2013 Operator Opportunities and Threats

By Jesse Cryderman

"Destiny is not a matter of chance; it is a matter of choice." - William Jennings Bryan

As the world prepares to review and renew resolutions and ring in a new year, it's time for communications service providers (CSPs) to adopt a similar approach - to take stock of industry developments in 2012 and prepare for 2013. To craft our destinies we must ask: what did we learn from 2012, and how can we better position ourselves for the coming year? Buzzy solutions like big data, while worthy of discussion, are quite different from informed strategies that help service providers capitalize on big opportunity and big incentives.

Some of the stories in 2012 were not new, like the decline in traditional service revenues. Households continue to cut their landlines in favor of wireless or VoIP solutions. In fact over the past five years the number of households without a landline has tripled. How communications service providers (CSPs) will respond to this development will be an ongoing challenge.

Similarly, broadband internet access is still unevenly distributed around the US, and households outside of major cities are underserved. The FCC's National Broadband Map presents a thorough analysis of these service discrepancies.

This year, though, the FCC's response to these trends presented a host of new risks and opportunities. The Universal Service Fund (USF) and Inter-Carrier Compensation (ICC) system are undergoing a massive overhaul. Then there's the National Broadband Plan and the FCC's 100 Squared Initiative, which aims to get 100Mbps broadband in 100 million American households by 2020. Since the telephone company is rapidly becoming the broadband company, serious questions regarding infrastructure investment and support systems must be addressed.

Growth in the cloud service economy showed no signs of slowing in 2012. CSPs have a wealth of unique subscriber data and a trusted billing relationship that can be leveraged, provided they commit to the right strategy. Gartner expects the cloud market to balloon to $160 billion in 2013, and 60 percent of server workloads virtualized by 2014. At the same time, concerns about the security and reliability of the cloud were brought to light in 2012: Hurricane Sandy's impact on east coast data centers and infrastructure reiterated the necessity for disaster preparedness and redundancy. And as more businesses move sensitive data and operations to the cloud, the need for security will increase. "By 2016, 40 percent of enterprises will make proof of independent security testing a precondition for using any type of cloud service," Gartner reported.

Several years ago only one wireless carrier sold the iPhone, 4G service was barely deployed, high-speed mobile coverage was anemic, and compelling Android smartphones had yet to make an impact on consumers. In other words the sexiest devices and fastest mobile networks belonged to a select few. But in 2012 the wireless landscape changed immensely; even prepaid service providers offer the iPhone and 4G LTE connectivity. As a result customer experience management (CEM) has moved to the forefront as a way for CSPs to differentiate themselves. How service providers undertake the cultural transformation to a customer-centric organization is crucial but not exactly easy.

Regulatory and financial pressures continued to drive a need for greater operational efficiencies in 2012, leading many CSPs to take advantage of managed services and offload select operations to partners. Simultaneously, agile CSPs are finding ways to leverage their partnerships to offer white-labeled managed services to their customers. For many CSPs managed-service offerings contributed to a larger share of revenue in 2012 than in past years; this market opportunity will continue to grow, but service providers need to innovate and remain flexible to fend off competition and retain their enterprise customers.

A quest for success

In light of these trends CHR Solutions brought together top executives from their Tier 2 and Tier 3 customer base, creating an industry think tank to answer the most pressing questions of 2012. The group's responses offer valuable insight for CSPs as the new year approaches.

What potential financial implications should I expect as they relate to USF and ICC reform, and how do I prepare my organization to ensure regulatory compliance?

Rural local exchange carriers (LECs) should expect less regulatory support for deploying improved networks. In fact there will be less revenue available to support current networks. In spite of this, customers and regulators will expect more vibrant networks. With this change in the business environment, carriers will be required to make difficult decisions regarding how they operate their current network and where they expand or improve tomorrow's network. Ironically - and disturbingly - the regulatory requirement to achieve minimal broadband capabilities and maximum broadband deployment requires a five-year plan demonstrating accomplishments toward that goal. Rural LECs who are behind the curve in providing minimum broadband speeds to the maximum number of customers and service areas will require a careful balance of available technology and capital. To create the capital required, rural LECs will have to critically examine and act upon their operating costs, seeking efficiencies and maintaining profitable best practices. From a regulatory compliance perspective, rural LECs must also seek changes to old rules that no longer apply in the current or future market and continue to advocate the impacts of the new, unfunded mandates.

What network-distribution methodologies or combination of methodologies are service providers trending toward in order to meet the buildout criteria set forth by the FCC without crippling capital investment?

The long-term goal for service providers is still Fiber to the Premises (FTTP); CHR believes this is the most future-safe investment. The question becomes: in a limited high-cost support model, how do providers make the investment in broadband facilities that their customers will pay for but still maintain a viable business model? FTTP provides the single step to the broadband solution, and should continue to be the end goal if a company can manage the capital investment in the technology. In the long run there are also reduced operational and maintenance cost benefits to be gained.

xDSL over existing copper-facilities methodology provides a means to offer the FCC standard of 4Mbps downstream and 1Mbps upstream (4/1) over a defined, shortened loop length. The drawback to this technology is the limitations to the upstream bandwidth of approximately 1.3Mbps, but it can be augmented by the use of pair bonding to gain more upstream and downstream if additional viable copper pairs are available. (There is an additional cost due to the use of an additional port on the Broadband Loop Carrier.)

4G LTE is a licensed wireless technology using 700MHz and AWS spectrum to offer the minimum FCC bandwidths in fairly uniform terrain in a radius of up to 5-7 miles from a tower. To be scalable with broadband traffic, these towers will need to be fiber fed and contain sufficient network capacity to carry the increase in projected broadband demand. To provide this service, a service provider must have access through purchase or lease of the spectrum. The 4G LTE provides a good platform to either be a complementary service to a provider with wireline service or be used as an edge-out strategy to extend broadband to sparse areas without having to construct facilities.

802.11ac in the 5MHz unlicensed spectrum (Wi-Fi) is a method for offering smaller areas good bandwidth if the current wired facilities are not capable of delivering higher speeds of broadband. The technology is easy to install and fairly cost-effective.

In summary a service provider should have an understanding of the bandwidth desires its client base will pay for and what it will need to provide to stay competitive. If it has no competitors the minimum 4/1 may be adequate in the near term, but in a competitive situation where customers are demanding and will pay for higher and more symmetrical speeds, the options become limited to FTTP and wireless. It is the opinion of CHR, based on independent research, that speeds in excess of 4/1 will be required by consumers in the future; the number of broadband devices in the average home continues to increase, as do the applications for bandwidth, and the use of the products is becoming more widespread. The telephone company of the past 50 years is rapidly disappearing and will be replaced by the broadband company of the future. How service providers offer products, services and the ability to supply ample bandwidth will determine their future.

How do I transform customer service from a cost center into a strategic asset?

So, you've made the strategic decision that customer experience is how you are going to differentiate yourself as a CSP. And as an organization you've made the business case that through reduced churn, improved customer loyalty and your increased ability to cross-sell and up-sell, customer experience will provide you with the sustainability you're looking for. But how do you make this transformation?

  • Organizational change management: It needs to be understood throughout the organization that customer experience is the focus; this is not solely the responsibility of the customer service department. Every department will need to evaluate its current operations, especially in the areas of process, metrics and efficiencies; an example may be to prioritize first-call resolution and up-sell value per call over call handle time.
  • Channel management: If you're going to provide an exceptional customer experience you need to be where your customers are, which means moving beyond the traditional channels of communication - phone, email - and onto the web and, yes, even social media. Social media provides the ability to completely transform brand image: if you are able to take a negative comment on Twitter and resolve that customer's issue within the social channel, it not only increases the customer's loyalty but also that of everyone watching your online conversation unfold, potentially touching thousands of customers.
  • 360 degrees of the customer: It's become an expectation of customers that you, the service provider, have access to all the interactions between you and them, including previous phone calls, emails, trouble tickets, service orders, etc. All of this information needs to be available to anyone interacting with your customers so that responses can be provided quickly and accurately.

What aspects of next-generation BSS should I look for as it relates to helping my business move toward a cloud-based environment?

Cloud services are still a relatively new offering for many CSPs, and therefore there is a wide range of business models. There will be three main aspects critical to any BSS with regard to the cloud: The first consideration is product catalog. Cloud services can have many business rules that need to be enforced through ordering and fulfillment; it is critical that the product catalog is able to model these appropriately. The second consideration is partner enablement. Whether your strategy is Infrastructure-, Platform-or Software-as-a-Service, inevitably you will need carefully evaluated and selected partners to deliver cloud services. The last consideration is billing. With cloud services there will likely be an aspect of recurring billing, but the majority will be based on collecting usage records, running through a mediation process and applying complex rating rules.

Overall, agility will be key when it comes to cloud services. This is a rapidly changing vertical that will continue to see a lot of innovation and competition, and an organization's propensity for agility as enabled through partnerships and its own infrastructure will be crucial in successful adoption of the cloud.

When considering the cloud as a source of new revenue, what services will my customers be most inclined to buy, and what is the best way to position my organization for success?

The first step, and often the most overlooked one, is profiling your customer base. What types of customers do you serve? What types of services do they get from you? For example, if you serve a large population of small businesses that solely rely on you for internet, then the ideal scenario would be to up-sell value-added services such as backup and storage - in other words, services that compliment an existing offering, making for a much easier sell. If you are addressing a mostly consumer market, consider enhancing your existing broadband offerings to include consumer-friendly applications such as storage, email and even web hosting. It all comes down to knowing your customer, and once you understand your market, identifying the right cloud services to offer becomes simple and straightforward.

With increasing competition and declining regulatory support, we are looking at new ways to improve operational efficiencies. How can we leverage managed services most effectively and still retain loyal employees?

Within the Tier 2 and Tier 3 market we see several business drives for achieving operational efficiencies through managed services: scalability, expertise, tools, and reduced risk. Almost everyone agrees that the fundamental keys to effectively leveraging managed services are a good relationship between partners and sound service-level contracts. Unfortunately, the biggest misconception is that managed services displace existing staff. Truth be told, oftentimes these loyal and trusted employees are hired by the managed-services partner to ensure that on-site support and intellectual property are retained; in essence it allows for employees to keep their seniority with the managed-services partner without forgoing items like pay, vacation and benefits. Additionally, CSPs need to look at leveraging their partner to deliver white-labeled managed services to their customer base, generating new revenue streams while allowing CSPs to become the expert in managed services in the eyes of their customers.

Preparing for the quest

It is an exciting time to operate in the telecommunications industry. Changes are afoot that will impact the course of humanity over the next few decades, and the potential business opportunities are enormous. Undoubtedly, so are the risks. CSPs are in the process of redefining themselves to take advantage of these trends, but not all paths lead to success.

CSPs must craft an infrastructure and support-systems strategy that enables future service models, meets rapidly changing regulatory standards and anticipates the future. They must find new ways to create operational efficiencies and partner with managed-services providers at the appropriate level to offload select processes without undermining employee loyalty. The successful CSP of the future will leverage CEM to the fullest, extracting new value from an operational necessity - customer support - that has traditionally been a cost center. Service providers that progress to sell white-labeled cloud solutions and managed services through their partner networks stand to profit from the meteoric growth of IT virtualization.

As 2012 has taught us, there is no such thing as business as usual. In telecommunications the playbook of the past is out of pages, and the entire nature of a CSP is evolving. Those who move to embrace the dramatic changes and take their destiny into their own hands will succeed.

Written by Guest Author at 14:00