Marching Toward the Integrated Communications Provider

Kim Sunderland

Posted: 12/15/1998

Customers Call for It All
Marching Toward the Integrated Communications Provider

By Kim Sunderland

When it comes to telecommunications services, more is more.

Customers want a wide variety of services, and they want them yesterday.

Business customers, for instance, might want to sit down at their desks, turn on the computer or pick up the telephone and be updated on their stock portfolios, hear a long distance message from mom and learn if the National Basketball Association (NBA) has quit squabbling. Or a company executive may want her staff plugged into the strategies of a competitor via receipt of a weekly e-mail or update on the company's home page on the World Wide Web.

That's in addition to the wide range of transport, network management, billing, consulting and other services businesses have come to expect from the companies that provide their data and telecommunications services.

Luckily, competitive local exchange carriers (CLECs) have figured all this out. While still locked in the "I-can-be-a-cheap-incumbent-local-exchange-carrier (ILEC)" mode, which could last for a few more years according to some analysts, CLECs hear their customers calling for their provisioning of additional services.

"A more expansive product line means a stronger relationship with your customer," says Tamra Burgwardt, CEO of ISG-Telecom Consultants in Tampa, Fla. "And CLECs must expand their product offerings to capture and maintain customers."

To do this, CLECs are trying to transform themselves into one-stop shops, a description that's fast evolving CLECs into integrated communications providers, or ICPs.

Integration Means More Money

The CLEC business services market generated more than $3.1 billion in revenues in 1997, and revenues are expected to increase this year as CLECs strive to become a one-stop-shop for their customers, according to telecom research firm Frost & Sullivan Inc.

Likewise, the regional Bell operating companies' (RBOCs') share of the telecom and data communication markets could top $22 billion in 1997, Frost & Sullivan reports. Total U.S. data communications and information services in residential and business markets for the RBOCs also are projected to grow.

"The aspect of having a single service provider for all of the telecommunications needs of an organization is attracting the attention of business customers who are constantly searching for ways to improve operational efficiency," says Frost & Sullivan telecommunications analyst Imran Khan.

CLEC strategies to improve and increase service offerings, Khan adds, include:

* Adding access lines to their networks and allowing provisioned services to an increasing number of business customers;

* Exploiting interconnection agreements to quickly enter local markets; and

* Promoting the increased use of the Internet, high-speed data transfer and enhanced voice services by their customers.

"The business data services market revenues will grow extensively as a large number of businesses turn to Internet-related services," says Neha Jhaveri, another Frost & Sullivan telecom
analyst. "The trend toward outsourcing of telecommunications services will also lead to increased CLEC revenues."

Bundling Is Better

Demand for integrated services, or bundled services, will grow mightily, according to the Strategis Group, a Washington-based consulting firm.

The company conducted a survey earlier this year of 25 telecom managers on service integration and bundling, reporting that 79 percent prefer bundles. The Strategis Group survey also said that four out of five telecom managers would prefer to receive a bundle of two or more communications services from a single provider. And almost a third of the managers wanted to buy a comprehensive bundle of services that would include telephony, long distance, cellular/personal communications services (PCS), Internet access, paging and enhanced data services.

"The more you can bundle, the more customers want to buy what you are offering."
--Anurag Lal, vice president of data and Internet product management, e.spire Communications Inc.

"The majority of small, medium and large businesses currently purchase at least four different core telecommunications services," explained Anurag Lal, vice president of data and Internet product management for competitive services provider e.spire Communications Inc. during the SUPERCOMM conference this past summer. "At the same time, they must manage several separate customer service, billing and maintenance relationships and divide monthly communications expenditures between three, four, five or more different providers.

"The more you can bundle, the more customers want to buy what you are offering," Lal said during the conference.

And company size doesn't matter, according to the Strategis Group, which says that more than half of the small firms (those with less than 50 employees) surveyed said they want integrated services.

"CLECs are making a big push to offer bundled services on a convergent bill," ISG-Telecom's Burgwardt says. "CLECs can capture customers totally with bundled services."

One bill, one provider means convenience, she adds.

Getting There from Here

One way CLECs are expanding their service offerings is by becoming Internet service providers (ISPs), largely through acquisitions.

"Many CLECs own ISPs outright because it's good business for them," explains Jim Crawford of the Association for Local Telecommunications Services (ALTS), a national organization representing facilities-based CLECs. "They want to win and keep customers through differentiation that goes beyond price."

Fixed broadband access provider WinStar Communications Inc., for example, bought ISP GoodNet. That deal this year follows similar marriages including Intermedia Communications Inc.'s purchase of ISP DIGEX Inc., Teleport Communications Group Inc.'s purchase of CERFnet Services Inc. and UUNet Technologies Inc.'s deal with MFS Communications Co. Inc., which both now operate under MCI WorldCom Inc.'s umbrella.

CLECs and ISPs "are competing head-to-head," says ISG-Telecom's Burgwardt, "as CLECs look to add information services and ISPs look to add telecom services."

Case in Point

Of course, CLECs aren't doing it all alone. There are many companies that support CLECs in their service provisioning, either providing services wholesale or offering consulting or other support.

GE Information Services (GEIS) in Rockville, Md., is offering its Interconnection Solutions, which allows CLECs to interconnect with ILECs and CLECs, to at least 10 other service providers. GEIS also provides assistance in project and community management, training development and consulting on such issues as billing, maintenance and repair services.

On another front, but just as noteworthy an example of crossing into another market segment, SBC Communications Inc. is integrating Concentric Network Corp.'s Internet-based data services and technology into its data products and services for businesses. SBC will provide the local telecom link between customers' sites and Concentric's points of presence (POPs). And customers will receive long distance transport from Concentric, a service that will be offered separately from SBC. The SBC/Concentric agreement also calls for the deployment of a suite of packet-switched, Internet protocol (IP)-based services, such as virtual private networks (VPNs), web hosting, shared software and electronic commerce.

Of course, offering more services means more potential revenue. It's also a way to prevent customer churn (see related article). And offering less than a full palette of services could mean trouble for a carrier competing in the new world of the ICP.

"If they don't expand their service offerings, two things will happen," Burgwardt says. "CLECs will either be bought out or pushed out" of the local market.