save.Peak Load PricingMost customer activities occur during the regular business day. As a result, significant spikes in demandoccur daily and there is reduced usage at night. Naturally, infrastructure must cover peak capacity thuswastes excess capacity in off-peak hours.Pooling provides an additional opportunity to implement cost savings incentives that spread this usageacross 24 hours to reduce the peaks and therefore, the total capacity required. Known as “peak loadpricing”, discounts are offered during off-peak periods to inspire customers who have the flexibility toshift their activities.42 This is only possible for pooled services delivered through fixed assets when thecharges are metered rather than flat rated.43Printed 2/4/2011 9:39 AM  Page 34 
  35. 35. DivTel Business Model and Value 2.0  Peak Peak 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 Noon Noon Same price is charged all day. The same usage spread throughout the day using peak load pricing incentives.FIGURE 9Design of Non‐pooled Services  When services cannot be disintegrated by SUNCOM to be resold in increments, they cannot be pooled (shared). In such cases, SUNCOM simply uses the vendor’s service definition and passes the charges through to customers. The savings from shared excess capacity are unattainable, butthe other savings from bulk purchasing leverage, economies of scale, etc. are still realized.Common Mistakes in Chargeback Design There are several common mistakes internal providers make that distort CAREIVA principles. Some areinspired by the desire to mimic successful marketing practices from the private sector; others by a desireto simplify cost recovery thus alleviate the complexity and work that comes with more effectiveapproaches. But marketplace imitation and shortcuts often undermine the cost saving purpose of havingenterprise providers like SUNCOM.Pitfalls of Selling Bundled PackagesBundled packages that are common to the private sector come in two forms; 1) combinations of differentservices and/or 2) blocks of one kind of shared service. Offering either is appropriate only whenSUNCOM can realize savings from selling such packages or the vendor realizes such savings that can bepassed through to SUNCOM customers. This only occurs when there are true technical economies frompackaging.Offering bundled packages because customers are familiar with them, or they are standard industrypractice, or for marketing purposes to entice sales, or because the flat fees for them are more predictable isimproper for an internal service provider charged with saving money.Bundled Variety Packs Combining different services is a common way for rewarding customers with discounts for buying something they normally would not buy. In such cases, a vendor is willing to accept a lower profit from customers with whom they have existing relationships to counter a lack ofenthusiasm for a particular service. Smaller profit is better than no profit for a vendor, but is of no interestto SUNCOM.Bundled Blocks of Shared ServicesPrinted 2/4/2011 9:39 AM  Page 35 
  36. 36. DivTel Business Model and Value 2.0  Many services are only available from vendors in bundled blocks with flat fees. For example, local phone service provides unlimited local calling for a set monthly fee. This is essentially a bundled block of local calls.But when a pool of services can be shared among internal customers, SUNCOM will miss a bigopportunity for savings if it resells them in smaller bundled blocks. Breaking a large pool into smallerpools (blocks) dilutes enterprise savings because excess capacity cannot be shared among customers.Rather, selling the service at the lowest incremental level retains economic incentives and equity.Pitfalls of Proportional Allocation A common practice for internal service providers is to charge each customer a proportionate share of the total cost of a pooled resource rather than break those costs into fixed prices tied to increments of usage. For example, if four customers equally use a single resource costing a fixedcost of $100 monthly, proportional charges means each will pay $25 in a given month. If one customerdiscontinues, the remainder pay $33.33 each (if they continue using equal shares). This guarantees that100% of the resource will be recovered, results in no surplus revenue and is equitable if the proportionatecharges are based upon actual customer usage.But with the guarantee that all costs will be covered, the internal service provider is less likely to takesteps to reduce costs when customers reduce demand.Worse yet, proportionate charges impair customer Incentives to be frugal because they distort the clearfeedback customers get from fixed prices. When one customer is charged a different amount than themonth before because other customers changed how much they used, the message becomes diluted.Customers give-up on their efforts to control costs because their actions appear to have little direct impact.When prices are fixed however, the only variable altering monthly charges is usage. Increased usagemeans a higher bill thus showing the consequences to each customer from their demands.Finally, proportionate charges result in highly unreliable budget projections for customers. They havesome means of predicting their own usage, but no means of predicting usage of others and understandingthe implications to their costs.If an internal provider is capable of implementing a monthly proportional share approach equitably, it canimplement billing with fixed prices. The two approaches otherwise use the same data to apply charges.Setting prices rather than apportioning costs has the one additional requirement to make usage projections.This does create some risks of over/undercharging, but enterprise service providers, by definition, can usethe Law of Large Numbers24 to spread those risks. Therefore, internal providers should bill with fixedprices to maximize customer incentives and perceived equity.Pitfalls of Fixed Shares and Proxy Pricing Sometimes when it is difficult to count and attribute units of usage, internal service providers rely upon other measures in place of usage.For example, when the amount of bandwidth consumed cannot be attributed to customers from a pool, thenumber of customer employees or size of its budget might be used as a basis for charges. But the numberPrinted 2/4/2011 9:39 AM  Page 36 
  37. 37. DivTel Business Model and Value 2.0 of staff at an agency would be a credible proxy for bandwidth consumption only if all staff in everyagency uses the same amount of bandwidth all of the time. Because staff duties and the tools available tothem vary, this is not true. Therefore, such proxies are not equitable, encourage waste and are notsustainable models.Cost Allocation and Price Setting The Cost‐Plus Model SUNCOM uses a “cost-plus” allocation method to determine the cost of providing each service. This ismost appropriate for internal providers that primarily buy (rather than build) services that are in turnresold to enterprise customers.44 Approximately 92% of SUNCOM’s costs are such payments to vendors.The remaining eight percent pays for the costs of designing, procuring, and managing these services andthe enterprise networking model.Administrative costs are added to vendor charges for SUNCOM services (“cost plus”). Some specificservices bear more than others based upon the share of administrative resources committed to offering theservice and other factors like the cross subsidies mentioned below.45Cross‐Subsidies Used to Fund Technological Change A major factor that leads to charging less than the full cost of a service is the need to accommodatetechnological change. Designing new services requires an investment of administrative costs and possiblycapital. And when the service first becomes available, not enough customers use it to achieve effectiveeconomies of scale. Given SUNCOM’s self funded model which requires no large investmentappropriation, new services are subsidized by the rest of the operation until they can achieve critical mass(and then become a supplier of subsides for the next change). Net Revenue Service A Service B Service C Service D Mature services Time $0 New & Old servicesFIGURE 10When a service reaches end-of-life, not all customers are able to discontinue use at the same time.Charging the true cost of the service without a critical mass of customers would impose higher costs oncustomers that are least able to afford them, and in greatest need of investment funds necessary to makethe change. Thus, such services are subsidized for a limited period.46 In this way, SUNCOM is a catalystfor enterprise technological changes.Printed 2/4/2011 9:39 AM  Page 37 
  38. 38. DivTel Business Model and Value 2.0 Order Processing, Inventory and Billing The last two principles of CAREIVA require that telecommunications charges be viewable and actionable.If customers cannot see the consequences of their usage or clearly identify unnecessary charges and thendo something the reduce them, the incentives of CARIEVA are irrelevant. This means that the systemsthat customers use to order and pay for SUNCOM services should provide relevant information, are easyto understand and use.SUNCOM’s business model has centralized SUNCOM billing since 1975. SUNCOM obtains billingdetail from vendors in massive electronic files and uses it as a basis for calculating customer charges.This detail has been available to customers and policy makers electronically since 2000 throughSUNCOM. With the ability to download, search and sort this data, customers are able to create reports,audit routines and cost allocation distributions from SUNCOM bills.But SUNCOM is doing more to empower customers to reduce telecommunications charges. In April of2010, SUNCOM released a reengineered interface to its billing system known as the SUNCOM Open andShared Information System (OaSIS). OaSIS enables customers to tag all of their charges so they can moreeasily identify them on each bill. These tags can be plain language reminders of the purpose of eachphone number or circuit number, and are completely within the control of customers. They will become apermanent part of the SUNCOM database to appear on every customer bill and inventory list, and will beused by customers to sort, filter and subtotal charges.In October of 2010, SUNCOM released its OaSIS inventory module (in Beta) that provides directcustomer access to SUNCOM’s inventory of customer services for the first time in its 32 year history. Inits Beta form, customers are able to see all of their orders related to data communications services andcircuit locations, and search them using a variety of parameters. When it emerges from its Beta status,OaSIS Inventory will display more data on all SUNCOM services, include the same tags that customerscan create on invoices (and orders) and provide simple tools for making changes.Ultimately, OaSIS will include a user friendly ordering module to simplify establishing and eliminatingservices and a more robust data exchange with vendors to save effort for both partners.Printed 2/4/2011 9:39 AM  Page 38 
  39. 39. DivTel Business Model and Value 2.0 Public Safety Telecommunications  Purpose of the Bureau of Public Safety Telecommunications  Statutory Obligations  Critical services such as law enforcement, fire rescue, emergency medical services and the means for citizens to call them demand the most reliable telecommunications that government and industry can provide. Such demands cannot be left to chance; rather careful coordination and oversight are essential. Therefore, Florida Statutes assigns the Bureau of Public Safety Telecommunications several duties to establish reliable telecommunications that protect lives and property. Regional and Local Emergency Radio Effectiveness and Coordination  Without central coordination of Florida’s public safety radio communications, local and regional authorities would choose radio spectrum without assurance that they will not interfere with, or be interfered by, their neighbors. They also would have no reliable common standard to communicate with other entities when they need help during a disaster. This is why the Bureau under the direction of DMS is “authorized and directed” under Florida Statutes “to develop and maintain a statewide system of regional law enforcement communications”47 and “emergency medical telecommunications”.48 The system is comprised of standards and frequency assignments to ensure reliable radio communications in every county and city. The Bureau is also charged with setting standards “to serve local law enforcement agencies through mutual aid channels”. 49 To achieve interoperability (the ability of these local systems to work together in a disaster)50 the Bureau has implemented and supports a statewide gateway solution (the Florida Interoperability Network; FIN) enhance communications between disparate radio systems of state and local government. FIN can quickly establish multiple communications links between almost all of the more than 200 different state and local emergency dispatch centers throughout the state. The Statewide Law Enforcement Radio System  Absent an enterprise approach to law enforcement communications, each state law enforcement agency could develop separate networks with unique standards. Not only would those networks duplicate significant infrastructure, they would likely be unable to effectively communicate with each other and would demand far more radio spectrum than is available. This is why the Bureau is also charged by Florida Statutes to “acquire and administer a statewide radio communications system to serve law enforcement units of state agencies. 51 The result is a shared system, known as the Statewide Law Enforcement Radio System (SLERS), used by all state agencies and some counties. SLERS is also connected to FIN (see above) thus give access to local public safety entities. SLERS also provides digital radios that can provide secure encrypted communications for over 7,500 state law enforcement officers. Printed 2/4/2011 9:39 AM  Page 39 

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