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Dirty Telco billing tricks, financial statements and the evil people who write them, or “how to increase revenue by lying to customers”

By December 27, 2012 General

Frontier Networks is private. But, we are pretty transparent, so when clients ask us about your financials we have pretty open conversations about them.

One of the advantages of being public is the ability to raise capital. One of the disadvantages of being publicly traded is ultimately letting people like me; (not an investor, but competitor or industry colleagues) have full access to our competitor’s financial statements.

When I read other people’s financial statements, I look at some pretty fundamental statements:

I have changed the words around to make this easier to read.

What they say:

“Hey! We increased Revenue”

What they mean:

“Hey! Remember that CRTC ruling that we mentioned in that letter that we sent all our customers – and how we justified that 3% price increase? Well, we lied. There was no actual CRTC mandated price increase for business customers. We made that up. It was just a cash grab! We are looking for something for next quarter. If you have any ideas please let us know!”

What they say:

“Look, our margins are up!”

What they mean:

“About that CRTC increase above, since there was no actual increase mandated, it is simply an internal cash grab… which is passed directly to margin!”

What they say:

“Yahoo, we had an operating gain for the quarter vs. a loss like last quarter”

What they mean:

“Well, we reduced some of our staff which impacted our SG&A (Selling, General and Administrative Expenses). We got rid of those pesky customer support people and technical engineering staff. But not management, we kept those guys. We took the gain immediately but the cash impact will hit us… you will see that next quarter when our cash dwindles”.

The Management Team

Always examine management. In a tech firm or service provider, it is comforting to click on the management or executive team and look at people who base their career on their intimacy, knowledge and love of technology. In my view, people similar to ourselves who understand what the business actually does.

I am always a bit worried about management team expulsions that ‘clear the deck’ to make way with the new team. Often a non-diverse crowd of people who share a resume (alma matter, previous employer etc.).

Private equity has an alarming impact on this. Private Equity usually marks an exit of the existing management team. They then replace people and ‘tinker’, often preparing for an exit within 1 – 3 years. Part of this preparation is to build a team of people who know how to ‘tinker’ and reduce expense. Most of the time, this is done at the expense of innovation, service lever or brand integrity.

In my view, with the right team, it is possible to have a bit of fun while growing a company that continues to focus obsessively on customer service with a bit of urgency.