State of Florida Telecom Business Model

Division of Telecommunications
Business Model and Value
1st Edition,
Version 2.0

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

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



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.



 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 enterprise
telecommunications infrastructure, necessary innovation in public safety telecommunications
and the requirement to extend the reach of broadband throughout the state. But with the support
of effective public policies, DivTel has the right strategic approach, resource management
methods and business culture to meet those challenges.



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.



Finally, this document makes extensive use of endnotes that elaborate, give additional
explanations, refer to detailed sources or cite legal authorization. Because such supplemental
information can be a distraction, endnotes rather than footnotes were used and the document is
informative even if they are never read. However, reading endnotes that elaborate is necessary
to achieve a more complete understanding of DivTel. The best way to do so is to separate those
pages to use as a companion document while reading the body.



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

State Intranet using TCP/IP in 1993. It ultimately served all state agencies as a viable business
tool. 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 achieving
enterprise efficiencies for state computing. It was initially comprised of the Division of
Communications (SUNCOM’s parent organization) and the Technology Resource Center. STO
was slated to aggregate all Florida government information technology, but was widely viewed
as hastily planned and poorly executed. Hence it was dissolved between 2005 and 2007 through
a series of budgetary and statutory actions.

During the STO era, much of SUNCOM’s funds normally used to design, develop and manage
telecommunications services were repurposed to STO enterprise information technology
consulting and projects. This depleted SUNCOM’s trust fund, from which approximately $12
million was disbursed monthly, to a balance of $15,500 by July 1, 2005. SUNCOM came
dangerously close to the public sector equivalent of bankruptcy that would have required an
unprecedented 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 a
network to use innovative Internet Protocol (IP) technology known as Multi Protocol Label
Switching (MPLS). MPLS held the promise of bringing all of the best features of existing
SUNCOM IP services into one at considerable savings, faster speeds with more capabilities.
Under the SUNCOM brand known as “MyFloridaNet” (MFN), the MPLS contract was awarded
to AT&T in September 2006 and all customers were migrated by April 2008. MFN has
delivered approximately $14 million in annual cost savings ever since.

Dedicated Backbone Retired
Simultaneous to implementation of MFN, SUNCOM dismantled its dedicated backbone. The
MFN contract used vendor infrastructure thus needed no state backbone to carry data
communications. And the newly competitive voice long distance market offered prices that
overcame the advantages of internal infrastructure. The dedicated backbone was completely
retired by June 2008 leaving SUNCOM largely reliant upon vendor infrastructure and the
competitively open market.

SUNCOM’s Thriving Contribution
With rededicated focus on SUNCOM’s core mission it reemerged from the STO era as an
effective enterprise provider. Despite a series of rate reductions3 that included $14 million in
annual savings from MFN, SUNCOM realized additional unexpected savings from
implementation of MFN and elimination of the backbone.4 The SUNCOM trust fund accrued
balances that led to a $10.2 million reduction through rebates and further rate reductions to
customers over calendar year 2010.



Diminished School Support
In August of 2008, the Department of Education attempted to reprocure the Florida Information
Resource Network (FIRN) without SUNCOM involvement. 5 Prior to that, FIRN was a
SUNCOM service.

As the data communications network for Florida’s schools, FIRN was almost exclusively funded
through 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 than
existing SUNCOM services. DOE abandoned the effort and SUNCOM was compelled to
quickly develop a replacement service.

Less than a year later, DOE discontinued providing assistance to schools to help them obtain
these complicated grants and the 2010 General Appropriations Act eliminated direct funding of
FIRN 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-rate
grants without DOE assistance. But the assistance must come from billing and engineering staff
that are not experts and have competing duties.

Florida Schools and libraries have applied for over $1.4 billion in funding since inception of the
program. Over half of the funding requests were rejected. In comparison, the state of New York
with 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 while
Florida has averaged 3.25%.

Order Processing, Billing and Inventory Innovation
SUNCOM’s centralized order processing, billing and inventory systems have been powerful
tools for controlling telecommunications costs from almost the beginning of SUNCOM.
Customers have been able to obtain detail billing information and place orders electronically
since 1998 and 2000 respectively.

But in 2006 it became clear that, after years of ad hoc development to accommodate the ever
changing SUNCOM portfolio of services, SUNCOM had two choices; 1) implement a wholesale
replacement of these systems with one comprehensive integrated system (commonly called an
Enterprise Resource Planning system or ERP) or 2) reengineer SUNCOM’s foundational
components (“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 when
the ERP is turned-on), and often result in failure.6 SUNCOM chose the other approach by
creating the SUNCOM Open and Shared Information System (OaSIS) using a small team at low
cost and with periodic low-risk release of enhancements.

After two years of reengineering, the first OaSIS user enhancement of SUNCOM bills was
released in April of 2010. A second inventory component was released in Beta in October 2010.

OaSIS has already achieved widespread popularity among agencies with its innovative features
such as the customer ability to permanently tag charges with plain language labels. It will
ultimately empower customers to control charges to an extent that is uncommon to both the
telecommunications industry and ERPs.

A Complete Mobile Telecommunications Offering
Near the end of the STO era, DMS management decided to offer mobile telecommunications
services through two different DMS divisions. SUNCOM provided smart phones and air cards
while 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 central
repository of mobile services usage and costs. 7 Worse yet, the distinction between smart phones
and cell phones became increasingly difficult thus obscuring the assignment of these services
between the two divisions.

In 2009, DMS decided to consolidate these services under SUNCOM under its existing authority
to provide enterprise telecommunications. This led to the release of SUNCOM’s Mobile
Telecommunications Services Invitation to Negotiate in September of 2010. Through this
procurement and use of OaSIS, SUNCOM expects to implement a contract akin to a “family
plan” for all enterprise mobile charges in which call minutes are cheap, few of them are wasted
and all of them are accountable.

Federal Support for Expanding Broadband
In 2008, a new Federal program was established to expand consumer and institutional access to
broadband. This program was initially funded for a nationwide inventory of broadband to be
followed with grants to expand it. States were to coordinate their respective efforts and DMS
was chosen to do so during the 2009 Legislative Session through establishment of Section
364.0135 F.S.8

In December of 2009, DMS was awarded $2,568,458 to establish a statewide inventory of
broadband services. The funding has provided for an online mapping system that is accessible to
the 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.



 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.



FIGURE 1



Services
Abbreviated Service List

Voice
 Local Phone Service (Centrex)
 Long Distance Phone Services
 Toll-Free Phone Services
 STEPS
Data
 MyFloridaNet (MFN)
 Metropolitan Area Network (GMAN)
 Remote Broadband Services (RBS)
 Florida Internet Resource Network (FIRN)
 Southwood Shared Resource Center (SSRC) Ports
 Other Data Services
Conferencing
 Reservationless Voice Conference Services
 Video Conference Services
 Web Conference Services
Infrastructure
 Telecommunications Infrastructure Project Services (TIPS)
Mobile
 Wireless Data Services
 Smart Phones

Detailed Service List
Voice
Local Phone Service (Centrex)
SUNCOM provides local phone access primarily through a service known as “CENTREX”. In
addition 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, caller
ID, voice mail, call forwarding, etc. Incumbent Local Exchange Carriers (ILECs) such as
AT&T, CenturyLink and Verizon provide this SUNCOM Local Service within their designated
LATAs.

SUNCOM’s local service also provides alternatives to CENTREX for customers that own and
maintain 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 the
customer’s site. This allows customers to use fewer access lines, or “trunk” lines that share


access among their staff. PBXs also give customers more direct control over features such as
voice mail and call routing within their organization.

Long Distance Phone Services
SUNCOM Long Distance Service allows local service customers to place calls outside a local
area (known as a Local Access and Transport Area or LATA) throughout the United States and
Internationally. For large customers, SUNCOM can provide “Dedicated” circuits to make long
distance calls. Smaller customers use SUNCOM’s “Switched” Long Distance at a slightly
higher 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, this
SUNCOM service terminates on local telephone lines/trunks and handled like any other
incoming telephone call.

STEPS
The SUNCOM Telecommunications Equipment on-Premise Service (STEPS) offers telephone
switching equipment known as Private Branch Exchanges (PBXs) at the customer’s site. PBXs
move some of the functions and features from telephone company facilities to the customer’s
site. This allows customers to use fewer access lines, or “trunk” lines that share access among
their staff. PBXs also give customers more direct control over features such as voice mail and
call routing within their organization. PBXs have been around from near the beginning of
telephone services but modern PBXs almost exclusively provide Voice over IP (see “Voice over
IP (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,) is
considered the current standard for the best enterprise data networks. When MFN was
implemented through SUNCOM, it combined all of the best features of several SUNCOM’s data
services 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 network
for one price with the independent ability design and manage their sub-networks, make
connections, 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 controlled
gateways to common state applications and connects them to wider area networks such as MFN.


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 from
locations outside large customer offices. RBS utilizes the latest broadband “best-effort”
transport technologies common to the consumer (rather than the business) market. RBS provides
cost-effective remote broadband access via Digital Subscriber Lines (DSLs), which is digital
data transmission over the wires of a local telephone network. Eligible SUNCOM customers
working from small offices and homes will be able to connect via the Internet to work-related
resources.

Florida Internet Resource Network (FIRN)
FIRN provides a data communications to K-12 schools. Schools pay for FIRN services almost
exclusively 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 fees
charged to every user of telecommunications services throughout the USA. Erate is one of four
support programs funded through a USF fees charged through companies that provide interstate
and/or international telecommunications services.

FIRN uses the MFN infrastructure provided by AT&T but includes some E-Rate qualified
features, 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 to
provide some integrated services (e.g. the SSRC housed the hub of the State SNA backbone and
the State Internet firewall), SUNCOM provided data communications services to the SSRC and
its customers within the SSRC facility. This relationship is unique because SUNCOM’s
statutory 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 codified
in the 2010 General Appropriations Act and SUNCOM is now required to meter usage (rather
than charge flat fees).9

Other Data Services
SUNCOM also provides a small quantity of other services that are small and/or near end-of-life
like centralized Fax, Router (a legacy service known as Routed Transport Service, State of
Florida Internet Access (SOFIA) and Local Area Network port management at the Capital
Center Office Complex (where DMS is housed).



Conferencing
Reservationless Voice Conference Services
SUNCOM Reservationless Voice Conference Services gives on-demand conferencing, 24 hours
a 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 video
interaction 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 computer
connected to the Internet and a telephone.

Infrastructure
Telecommunications Infrastructure Project Services (TIPS)
TIPS assists customers in procuring, installing and project managing telecommunications
infrastructure (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 establishes
contracts and monitors performance of installation vendors, and simplifies contracting and
project 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 State
Network 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 the
State Term contract for cell phones. SUNCOM’s mobile services partners include AT&T, Sprint
and Verizon.



SUNCOM Revenue by Services

FIGURE 2

Customers
Sections 282.703-707 F.S., authorize SUNCOM to serve state agencies, universities, private
colleges, the judiciary, cities, counties, schools, libraries and private-not-for-profit entities that
are primarily funded by the state.

In accordance with 282.703 F.S., state agencies are required to use SUNCOM for
telecommunications services unless they obtain an exemption from DMS verifying that
SUNCOM cannot meet their needs.

The inclusion of other Florida public sector customers in DivTel’s customer base creates the
opportunity for them to get SUNCOM discounts and maximizes SUNCOM’s bulk purchasing
leverage and economies of scale.



SUNCOM Revenue by Customer Type

FIGURE 3

SUNCOM Revenue from State Agency Customers

FIGURE 4



Standards
SUNCOM establishes state telecommunications standards both explicitly and implicitly.
Explicit standards are established in Florida Administrative Code per SUNCOM’s rule writing
authority under p. 282.702(2) and (9) F.S. Those rules cover the security and compatibility
requirement of the state network, customer ordering and billing, and vendor relationships.
Additional explicit standards can be found through operating guides for SUNCOM services and
contract terms with vendors.

SUNCOM’s implicit standards come from the mere existence of SUNCOM’s
telecommunications services and the statutory requirement that state agencies use them. The fact
that vendor services delivered through SUNCOM are centrally designed, delivered and
configured in routine ways leads agencies to buy services that are compatible and meet the cost
and 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 projects
for which there is no specific billable customer or direct appropriations. DivTel must recover
these costs from customers through payments for SUNCOM services. While these activities are
important and valued, the associated subsidies inflate SUNCOM charges.

State Directory Information
Starting in 1986 when the dedicated backbone for voice services was established, SUNCOM
published lists of state telephone numbers and staffed an information line (866-693-6748 toll free
or 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 book
publishers.

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 answer
callers to State Information and provide local listings in accordance with statutory requirements10
at 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 of
Emergency Management’s Comprehensive Emergency Plan11,12). This means that any and all of
DivTel’s staff, services and assets are available to help during disaster and DivTel must sustain
disaster preparedness. When declared disasters occur however, DivTel is often able to obtain
some compensation through federal disaster grants.

Southwood Shared Resource Center Support
Until 2007, DivTel and Southwood Shared Resource Center (data center; SSRC) were a part of
the same department (Management Services) and collaborated to offer joint services. For
example, the SSRC was used as a central hub of state networks dating from the early 1990s.13
Because these resources were so tightly intertwined, it was not possible to distinguish between

the State Network and SSRC customer data traffic that moved through these circuits. SUNCOM
was 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.14
This means that the data communications hardware inside the SSRC and the associated circuits
now serve the SSRC and its customers exclusively. Therefore, SUNCOM has sought to
discontinue subsidizing maintenance of the SSRC’s internal hardware since 2006 but has been
unable 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 of
this equipment and circuits. Because this approach will attribute charges precisely in proportion
to 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 to
implement these charges to fully recover the associated costs in the future and turn responsibility
for 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 telecommunications
services. The program known as E-rate can cover as much as 90% based upon the poverty level
of students (the average for Florida is 70%). Prior to the 2010 Legislative Session, Florida’s
state government paid the other 30% for school’s data communications through an appropriation
to the Department of Education (DOE). DOE used these funds to pay SUNCOM for use of the
Florida Information Resource Network (FIRN the K-12 data network) while schools paid the rest
with E-rate funds or E-rate credits.

By federal rule, SUNCOM is ineligible to receive e-rate funds even to cover its administrative
costs 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 those
payments to only 7% of the state match was provided (or approximately 2% of total K-12
charges) SUNCOM was compelled to subsidize the rest of its administrative support of school
customers.

SUNCOM’s subsidy of this effort increased in 2010/11 when the state discontinued funding the
DOE 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 the
assistance that DOE provided.15 SUNCOM has federal approval to use its broadband grants for
this purpose and, as of this writing, is seeking legislative approval to do so (see “E-rate
Assistance 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 to
promote broadband deployment. This legislation was written in conjunction of Federal programs
and 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 grant
programs”. DivTel is meeting its statutory obligation and has obtained Federal grants but

without any initial funding for the effort. See “Enhancing Florida’ Economic Competitiveness
with Broadband” on page 61. DivTel’s ongoing efforts will be funded mostly from Federal
grants 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 this
requires moving servers and mainframes from office buildings where computer users are located
to one of three Primary Data Centers within Tallahassee.

When users are collocated with this equipment, communicating with them is fast and does not
require 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 substantial
to meet the daily demand of users.16

SUNCOM 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 was
provided to SUNCOM for this costly effort.

Data Center Circuit Consolidation Project
Twenty SSRC customers had established separate SUNCOM connections from within the SSRC
to the outside. After DivTel mangers described this condition to legislative staff, a requirement
was added to proviso language in the 2010 General Appropriations Act9 compelling these SSRC
customers to move onto a common SUNCOM circuit. See “Pooling” on page 24 for a
description of the savings. No funding was provided to SUNCOM to implement this project.



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 Florida
government.

Enterprise Cost Savings
Internal service providers, like SUNCOM, have business models that are very similar to the
private 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.17

SUNCOM’s business model is designed to save money for Florida government in four general
ways:
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 enables
lowering prices to SUNCOM customers. Derived from technological advancements,
marketplace changes, new or amended contracts and redesigning services, they are realized one
time; then become unseen perpetual cost avoidance thereafter. Achieving cost reductions
requires 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. Conservatively
estimated to be over seven times the annual SUNCOM administrative costs, these savings are
derived from the costs that would be incurred if SUNCOM did not exist. Without SUNCOM, all
of the services it provides would be purchased individually by separate government entities
without the expertise, negotiating leverage and economies of scale SUNCOM delivers.18

Because 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 without
actually duplicating the purchase. Since such duplication is contrary to the enterprise purchasing
policies set forth in Florida Statutes (for state agencies)91 the lack of comparative examples may
lead some to the mistaken assumption that cost avoidance is not real, thus devaluing the largest
benefit of the enterprise model. In spite of the policy however, there actually is one salient
example.


In October of 2009, the Florida Department of Education (DOE) alone sought to replace the
statewide 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 known
as E-rate. Prior to DOE’s attempt to replace FIRN, it was a SUNCOM service. Because the bids
to DOE were significantly higher than existing SUNCOM services, DOE ultimately came back
to SUNCOM for those services.

At DOE’s request, SUNCOM established a new FIRN contract to meet specific DOE
requirements rather than use existing SUNCOM services.19 The resulting SUNCOM prices are
39% lower than the best offer to DOE20 even when SUNCOM’s mark-ups to recover
administrative costs are included.21 Extrapolating these 39% savings to all of SUNCOM’s
services suggests savings of approximately $71.8 million annually. This is over seven times
SUNCOM’s administrative costs meaning the state receives at least a 700% return on its annual
investment in SUNCOM.22

Cost Savings Mechanisms
SUNCOM cost savings come from a variety mechanisms listed below. Almost all of them are
cost avoidance.

Volume Discounts
Volume discounts are achieved simply from the bulk size of SUNCOM’s contracts. Through
one procurement, vendors provide standardized services to all SUNCOM customers. They are
willing to discount heavily to secure bulk sales that would otherwise go to competitors and to
achieve efficiencies in doing so that would otherwise be impossible. This leverage can only be
achieved 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 of
homogenous services and resells them incrementally.

With these pools, the excess capacity customers must normally buy becomes unnecessary. They
only pay for what they use thus giving them clear incentives to use less. SUNCOM alone takes
the risk that too many or too few services have been bought in the pool and uses the Law of
Large Numbers24 to minimize that risk.25

Vendors are willing to give the greatest discounts for pooled services because of the
predictability and efficiencies derived from fixed quantities of homogenous services.26 And the
state enterprise achieves a high degree of cost saving by rendering large blocks of services into
small units to be used exclusively where they are needed. See how pooling compares to other
enterprise 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 joint
effort between SUNCOM and SSRC staff, these were combined into one for an enterprise


savings of 50% ($512,544 annually). To achieve this, SUNCOM must make a considerable
investment to develop metered billing so each customer pays their fair share of the consolidated
connection. But once in place, this new approach can be ultimately replicated at other data
centers and foster incentives for further savings through peak-load pricing (see “Peak Load
Pricing” on page 34).

Economies of Scale

State Enterprise Economies of Scale
SUNCOM’s consolidated procurement of telecommunications services eliminates the need for
procurements among state agencies. Simply allowing agencies to order services through
SUNCOM’s existing contracts prevents duplication of effort throughout the enterprise.27

The standardization SUNCOM provides also brings technical economies of scale. Without it,
the technical approach of every state agency would be unique. Interconnecting agencies into a
common network would drain effort and resources. And when problems arise, diagnosis and
resolution would be more difficult and lengthier without a consistent technical approach.
Finally, as staff move between agencies and agencies reorganize, the standardized knowledge of
SUNCOM telecommunications is transferred as well thus avoiding costly relearning and
downtime.

Partner Economies of Scale
Vendors save as well from SUNCOM economies of scale. The processes for ordering, installing,
invoicing, collecting payment and trouble management are standardized under SUNCOM. For
some services, SUNCOM assumes many of these responsibilities because it is in a better position
to 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 vendor
discounts.

Vendor Risk Mitigation
Without SUNCOM acting as a single customer for the enterprise, vendors must bill and collect
from all Florida government customers directly. Some customer payments would trickle in,
others require extra collection efforts and dispute resolution, and still others might not ever
come.

SUNCOM audits and pays these consolidated invoices timely, in one lump-sum; before being
paid 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 experienced
negotiator with the leverage of SUNCOM’s bulk contract.

By reducing thousands of vendor invoices into one, running standard audits, ensuring timely
payment with float, eliminating the risk of nonpayment, abolishing vendor collection efforts and
acting as a good faith partner, SUNCOM provides saving to vendors that translate into lower
prices to the enterprise.



Specialization and Expertise
Without SUNCOM, each state agency would need to design, procure and manage
telecommunications services from the ground up. For most, this would be a part time job and
each effort would come in periodic cycles. And for all, the prerequisite knowledge would be
limited 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 projects
every day for a variety of customers giving them knowledge they use to the benefit of all
customers and the enterprise as a whole.

Interoperability
Telecommunications by definition requires compatibility between sender and receiver. The best
way to ensure this is to set standards that all adhere to. To some extent the industry does this
naturally when standards do not impede profits.

SUNCOM is statutorily charged30 to foster interoperability so Florida can realize savings from
standardization and prevent wasteful extra efforts to overcome incompatibilities between Florida
agencies.

Security
SUNCOM implements network security at an enterprise level for Florida government. This
allows the state to have a common network on which agencies can communicate with each
others with reasonable freedom from the chaos and predation of the Internet. But SUNCOM’s
security also provides a level of security for each customer and opportunities for them to use
SUNCOM tools to monitor their security conditions.31, 32

Accountability, Customer Empowerment and Stakeholder
Transparency
SUNCOM’s business model includes the collection and centralization of detailed invoicing data
from 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 gives
Florida agencies extra ability to scrutinize charges.

Because this data is comprehensive of telecommunications charges and usage, SUNCOM and its
stakeholders can also use it in strategic planning, negotiations and policy setting. Without this
data, the state would be disadvantaged during negotiations in which vendors are better informed
of than the state about enterprise requirements, trends and opportunities. Policy makers would
also be unable to get comprehensive and accurate reports on the state’s telecommunications
needs. 33



Catalyst for Technological Transition
Telecommunications Strategic Planning
No single state agency, focused upon its specific mission to serve citizens, would necessarily
adopt telecommunications strategies that are good for the whole state enterprise. And achieving
consensus through a consortium of part time participants with parochial priorities would be too
slow and ineffective to keep up with technological and market opportunities. This is why
SUNCOM is statutorily charged with enterprise telecommunications planning and does so with a
broad and long term perspective.34

Self Funded Investments
SUNCOM receives no direct General Revenue appropriations or other tax revenues.35 Rather, it
is self funded through charges to customers for the telecommunications services SUNCOM
provides. This means the Legislature does not need to provide cash infusions to keep Florida
government current with telecommunications progress. Instead, SUNCOM establishes contracts
through which vendors and SUNCOM float these investments with incremental payments for
new services. Vendors often accept pay-as-you go returns based upon SUNCOM’s enterprise
volume commitments.36 This allows the state to reap the rewards of new technology with
minimal penalties from early adoption.

Buffering Costs Outside the Mainstream
Imposing premium costs on customers using technologies outside of the mainstream is common
to the marketplace.

“Early adopter” prices are higher due to the lack of economies of scale and vendors are able to
use their lead (temporary monopoly) over a technology to quickly recover Research and
Development costs. In spite of these premium costs, some of these technologies can produce
significant rewards from early adoption. Thus, with its ability to design and float new services
that leverage the latest technology on a large scale, and by acting as a partner to vendors making
otherwise risky investments, SUNCOM becomes a catalyst for these savings.36,37

At 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 the
technology and competitive pressures on pricing diminish. SUNCOM buffers these costs so
these customers can redirect resources to adopting current technologies rather remaining trapped
in paying premiums for old technology.



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 that
bulk services are offered through SUNCOM. Broad use among agencies limits instances when
non-standard technology is used that could lead to incompatibility, and security and quality
deficiencies.38

Florida Statutes and Florida Administrative Code (“Rules”)
Florida Statutes charge DMS with creating telecommunications standards for the enterprise and
gives it rule writing authority through Florida Administrative Code.30 Through a nine month
process 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 and
solicitations for comment. The results were both detailed and extensive rules covering enterprise
network standards, security and associated business processes that have proven to be reliable and
transparent while granting customers and vendors the flexibility they need.

Developing Services
SUNCOM strategically plans for services long before developing them. But unlike the private
sector, strategies are not focused on a marketing perspective and profits. Rather, they are based
upon 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 to
deliver services, or 2) buy services from the private sector and make them available to internal
customers. 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 and
procure these services, and manage orders, inventory and billing for them.39 It should be noted
that the 93% that is outsourced is demand driven; i.e. SUNCOM customers determine how much
is paid to vendors based upon the services they order and use.



SUNCOM’S Cost Distribution
Paid to other
Internal
Government
Operations, 4.9%
Entities, 1.8%

Paid to Private
Sector, 93.3%

FIGURE 5



Service Development Criteria
Here are the primary criteria SUNCOM uses during the strategic planning to develop new
services.
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 like
SUNCOM. The below chart depicts the relative advantages of each with one additional option
for a non-enterprise approach (i.e. the first one titled “Isolated Purchases”).



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 6


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 Billing
FIGURE 7

The Limits on Imitating the Private Sector
As mentioned above, SUNCOM’s purpose differs from the vendors because it is successful when
customers pay as little as possible while vendor’s success comes when customers pay as much as
40
possible. 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.



 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 and
incentives to save money. To achieve this, SUNCOM follows the principles known by the acronym
CAREIVA.

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 the
consumer cannot be identified. And it must be done every month if the service is to be billable. If prices
are not proportional to the resources used, consumption will not be directed to save money, regardless of
how effectively SUNCOM bills. And none of this is useful if the customer cannot see nor do anything to
reduce costs.

In most instances, the CAREIVA principles can best be applied when charges are attributed at the lowest
level possible. Paying by the drink rather than the jug minimizes unused capacity and gives customers the
greatest visibility into the consequences of their demands and provides them the incentives and ability to
do something about it.



Designing SUNCOM Services using CAREIVA
SUNCOM services must consider CAREIVA principles from inception of a service in order to derive
CAREIVA benefits. Application of CAREIVA is universal for all SUNCOM services. But how they are
applied depends largely upon the mechanisms available for chargeback and whether the service is pooled
or 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 volume
commitments.

In a pool, at the moment one customer needs more, there is a likelihood others will not, and still others
will need less than they normally do. The larger the pool, the more likely this is true by the Law of Large
Numbers.24 The extra capacity required for one customer can be obtained from the unused capacity of
others. So every customer buys only what they need, when they need it from the pool. This shared
capacity reduces costs for the whole enterprise.

FIGURE 8

Pools however, require a provider like SUNCOM to hold each customer accountable for usage from the
pool. 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 repeatedly
countable and attributable, and equitably priced, they provide customers the clearest Incentives available
to save.

Peak Load Pricing
Most customer activities occur during the regular business day. As a result, significant spikes in demand
occur daily and there is reduced usage at night. Naturally, infrastructure must cover peak capacity thus
wastes excess capacity in off-peak hours.

Pooling provides an additional opportunity to implement cost savings incentives that spread this usage
across 24 hours to reduce the peaks and therefore, the total capacity required. Known as “peak load
pricing”, discounts are offered during off-peak periods to inspire customers who have the flexibility to
shift their activities.42 This is only possible for pooled services delivered through fixed assets when the
charges are metered rather than flat rated.43



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 9

Design 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, but
the 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 are
inspired by the desire to mimic successful marketing practices from the private sector; others by a desire
to simplify cost recovery thus alleviate the complexity and work that comes with more effective
approaches. But marketplace imitation and shortcuts often undermine the cost saving purpose of having
enterprise providers like SUNCOM.

Pitfalls of Selling Bundled Packages
Bundled packages that are common to the private sector come in two forms; 1) combinations of different
services and/or 2) blocks of one kind of shared service. Offering either is appropriate only when
SUNCOM can realize savings from selling such packages or the vendor realizes such savings that can be
passed through to SUNCOM customers. This only occurs when there are true technical economies from
packaging.

Offering bundled packages because customers are familiar with them, or they are standard industry
practice, or for marketing purposes to entice sales, or because the flat fees for them are more predictable is
improper 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 of
enthusiasm for a particular service. Smaller profit is better than no profit for a vendor, but is of no interest
to SUNCOM.

Bundled Blocks of Shared Services



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 big
opportunity for savings if it resells them in smaller bundled blocks. Breaking a large pool into smaller
pools (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 fixed
cost of $100 monthly, proportional charges means each will pay $25 in a given month. If one customer
discontinues, the remainder pay $33.33 each (if they continue using equal shares). This guarantees that
100% of the resource will be recovered, results in no surplus revenue and is equitable if the proportionate
charges are based upon actual customer usage.

But with the guarantee that all costs will be covered, the internal service provider is less likely to take
steps to reduce costs when customers reduce demand.

Worse yet, proportionate charges impair customer Incentives to be frugal because they distort the clear
feedback customers get from fixed prices. When one customer is charged a different amount than the
month 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 usage
means 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 have
some means of predicting their own usage, but no means of predicting usage of others and understanding
the implications to their costs.

If an internal provider is capable of implementing a monthly proportional share approach equitably, it can
implement 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 use
the Law of Large Numbers24 to spread those risks. Therefore, internal providers should bill with fixed
prices 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, the
number of customer employees or size of its budget might be used as a basis for charges. But the number



of staff at an agency would be a credible proxy for bandwidth consumption only if all staff in every
agency uses the same amount of bandwidth all of the time. Because staff duties and the tools available to
them vary, this is not true. Therefore, such proxies are not equitable, encourage waste and are not
sustainable 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 is
most appropriate for internal providers that primarily buy (rather than build) services that are in turn
resold 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 and
the enterprise networking model.

Administrative costs are added to vendor charges for SUNCOM services (“cost plus”). Some specific
services bear more than others based upon the share of administrative resources committed to offering the
service and other factors like the cross subsidies mentioned below.45

Cross‐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 accommodate
technological change. Designing new services requires an investment of administrative costs and possibly
capital. And when the service first becomes available, not enough customers use it to achieve effective
economies of scale. Given SUNCOM’s self funded model which requires no large investment
appropriation, 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
services

FIGURE 10

When 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 on
customers that are least able to afford them, and in greatest need of investment funds necessary to make
the change. Thus, such services are subsidized for a limited period.46 In this way, SUNCOM is a catalyst
for enterprise technological changes.



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 then
do something the reduce them, the incentives of CARIEVA are irrelevant. This means that the systems
that customers use to order and pay for SUNCOM services should provide relevant information, are easy
to understand and use.

SUNCOM’s business model has centralized SUNCOM billing since 1975. SUNCOM obtains billing
detail 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 through
SUNCOM. 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 of
2010, SUNCOM released a reengineered interface to its billing system known as the SUNCOM Open and
Shared Information System (OaSIS). OaSIS enables customers to tag all of their charges so they can more
easily identify them on each bill. These tags can be plain language reminders of the purpose of each
phone number or circuit number, and are completely within the control of customers. They will become a
permanent part of the SUNCOM database to appear on every customer bill and inventory list, and will be
used by customers to sort, filter and subtotal charges.

In October of 2010, SUNCOM released its OaSIS inventory module (in Beta) that provides direct
customer access to SUNCOM’s inventory of customer services for the first time in its 32 year history. In
its Beta form, customers are able to see all of their orders related to data communications services and
circuit 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 customers
can 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 eliminating
services and a more robust data exchange with vendors to save effort for both partners.



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.


State of Florida Telecom Business Model

State of Florida Telecom Business Model

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