Hart Telephone Company
4 minute read
Embracing Innovation: Maintaining a Competitive Advantage in the Telecom Industry
Introduction
As a small, rural telecommunications company, Hart Telephone Company (HTC) faces the unique challenge of providing innovative service offerings with fewer resources than those available to its urban counterparts. HTC must also contend with rapidly changing
technology, complicated regulatory frameworks and marketplace competition. For HTC, navigating this increasingly complex landscape is made easier with Synario, helping to ensure its financial stability despite shifting market factors.
Regulatory Obstacles Facing The Telecom Industry
Unlike other industries, HTC is subject to government regulation by the Federal Communications Commission (FCC) and must comply with applicable rules and requirements. HTC is also part of the National Exchange Carrier Association (NECA), which distributes revenue from the FCC’s access charge plan to participating members. These pooled funds are based on each company’s cost of providing interstate access, and HTC uses forecasts to estimate future settlement costs. As Melissa Green, CFO, explains, “It’s a balancing act – the more accurate the forecasts are, the more likely you are to get close to your actual settlement number, which prevents owing a large amount to NECA or vice versa.” NECA asks participating members for a three- to five-year forecast to ensure that future funds will be available, and for HTC, finding a software platform capable of these types of projections was paramount.
Accurately estimating settlement money speaks to a larger issue faced in the telecom industry – funding sources. According to HTC, meeting the FCC’s requirements for adequate broadband access can be a challenge, mostly because servicing a rural area can cost much more than urban regions. With Synario, HTC can evaluate both expenses and approximate settlement funds from the FCC and use that projection to apply for grants, many of which are offered to companies looking to expand rural broadband services. However, in order to get those grants, HTC has to prove that it would be profitable to extend broadband access to new regions. For Green, using Synario enables her to demonstrate that certain strategic initiatives are viable options that deserve federal or state funding.
Regulatory Obstacles Facing The
The telecommunications industry has transcended from providing basic cable to a handful of households to administering digital and HD television, movies and breakthrough broadband Internet services to millions.
The technological landscape is unrecognizable even compared to more recent years. Consumers now expect their digital content to be available anytime, anywhere, at peak speeds and across multiple devices. These modern market pressures lead finance professionals toward financial modeling tools to project their financials, prove sustainability, and secure the necessary funding to serve their respective regions, all while keeping pace with emerging trends.
Promoting Sustainable Business Practices with Financial Modeling Software
Synario’s ability to project cash flows is one of the primary reasons HTC chose Synario among other software platforms. Green explains that while HTC does receive government funds, the company is first and foremost a for-profit business, meaning that revenue and expenses must be appropriately balanced. For HTC, this means meeting payroll obligations, complying with the FCC’s broadband initiatives and delivering the best possible service to customers. Prior to using Synario, HTC purchased a different product, but was unable to find a platform that could provide a rolling cash flow statement. According to Green, “This was a very hard concept for us to get people to understand and it was a must-have for us.” Synario is also integrated with HTC’s accounting software, and this enables Green to visualize where HTC will be six months or six years down the road. While internal and external factors can alter the specifics, having a general sense of long-term cash projections is tremendously valuable to HTC. As Green explains, “We sit down every October with stakeholders to plan out our capital build for the next year, including what types of services we’re going to be offering to our customers, and it’s only because we have the cash flow statement in Synario that I am able to do that
Exhibit A: HTC utilizes Synario’s interactive visualization tools to project and gauge financial health based on telecom industry governance. Their Debt Service Coverage Ratio (DSCR), has a fixed floor of 1.45 to ensure the feasibility of repaying existing debt obligations. Similarly, HTC designed a Debt/EBITDA ratio forecast with a ceiling set at 3.25 safeguarding against poor or inadequate cash flow and to confirm long-term stability (or diagnose instability). This quick and easy exercise helps HTC prove and communicate its sustainability to industry regulators, demonstrating that they are far exceeding industry standards and can responsibly manage any additional funding.
This exhibit is derived from sample figures for illustrative purposes
Green also uses Synario to monitor the company’s loan; including terms, interest rates and monthly payments. A couple years ago, HTC decided to refinance their loan and used Synario to evaluate their borrowing options. According to Green, “It helped us assess the long-term impact of financing terms and payments.” Prior to the implementation of Synario, HTC used spreadsheets to project loan refinancing options, which required, as Green quips, an “act of Congress” to change the interest rates or terms. Now, she says, that is much easier to do – the finance team can plug in a number and Synario automatically extrapolates it.
Another attribute that made Synario particularly appealing to Green and her team was the software’s ability to evaluate loan covenants and help ensure HTC is on track to meet them. According to Green, “One of the biggest advantages of using Synario is that I can see what the financial covenants are going to be and make sure we’re meeting those requirements for years into the future.”
Exhibit B: Displays cash flow analysis for each division, projected not only on a near-term monthly basis but also on an annual longer-term basis.
This exhibit is derived from sample figures for illustrative purposes only and does not represent HTC’s actual data.
Excel is Ineffective and Unreliable for Advanced Modeling Activities
Green also speaks to the problem of using spreadsheets for forecasting activities. From her perspective, version control issues were one of the main reasons HTC switched to Synario. As she explains, “We had multiple people going into the files and making changes, which often ended with corrupted worksheets that had to be rebuilt.” She also discusses the lack of integrity of the spreadsheets, saying, “We never knew if the formulas were right, and that isn’t something we have to worry about with Synario.” Additionally, with more than 17 years’ experience in the telecom industry, Green is intimately familiar with the problem of “legacy” spreadsheets. As she recalls, “When I first came to HTC, there was already a spreadsheet created by a previous employee that no longer worked here. It’s a problem when you get handed a spreadsheet that someone else built because it’s hard to understand their thought process for setting it up and coming up with the numbers.” HTC does not have this problem with Synario – there is only one way to input data.
Timesaving is also another boon for HTC. Prior to using Synario, Green had to pull data from close to 1,350 individual general ledger accounts for her yearly forecasts. As she explains, “When we used spreadsheets, it was much harder to obtain this information because I had to literally look at every account.” HTC kept much of this information on multiple spreadsheets, and the integrity of links was always a source of concern. As Green describes, “It’s very easy for links to get broken, and often times we thought we had updated spreadsheets to only find out later that the links were broken. We had to have a lot of checks and balances to make sure we had the information right.” Green also had problems with spreadsheet formulas. As she explains, “We had some formulas that at some point in time, multiple people had altered the formula and it would corrupt, so we would get a cell that was supposed to have a formula but we wouldn’t know what it originally was.” Security in Excel is also vastly inferior to that of Synario, in which administrators can limit access to certain users or give read-only rights. As Green notes, “We didn’t have a single user in charge of the spreadsheets, and that led to a lot of complications and limitations, often resulting in unusable workbooks.”
A Revolution in Financial Technology
Adopting Synario has radically changed how HTC conducts business. Green sums it up by saying, “I have tried to find another U.S. telecom company that has a tool similar to Synario and I have yet to find one. I personally feel that we are light years ahead of most other companies — we know what the current state of our financials are, as well as where we’re going to be five years from now.” This is virtually unheard of in the telecom industry, because, as Green explains, forecasting is still a relatively new concept, largely because in the past most companies heavily relied on government funding and settlements. Lately, the industry has shifted away from these revenue sources and is now more competitive. Because of this, Green feels it is imperative for telecom companies to have a vision for the future. However, most products do not offer a rolling cash flow statement like Synario does, making them virtually unusable for the industry.
Additionally, according to Green, most telecom companies still do not engage in any forecasting activities, and unlike HTC, are not able to adequately assess or execute plans for growth. Green sums up her experience with Synario by saying, “I think it makes us a very strong company. I have people call me all the time and ask me how I’m doing this, and I tell them we’re using a product called Synario.”
