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Cracking the commercial telecom market

Tue, 09/30/1997 - 8:00pm
Leo A. Wrobel, President and CEO, Premiere Network Services Inc.
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Whether provided by telephone or cable companies, the networks of tomorrow will require close collaboration between carriers, equipment vendors and government regulatory authorities. Does your company simply wait for its equipment manufacturers to come in and dictate the direction of technology, running the risk of becoming road-kill on the information superhighway, or do you like to dabble and experiment with new ideas?

The best approach, of course, is to be proactive. Test technology. Stretch your customers' imaginations to the limit. In the process, you can leapfrog ordinary technology and your competitors at the same time.

In this article we will explore three such areas, and learn how to proactively drive the upcoming revolution in telecommunications. The first is essentially what "everybody else in cable will be doing;" namely, raiding the telephone company's markets. There are right and wrong ways to do this. The second is what forward-thinking cable companies will be doing to exploit the "SOHO" (small office, home office) market — one which they are uniquely positioned in many ways to serve. Lastly, we will tell you a little about what big companies need, and how a cable company can exploit this difficult to penetrate but highly profitable market segment by differentiating its services and solving pressing business problems.

The availability of unprecedented amounts of bandwidth in local and wide area networks afforded by cable companies will change the dynamics of how we do everything. How it is packaged, presented and perceived by the potential customer is paramount in importance. Hopefully this article will assist in deciding which markets hold the most promise for your particular company, and in crafting your strategy to profit from them.

For clarity, the three distinct opportunities for cable companies are illustrated as: The $2 window; the $5 window; and the $100 window. The analogy with the racetrack, however, stops there. Unlike a game of chance, if you craft the proper strategy and introduce it early in the game, these opportunities can be close to a sure thing.

POTS resale ($2 window)
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Reselling plain old telephone service (POTS) is what just about everyone in cable is looking into doing. And why not? At least initially, the margins look appealing. Resale of residential and business telephone service will become a major part of the revenue stream of many cable companies. Already, some cable companies are deploying shared tenant services to major apartment and office buildings. While a cable company is building a market presence, it can also capitalize on certain "captive" markets such as apartment or condominium complexes. Many times, renters like the "all bills paid" convenience afforded by apartments. Items like electric bills are already billed in the monthly rent, so why not local telephone services, too?

A nominal monetary incentive to an apartment complex owner may even be used to secure a block of customers for not only cable TV services, but local telephone service, long distance and Internet services as well. Caution should be the operative word, however. Already we have heard stories of a few cable companies locking in customers, then denying choices to long distance carriers and engaging in anti-competitive practices by virtue of their "monopoly" position in the apartment building. It can be expected that regulatory agencies will stand rather hard on this kind of behavior when the complaints start coming in.

So what is the best way to exploit these kinds of markets? Unquestionably for the present it is through the purchase of unbundled components from the local telephone company. Your cable company will have to file for certification in the states it wishes to serve (if it has not already), and once approved, it will negotiate an interconnection agreement with the local telephone company in the service area desired. This company is now called an ILEC, or incumbent local exchange company. Your company will technically become a CLEC, or competitive local exchange company.

A CLEC can buy unbundled components from the ILEC to build and market whatever kinds of services it desires. For example, you can lease a copper "loop" from the ILEC and connect it to your own switch. Your company can also lease T-1 services, interoffice switching, billing and collection services, operator services and myriad other services under terms and conditions negotiated with the ILEC in the interconnection agreement. Specifics of exactly how to do this are far too complicated to be included in this article. Suffice it to say, that if your company is astute enough to assemble unbundled telephone components and combine them with other services, the margins are good, and prospects for profit exceptional.

Enhanced SOHO services ($5 window)
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Next to consider are more emerging technology-based services such as Internet access and advanced telecommuting services for the small-office home-office (SOHO) market. In many ways, this is one of the areas where cable is positioned to take the lead.

There are areas in virtually every metropolitan service area where people have the demographic profile in terms of income, occupation and technical savvy to avail themselves of high-speed data services to the home or small office. Internet access is particularly lucrative at the present time. Anyone who has every surfed the Internet at 14.4 Kbps knows that the speed of traditional modems, even the newest 56 Kb variety (when they run at that speed) is woefully inadequate. ISDN lines provide some relief, but even 128 Kbps is underpowered for large downloads, graphics, video and multimedia. That's where cable modems come in.

Of course, as we pointed out in last month's article, this is easier said than done for the cable company. Large capital investments must be made to upgrade the network for two-way traffic. Or is there a way to sidestep this expense, at least initially? There is. Read on.

Think back for a second to that certificate of operating authority your company filed for. Remember, it allows companies like yours to buy unbundled components from an ILEC for resale. Just suppose you combined this capability to buy what you need from the telco and then supplement it with what can be provided in your own network. The key here is to be sure your certification does a few things, namely:

  1. Provide for co-location of your equipment in the ILEC's central office. This will give you the meeting point you need to connect your equipment to its.
  2. Make sure your certificate of operation in the state where you are doing business allows you to be a facilities-based carrier. That way, you can use your network whenever possible to save money, but round it out with the telephone company's network where it makes economic sense.
The "Fortune" level ($100 window)

This class of customer might just represent the most demanding, highest cost, least loyal and most highly competitive market segment your company will tackle. It might also just be the most profitable. Large corporations have insatiable appetites for telecommunications services of all types. They historically play hardball with all service providers, shop the market thoroughly and take a sharp pencil into negotiations. Nonetheless, they possess in many cases the intellectual savvy to understand even your most technologically advanced offerings and have the muscle and capital to help you develop them — allowing you to sell the process elsewhere in years to come.

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Getting a few of these bellweather users under your belt is therefore very useful indeed. To even have a chance in this market, however, the cable company needs to understand the unique dynamics of these organizations, and be in tune with what they care about. They must also be prepared for a long sales cycle, and be prepared to craft real, effective business solutions. Here are a few tips:

Use your advantages to tap the corporate market.

First off, understand a few of the operational issues which plague today's large corporate information systems and telecommunications departments, especially surrounding the hard-to-manage client/server arena. A few of the operational issues associated in today's processing environments which can be capitalized upon by a savvy cable company include:

  1. How do we give our users the bandwidth they will require at a price they can afford?
  2. How do we intelligently overlay core business problems onto the appropriate advanced network technology?
  3. What are "killer applications"? How do we grow them, shrink wrap them, and sell them to a skeptical user base?
  4. How do we measure the results of network improvements in ways which will elevate our standing as professionals and create maximum impact on the core business?
  5. What are we going to do about providing help desk support? Can we off load any of this responsibility to our vendors?
  6. Can you imagine the "spare CPU cycles" on everyone's desk in our organization at this time? Is there any way we can tap this capacity by sharing services over a radically advanced network?
  7. What about the long-term environment? How can we exploit opportunities in local telephone competition, for example, and other major industry changes afforded by new regulation and legislation?

In addition to these "hot buttons," anything which helps manage a client/server environment better might just provide the compelling reason a Fortune-500 company needs to give you a try.

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  • Insatiable user demands for capacity. Users want to share larger and larger files, taking a greater and greater toll on network capacity. They need higher capacity services, and T-1 is not enough anymore. Cable is technologically capable of providing 10 Mbps and 16 Mbps services — native LAN speeds. These are much more appealing to this class of user and will sell.
  • Help desk support. This is a big deal. Any value-added services that the user can get from his supplier are a big selling point. As a minimum, do not expect this potential user to take on any additional overhead in this area just to accommodate your company — they'll show you the door.
  • System backups and archival. Could your company provide this user enough capacity to do things like on-line vaulting? That's where the user has enough affordable capacity (T-3 level or better) to connect to a remote location and do transaction backups in real time off-site. It is a very salable commodity to banks, brokerage companies and other firms where last night's tape backup is obsolete at five past nine.
  • Network management. This may be the most important consideration. Before opting for an "unproven" carrier, the Fortune-500 level client will want to see a Johnson Space Center level of network command and control. There are sound business reasons for improving your network management and control capabilities. This includes providing (or selling) high level network management services to client/server customers essentially "black-boxing themselves to death." Many information executives and end users alike are having second thoughts regarding management of technology because of cost, the rapid pace of technological change and staying focused on their core business issues.

Things to consider in a network management system include:

  • Can you log on to one device and survey everything going on in your network right now?
  • Do you have "blind spots" in the network behind critical components where you have to guess what is going on?
  • Does the first indication of trouble come from a control system, or from screaming users?
  • Do you ever get knowledge of impending trouble before the users notice it? Are you able to perform proactive maintenance?
  • Does your network management system provide your organization performance management; accounting and chargeout management; change control; alarm and problem resolution; audit and inventory of asset management capabilities; and capacity planning for future needs?

You will need these kinds of capabilities to be up to par with that bank, factory, brokerage house or other demanding user. You will also need to refine your capabilities in this area as your own company's network becomes more complex as a result of the new directions we have outlined in this article.

Summary

If you bat 1.000 on all of these issues, then your company has a chance to crack these potentially lucrative markets. Then the fun starts.

With the capacity that a well-designed cable company can bring to this class of user will come new services, some of which will permanently alter the way that user does business — and the way you do business. The things you learn by dealing with these new classes of customer can be replicated elsewhere. They can also be licensed, shrink-wrapped and resold to less forward-thinking companies (after you have moved on to bigger and better things), providing new sources of revenue.


Author Information
About the author
Leo A. Wrobel holds degrees in Telecommunications Systems Technology, Electronic Systems Technology and Business and Public Policy. An active author, lecturer and technical futurist, he has published eight books and dozens of trade articles on a variety of technical subjects. For the past 10 years, Wrobel has been president and CEO of Dallas-based Premiere Network Services Inc.

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