CANTO Conversations - A CEO's Perspective during COVID-19-Mr. Michael Prior

Good morning David, it's a pleasure to be here. Good morning all. Thanks.

Sure, and I'll keep this brief David because I know the company D Marshalls are not usually people's main interest. But ATN has been around for a while. We've been around for three decades and in the region for that entire time. We now actually have operations on four continents, believe it or not, for a relatively small company. We have over 1,600 employees. But our main focus is still the Caribbean and rural areas of mainland the United States. They really form the bulk of our operations. So we have a history of being both the incumbent provider and we are a challenger in many markets, probably more than we are an incumbent. And we've kind of specialized in going into areas where we saw a lack of infrastructure or a lack of competition, maybe a single operator, and we felt that there was a really long-term plan to build a high-quality communications company and invest in next-generation networks and go from there. So that continues to be what drives us. And I would say that the telecom industry has become exceedingly fast-moving, fast-changing, like most things. It's changing from a combination of technology and consumers' use of technology. So it's really exciting times. It's also challenging. But that's really the nutshell of it. I should add, I mean we're in all the communications areas. We do retail and wholesale, we do wireline, we do long-haul fiber, we do all the mobile.

Well, the good news to date is that I am not aware of any adverse health impacts for our employee base. So that's first, right? That's the first thing you worry about, particularly when you're in the business with obviously retail stores. A lot of that's closed or restricted now compared to where it was when the pandemic started and everyone was getting aware of it. We also had in-home installation that also has been much restricted since then. But given all that we do and the fact that we provide an essential service and have to keep doing it, even more essential obviously during the pandemic, I mean we've been very, very fortunate. And I think it's maybe more than fortunate. I think our operators and leaders, our business leaders, have been just excellent. They moved very quickly to safeguard the employees, to safeguard customers, and to figure out ways to deliver services effectively under these restrictions. So I think the impact I worry more about for the markets we're in, the economic impacts on the markets. The good news is that this has kind of forced our customers, our workers, everybody, staff, management, customers, to really embrace digitization. It's been something we've been pushing for a while, a strategy to digitize our operations, to digitize our interactions with our customers. And there's nothing like having to do something to get you to do it quickly.

Well, it starts with basic. First of all, we had been making the investments to create digital capabilities, right? There's a lot of systems and a lot of onboarding systems and onboarding employees and assistants that we had been doing anyway pre-pandemic. And we made a lot of investment in that, so we were ready in that sense. And really what I would emphasize is it was more about adoption, right? So it was more about helping to train and encourage employees, field operations, field techs to use the tools, and the same thing with the customers. So I really think it's that basic. You had to have been ahead of the curve a little bit, making those investments, going to a full digitized operation. But then the next big hurdle was consumer, customer, employee behavior. And I'm one of those people, right? I didn't have any Zoom because I did a few before the pandemic. Getting used to the tools and how to make it work.

Very positive. I mean, people are great at moving to do things that make sense to them, right? So the pandemic made it clear and apparent that it made sense for them, and adoption has been pretty quick. I think it helped probably, looking at my own family, that there are a lot of younger people at home with older people who can help them navigate it and get used to it. And I really think that's it. Necessity understood.

I think first of all, there's a macroeconomic worry in many markets that just is worrisome, right? A lot of businesses in difficulty and pain, and therefore their employees and so on. That has effects that ripple up to government and government revenues and things like that. But what I also see is there's really been an acceleration of an issue we were already facing, which is there's ever-increasing demand for connectivity. Connectivity, connectivity, connectivity. Faster, more places, lower latency, more capacity. Faster, right? And wherever and whenever you want it. So I think the focus for the companies now, the operators, as well as the regulators, has to be how do we deal with this increasing demand and the very large investments that the operators continue to have to make to keep up to this demand. And you can anticipate it with the fact that the user is sort of converging their use of all the different technologies of connectivity, but they can't really afford to pay much more than they have, right? So it's not like people are adding on lots of services and increasing share of wallet. For the most part, it's the same share of wallet and more and more services. And I think what most consumers don't realize, and not surprisingly, is how from the voice-dominated telecommunications world to the data world, just what is involved in delivering that service. There is just a tremendous amount of capital expense as well as operating expense in order to really build robust, reliable data systems. I mean, from everything from your undersea connections to your terrestrial connections to the radio interface, it just goes on and on. And so we're doing what we need to do. That's the reality. We have to figure out ways to deliver it more efficiently, deliver faster. But I do think that's a key area.

That is a key area of concern. So the over-the-top applications, they design great applications, they're attractive, they make sense to users, but they are driving tremendous economies, tremendous revenues off the back of the investment that the operators have made. And you hear that lament from operators around the world. It's very difficult because as I said, you're investing in all this capability and someone else is selling off it and you're not really able to the same extent. But what you can't do is say we have to stop those things. That's not the right answer, right? These are things your customers want, they're attractive to them, they're used to them, so that can't be the answer. Our job should be enabling connectivity, enabling use of technology, embracing it. And so the first thing I do in regard to that is I put the pressure on us. We'll figure out how to make it work, right? Figure out how to make this changing business environment work for you. That is far and away the most important thing. But it's tough. It's a tough market. And we have increasing regulatory fees in a lot of places on top of all this. At the same time, we have decreasing expenditures. And of course, in the markets in the Caribbean, none of these over-the-top providers is resident in that market, so there's no tax revenue, there's no circle back of any of that revenue to the region. And in the old days of the monopoly world, there were effectively money flowing in from out of region for the long-distance calling and then from roaming revenue. Long-distance calling is nothing compared to what it was in part because of over-the-top and other means of communication, and roaming's not anywhere where it was. It's a totally different world just because of the again over-the-top and some business environment aspects of it as well. So I think the real challenge for these small markets is figuring out how with the revenue stream you do have in market, you make that still work for continued investment in technology. Because if you don't, it will hold the society back. There's no doubt about it. It's like the growth of energy usage from electric power. Connectivity is absolutely table stakes for economic activity and growth.

I think there is a lack of understanding. I'm sure there are regulators who fully understand, but generally as a body, what we see is there's still a bit of an old utility mindset. And sometimes it's the operators that have to worry about getting rid of that old utility mindset, and sometimes it's the regulators, and sometimes it's both. And this is not like electric power, which is really fundamentally stayed the same. It is changing really rapidly. So I think it's really hard to appreciate. I mean, we're trying to do our part, and I know Canto is. I think that's a really important role for Canto to play, to help educate the regulators, give them access to information, help them understand really what's behind all the network, what it costs to build that network. So I do think that understanding isn't where it needs to be. But I believe the operators have to help get it there, right? It's a communication that needs to be understood.

I think number one way to think about it is we are going to be, we already are moving fast in this direction, but we are going to be a technology partner, a trusted technology partner. Our job is to help people access technology, digital tools. So much of life, as we talked about earlier, the pandemic is accelerating it. Through those tools, learning and health are going to be more and more in that way, in addition to base communications, obviously information, content, leisure, entertainment. It all comes through that relationship. And you cannot just build a network and charge for it. You have to figure out where your customer needs to go, how to help make life easy for them, how to help them use technology in a way that helps their lifestyle and productivity, whatever. So I think that's the fundamental mindset we're trying to get embraced throughout our organization, is that partner. If you become a trusted technology partner, you have a good business. So you just have to keep anticipating the needs, you have to invest wisely. You can't afford a lot of big investments in technology that don't prove out. So that's not easy, but that's where we have to go. And I think that's a big change, right? And it's a big change for everybody in terms of how operators think of themselves, how customers see them, how government sees the operators.

Yes, I mean I think the first area and most important thing is a forum for operators and regulators to network, understand different perspectives from either side, and think proactively about the future. I think that convening and education capability is hugely important, and it's much more important now than it was even 10 years ago because of how fast-moving things are. And I think the nature of things is there's always a little bit of distrust between the regulated and the regulator. It's a natural tension there. But if you get together in a bigger forum and group like this, I think it encourages people to open their minds a little bit on both sides and understand more and think about solutions, not just lament the problems, but think forward and anticipate. So I know Canto is working on that, and I think that's a really valuable role. I think another thing Canto can do along those lines is it can encourage interaction with other telecom trade organizations to get thoughts about trends, practices, ideas. A lot of what, it's a small region, it's small markets, but there are other small markets around the world that have similar issues. So I think that could be another area that Canto can explore in the future.

Well, I think the first thing I would say is I'm still learning. I've learned a lot of lessons just in this crisis, and I learn a lot from the structure of ATN. We give a lot of authority and autonomy to the business leaders in market. They know their markets, they know their people. And so what happens in times like this is it's very interesting to watch the things they do, and fairly often I say I don't know if I would have thought of that. That's a great idea. So I first want to say that we have a lot of great leaders within the organization that have done great things. And I think what I would say are the important attributes, particularly in that crisis kind of situation, is you have to move with urgency, you have to move with creativity, but you can't panic. You can't show any hint of panic. You definitely can't do that. You've got to show decisiveness and a forward direction. If anyone spent time in small boats, you know that you're most unstable when you just let the waves play you. If you get forward motion, it's a lot easier to keep the boat stable. So you've got to have forward motion, you've got to give people a reason to believe and a sense of purpose and go. And you also can't be too afraid about making mistakes, right? Because if you're too afraid of making mistakes, you get paralyzed in these situations. We try to embrace here, all right, go ahead, make decisions, measure it, watch it carefully. If it looks like it was the wrong decision, change it quickly, right? So that's a very useful thing to remember. And then I think the other part of leadership is you've got to have credibility. People have got to believe that what you say is what you mean and your word matters. And you don't just say what's expedient or tough things up, because then as soon as people realize that's what's going on, you've lost any power to lead them. So I guess those are the things that come to mind.

I think the mentality that leads to those quick action, good decision-making, thoughtful in terms of caring for their customers as well as their employees, really is a business owner, right? That's the attributes of a good business owner. So that's what we want, good business owners. And that's not just the CEO of an operating business, it's everybody. It's people who own different functions within the business, support groups. It's really an ownership mentality. Like, okay, I own my employees' experience and health, and I own my customers' experience and health, and so on. So if you have that mentality, like every good successful small business person, I don't care if you have a one-man shop, a bar or whatever, those places that are going to be successful because the owner's all over it. The owner embraces the whole business, and they embrace their customer, and they know they're only in business so long as they're delighting their customer and caring for their customers. So we have those people, we seek those people. And we'll make mistakes, we all make mistakes, but if you have the right motives, you're going to be right more often than you're wrong.

They're similar in a lot of ways. Frankly, a number of our Caribbean markets, partly because their islands were able to shut down, have had less of an issue. So an example would be one area we operate in the US rural markets. We helped fund and start a competitor. There was only one provider in the Navajo Nation, which is an area in southwestern United States, the Navajo lands. It's about 100,000 people, but it's quite a big area, around the size of the state of Georgia I think. And they have had unfortunately really bad health impacts from COVID-19. It's been a significant issue. So it's been really challenging because we're providing a critical service, and our partners, indeed the minority majority owners, are the Navajo. So we've worked very closely with them and the tribal leadership. So that's been a challenge unlike anything we've seen in the US. One of the first things we had to do there was, it's a very remote area, a lot of people live a long way from any infrastructure, including water believe it or not, and we had to figure out a way to get more student connections in really remote areas because they all were forced to learn from home. So we worked with the tribe and the Navajo Tribal Utility Authority, our partners, to come up with solutions around that. It has been helpful in the US. One difference on the positive side to make it a little easier in the US and in the US Virgin Islands is that the US federal government has put a fair amount of money into supporting our customers basically, and that enabled us to do more and to support our employees longer and those kinds of things. So it's different in that respect. But it's the same in the sense that we're typically in a market that's pretty small with two players, and we both are trying to solve the same problem, which is how to troubleshoot issues when you can't send someone into somebody's home, right? Or they don't want to go into somebody's home, and you're seeing demand spike at times and places that you never used to, right? Which all the operators on this call will appreciate that's part of network design, and that's a real challenge when you have those things change. So that's been the same.

That's an important area. I think some of the story on that Connect America support is still being worked out, but in the past the FCC has had a history of helping and supporting rural connectivity, right? So there are a number of programs, subsidies, and so on, because there's just not a business model to make it work in a lot of these far-flung farming communities. For the audience, most people here will understand it, but just conceptually, if you take a network and you have to deliver it a long way from sources and the revenue is very sparse, you still have the same network requirements as you have in a highly dense place with much more revenue. So it's challenging. And so the FCC has always had a practice of supporting that, and it had been an imperative driven in part by Congress to support the rural areas, much like the original rural electrification. So there are a number of programs there, and they've changed over the years, and regulators have gotten involved at times to say they weren't efficient enough and they make it a little more competitive and challenging to get the funds, which I think was appropriate. And in fact, we built out a lot of rural areas, probably 100,000 square miles of rural areas in one of those programs where incumbents hadn't, and we were able to build out these really rural areas with mobility and now fixed wireless solutions for broadband. And also we had the Virgin Islands. The Virgin Islands is a great example. Everyone in the region remembers the two category 5 hurricanes coming through in 2017. Well, we got a lot of support from the FCC for emergency funding, expertise, coming to look at this and try to figure out solutions. And that kind of thing is easier, right? It's easier to do in the US, a big country, and it's easier to set aside some money for rural areas than some of the other markets we're in. But I think it's a good model.

Yes. And first of all, I note that you're absolutely right about Chairman Pai. I've met with him several times, and he walks the talk. He does truly believe that. And at the same time, he's also very protective of the federal treasury, so he tries to make all the programs efficient. And that's a good combination, right? And has been pretty effective. So if you think about an example like Guyana, and I think this is true in a number of places, there are a bunch of things regulators can do that are quite easy, I think, to make it a little easier for the operators to expand operations and deliver to more people. One of which is, for some reason in all these markets, I guess I understand it, but in some markets are different than others, they really hold back spectrum, right? Or they make using spectrum extremely expensive. Well, they have an absolute enormous abundance of spectrum for the size of these markets. Every one of these, it is a public trust, the spectrum, and I get that. But you need to create spectrum. Spectrum is so critical to being able to deliver more capacity at lower cost, right? Which is really what is needed. And if you're able to do that in more areas, that also helps you with coverage, right? Having the right spectrum for different types of coverage, whether it's rural or in-building or high-density areas, high-capacity areas. So what we've seen in our markets is just this, we and our competitors say they're holding back spectrum that could really improve consumers' experience. And at the same time, they keep charging more, and there's nothing changing on the customer side. So that's a real inhibitor to investment on the margins, right? So it's a lot easier to invest in the marginal areas and the rural areas and expand that if you essentially subsidize that with a little bit denser areas. So either you can have what the US federal government is doing, having the government subsidize the whole thing directly, or you can subsidize it the way they did in the old AT&T monopoly in the US, where there's a monopoly that makes enough money in New York City to build rural New York, right? And had an obligation to do so. Right now, we're not at a good position with that. The basic regulatory fees are going up in a lot of places, and there's a lot of sort of regulating the past instead of letting the future go in a little lighter touch, encourage development, and then step in if you need to correct market abuses. I think all those things can help improve the investment case for the more marginal areas. And because it's not just places like Guyana, there are a number of islands in the Caribbean that have smaller islands that are very poorly covered with poor population because there's no economic case for it. It's a very similar concept. So you either can do that, or you can create a universal service obligation. The problem with that is, typically in these markets, given the size, you have two operators. So if each operator is recovering a universal service payment fee from all of its users, that's how it works in the US, and then the authority awards that to subsidize rural development, you're actually asking the consumer to pay for it very directly. And I think I would first use these other tools: spectrum, lower fees, more light-touch regulation to encourage the investment.

Well, honestly, there are a number of sources. There's tons of information everywhere, right? So you can go to conferences and see the papers that were presented, the decks, you can watch the videos. I mean, really, there's no lack of resources. But I do think it falls on the carriers a little bit and through organizations that they belong to like Canto to think of ways to do that, right? You give people a 30-page white paper with a lot of technical jargon, I mean, no industry in the world has jargon like telecom. It's ridiculous, right? It's acronym soup. And that's a good way to fall asleep, but maybe not a good way to educate. So I think you've got to engage. You've got to have roundtables, invite them to discussions. So the main thing they can do is participate in those things. If they participate in those things, they will learn quite quickly what it's like, right? You can easily have a discussion about what does it take to build a 21st-century data network, mobile data network, fixed data network, what's involved in it, and you can keep it high enough level to not drown people in the details. So I think their participation in those things that really engage them would probably be the best tool. And we've done some things like that. For example, we've gotten the FCC to provide expertise and fellow regulators to help the regulators in Guyana, for example, understand a 21st-century competitive telecom environment, what's involved, what are the technologies, what are the issues. So individual operators can certainly help. I'm sure Liberty Cable or Digicel do that. I mean, it's important.

Yeah, so they used to do sort of annual steady subsidies based on effectively your customer base, right? And some math around your cost base. That has really changed and been changing in recent years. Again, Chairman Pai has been a big part of that. And it's been changing to an approach that says, we want coverage in such-and-such place, and we want it at this minimum level, let's say 25 megabits minimum level mobile. Tell us who wants to do that and for how much they will do it for, what kind of rewards. So it's kind of a reverse auction process. We participate in something called the Mobility Fund, the Connect America Fund, and there's a new one, a very large fund called the Rural Digital Opportunity Fund. And they try to address different things, some mobility and then some fixed broadband. But they've been going through that approach, right? And then that's not enough though, right? I think the real trick is to have the resources and capability and clarity to say, okay, here's what we will provide, here are the standards you need to meet, and here's how we're going to measure it, when we're going to measure it. And you have to be very careful because what you can have, and this has happened in a couple FCC programs, is you had a bunch of people, like in the Connect America Fund, bid to cover a certain area, and these were groups of people with no operating history, maybe some connections or whatever. And I'm not suggesting anything untoward happened, but they bid and then they realize, it looks like I want a lot of money, but it's going to cost me more money to satisfy that requirement than I'm getting, and I won, and then it doesn't get built, right? So the whole program gets set back years in some area because someone was given the award who doesn't have the capability, isn't a proven operator. So you have to be very careful about what are your standards, what are the threshold requirements. And it's not easy, but there's a pretty good roadmap now of what works and what doesn't work. There's a lot of learnings that could be taken from that. And there are other methods to do it right, but you basically have to make sure that the government money is well spent, right? Or the Universal Service Fund, it's really the consumers' money that was collected. Is it well spent?

Yeah, I think simply put, yes, we are. I think we're in a great position, and I think all communications providers are in a great position to enable really positive moves forward as a result of this crisis and to benefit from that, right? Which is why you're in business. So it's not going to be easy, and I do worry about the economic impacts on our markets, so that'll be the hard part. But look, I think this pandemic has made clear distance learning, telehealth. Telehealth has been talked about forever, and we serve a lot of communities that would usually benefit from it, but it needs something like this to create, you have no choice but for telehealth. So now you create the low-latency applications, the Internet of Things type environment that really enables that, and you get people used to it. As I said earlier a bunch of times, it's about consumer behavior, user behavior, and technology. And I think it's huge. I think we're actually in the early innings of the connectivity revolution. And what I think of as an operator is our job is to keep upping the game of providing a really strong platform of connectivity, and then the geniuses will come along and think of great use cases and applications for that that will bring people forward. I mean, telehealth alone and distance learning can be such an equalizer, right? It can be so great for communities that were behind in certain outcomes. So I'm pretty excited about all that.

Yeah.

Not really. I think I've learned in the area of Zoom to end on time. So I want to thank everybody for taking the time to listen, and I thank you David for the conversation. It's been great.