Weathering Uncertainty
Integrated Infrastructure and Strategic Marketing Provide Protection
By David S. Stehlin
The new millennium dealt a one-two punch in the form of uncertainty and instability to the service provider market, particularly to CLECs. Widespread user demand for mega-bundles of communications services--comprehensive service packages, offered by a single provider, ranging from long-distance telephone to home security systems--did not materialize. Not long ago, mega-bundles were touted as a sure consumer draw by upstart and major U.S. telecommunications providers. Amid intensifying financial pressures, many CLECs have dropped out of sight. Non-facilities-based providers were especially hard hit.
In order to survive--and thrive--in this new capital- constrained environment, service providers now need to review their business models, keeping one concept foremost in mind: integration. It is crucial that carriers adopt an integrated marketing plan and an integrated communications infrastructure. CLECs must develop a cohesive residential marketing strategy, but tailor bundling, pricing and services to the distinct single-family unit (SFU) and multiple-dwelling unit (MDU) market segments. Providers also must design and deploy an integrated infrastructure that facilitates the delivery of multiple services, fast Internet access and remote service provisioning.
Unless they strive for this level of integration, even brand-name service providers will continue to struggle in today's changing marketplace.
One Size Doesn't Fit All
Perhaps it was late entry to the residential market that initially blinded CLECs to the need for an integrated residential marketing strategy. Whatever the reason, few CLECs currently have such a strategy. Even fewer providers realize that they cannot penetrate the residential market with a one-size-fits-all marketing plan.
The typical CLEC that now offers converged communications services is an unknown to SFUs and MDUs, and must conduct face-to-face marketing with consumers. Beyond that fact, the provider that tries to offer identical bundling, pricing and services to MDU and SFU market segments is likely to run into trouble. There are important distinctions in what these buyers want in communications services.
Separated by just a few miles, MDU and SFU residents sharply differ in the communications services they want most. The single-family buyer wants several family members to be able to be online or to watch TV, separately and at once, without requiring multiple connections or cable modems. The SFU also will welcome bandwidth-on-demand, which delivers higher-than-normal bandwidth on a per-usage basis.
Because most providers currently use both copper and coaxial cable to deliver residential services, customers who want broadband service now must pay several providers for multiple connections into the home. However, if the service provider installs an integrated infrastructure, multiple members of each household can have separate, simultaneous television or Internet access, all from a single connection into the home.
The provider that offers bandwidth-on-demand will appeal to SFU families that want higher bandwidth for future needs, such as videoconferences with distant relatives and interactive gaming for their children. Bandwidth on demand also will interest work-at-home parents who need to telecommute to their corporate servers.
Reaching Dual Audiences
While the service provider targeting the SFU segment must market directly to homeowners, the provider selling to MDUs must reach the resident as well as the property owner or manager. If bandwidth-on-demand and multiple simultaneous connections attract SFU subscribers, remote service provisioning is a plus in the MDU market.
The average MDU resident moves every 1.6 years. This tenant churn requires the provider to roll costly trucks and crews to the property to turn on and off service. In addition to competitive communications services, the MDU tenant and property owner want easy, quick and efficient service turnaround.
The provider that can remotely provision services, without rolling a truck to the property, has a sales advantage that will interest apartment owners, managers and residents alike. With remote provisioning, everyone benefits. Providers avoid costly truck rolls, property managers offer residents better service, and tenants no longer have to wait for a technician to connect or disconnect service.
MDU property owners and managers also want to be able to offer localized video information to their residents, for example, about a weekend barbecue or upcoming weather. Property mangers would like to augment this localized information with local advertising from restaurants and shops near the community. Most MDU cable systems already have local video channels. However, the provider that allows the property owner to more easily inject localized information, without having to contend with a complicated central headend facility, has a sales advantage.
Integrated, But Distinct
Amid current market constraints, providers that deliver smaller, simpler service bundles are outperforming competitors that offer mega-bundles. Providers that have targeted smaller service bundles to specific market segments have been rewarded with higher revenues and more loyal customers. After developing smaller bundles, one major provider reported that its customer turnover fell 20 percent for bundled subscribers.
While the industry has moved away from the mega-bundle, at least for now, it is clear that single-service providers are in trouble. Offering a single service--even a perceived "hot" service such as high-speed data access--cannot produce adequate revenues to pay for the network the service provider must install. Single-service providers compromise their ability to scale, to reduce costs and to increase revenues.
The Yankee Group (http://www.yankeegroup.com/) predicts that over the next year, several standalone MDU service providers will expand their offerings beyond just high-speed Internet access. Yankee predicts that video applications will become a critical part of these providers' product portfolios. Attempting to become more competitive, some leading standalone, high-speed Internet access providers already have formed partnerships with other providers to offer additional services to customers.
Integrated Infrastructure
To succeed in today's volatile market, the service provider also must plan and employ from the onset an integrated communications infrastructure. An integrated infrastructure goes hand in hand with an integrated marketing plan, and requires the same level of foresight and strategic thinking.
I have tracked with interest the success of a current provider that not only has an integrated residential marketing strategy, but also owns an integrated infrastructure. Over its built-from-scratch, high-capacity, low-cost fiber network, this provider delivers bundled telephone, cable television and high-speed Internet services. The company targets its service only at customers in the most densely populated areas in the United States. This single network is expected to be cost-efficient today and in the future as new services are developed. The provider anticipates being able to offer more robust products and enriched services without having to upgrade its infrastructure.
With the exploding demand for bandwidth, this provider and others have found that they must be flexible in how they design and deploy their network. Flexibility is required if carriers are to be able to provide the services that consumers will want tomorrow.
Much like developing an integrated marketing plan, strategic thinking is required to design and deploy an integrated communications network. While it may be daunting to aim for this level of integration, consider what happens when a service provider does not.
I recently read of an overbuilder that is building a fiber network to carry data traffic only, and a separate hybrid fiber/coax (HFC) network for video and voice. In addition to absorbing the capital costs of installing two networks, the overbuilder must hire separate groups of technicians and buy different equipment to maintain both networks. The maintenance costs of running two networks promise to be substantially more than if the overbuilder had installed a single, integrated network from the beginning.
Besides offering lower long-term costs, an integrated backbone can help the provider deliver the localized information that is so appealing to MDU property owners. The provider now has adequate bandwidth to be able to offer localized video channels, bandwidth-on-demand and similar services. An integrated infrastructure can enable the provider or apartment manager to remotely provision video and data information and programming to better serve the subscriber.
Finally, by deploying an integrated communications infrastructure before consumer demand exceeds the provider's resources, the carrier can tailor the suite of services offered to residents. An integrated, scalable infrastructure allows for remote service provisioning, which gives the provider an inexpensive way to market to consumers not currently receiving the full suite of services. The service provider can cost-effectively market to the particular consumers it wishes to reach.
David S. Stehlin is president and CEO of OnePath Networks Inc. He can be reached at dstehlin@onepathnet.com or (602) 514-1800.
