Carriers get creative with service strategies

If communications service providers want to survive the changes occurring in their industry, they have to alter their mindsets, according to some carrier representatives. Incumbent local exchange carriers (ILECs) such as Bell Canada and MTS Allstream Inc. face new competitors that offer enticing prices and packages to consumers and businesses, particularly in the phone-service arena. To keep ahead of the competition, some providers are turning to new products and provisioning methods.The carriers outlined their strategies at VON Canada, a conference in Toronto held April 3 to 5. Ron Close, president of new ventures at Bell, said his company took an unusual approach to providing IP telephony. Bell didn’t just meet competitors like Vonage and Skype head on with a carrier-agnostic VoIP service. It also started a version that relies heavily on Bell’s own network. The firm offers two versions of IP telephony for consumers: Bell Digital Voice (BDV) and Bell Digital Voice Lite (BDVL). The Lite version is typical of other consumer VoIP offerings in that end users have to subscribe to a high-speed Internet service and install an analog telephone adapter (ATA) at the home. BDV is a little different. It requires no ATA because the ATA functions essentially reside at the central office. BDV also requires no high-speed Internet connection at the user’s site to work. Although BDVL carries a lower price tag than BDV ($34 per month versus $40 per month), the pricier non-Lite version is attracting more attention among consumers. According to Close, BDVL is hard to sell because so many things about the user’s environment might have to change in order for the service to work. The user has to have the ATA, power for that box, and a high-speed Internet modem, for instance. BDV, on the other hand, requires no changes to the user’s home network. As a result, customers seem to like it better. Close said that about 15% of the sales calls Bell makes regarding BDV result in the customer buying the service. Calls regarding BDVL result in sales only 1% to 2% of the time. BDV isn’t just the consumer’s preferred option; it’s also the version that Bell likes best. "It really comes down to price," Close said, speaking of internal costs, not the upfront price that the consumer faces. Within Bell, BDVL costs nearly three times more to install than BDV does, he said. BDVL requires a truck roll to the customer’s house for ATA installation and LAN set-up, while BDV doesn’t. Changes occur within the carrier’s network, and are less expensive to enact as a result. "Network-based ATA functionality is more cost-effective for us," Close said. Bell’s approach to IP telephony illustrates the creativity that service providers are employing in order to survive these days. As competition heats up, ILECs can’t afford to sit still. "The incumbents have to take deliberate, calculated actions," Close said. It seems that mindset also drove MTS to change the way it does business, judging from the words of Kelvin Shepherd, the Winnipeg service provider’s president of consumer markets. A few years ago, MTS recognized that cable TV providers like Shaw Communications Inc. and Rogers Communications Inc. were keen to tackle the phone service market. So MTS prepared a counter attack, ramping up a digital TV service in 2001. "Our strategy was to prepare early," Shepherd said. But it hasn’t been easy for incumbent telephone company MTS to step into the TV world. Shepherd said his firm faced a tough competitor, Shaw, which served 90% of Manitoba’s TV subscribers. And MTS faced no small amount of concern on Bay Street about the carrier’s TV prospects. "The investment community was very skeptical," Shepherd said. It took some time to convince investors that MTS was on the right track, but even today service providers have trouble impressing stock jockeys, who are worried about the massive capital outlay required to offer digital TV. "It’s still an extremely tough business case for any telco to make," Shepherd said. Meanwhile, content providers were worried that MTS’ TV play – based on IP – spelled a security and digital rights management nightmare. "They see ‘IP’ and think ‘Internet’ and ‘Kazaa,’" Shepherd said. Despite the challenges, MTS now counts more than 50,000 TV subscribers. The provider owns 20% of the Manitoba market, Shepherd said. Each customer represents $45 of new revenue per month. And 70% of TV customers sign up for high-speed Internet service too. "The key to the whole approach is bundling," Shepherd said. "Increasingly, the opportunity to sell one-off services is diminishing." MTS is looking forward to leveraging the TV install base for not only new high-speed Internet revenues, but also local and long-distance phone service and other applications designed to entice the customer and keep him within the MTS fold. Incumbents aren’t the only service providers changing the way they approach the market as competitive providers are also shifting their strategies. For instance, Primus Telecommunications Canada Inc. unveiled its own new IP telephony service, said Matt Stein, VP new technologies. As Bell did with its non-Lite VoIP service, Primus is building ATA functionality into the network, so this latest VoIP version requires no changes at the customer’s home. Stein said his company had to do something to make its product stand out from the other carrier-agnostic IP offerings. Primus’ local home phone service looks and feels just like traditional phone service, but includes find me-follow me and other features normally attributed to VoIP, he said. Alec Saunders, CEO of Iotum Corp., a communications technology provider, pointed out that the telecom industry is due for more changes, particularly around network monetization. For instance, many carriers today charge for network access on a minute-by-minute basis, but that metering method might go away. As well, these days IP users pay an extra fee to access the PSTN. But if in the future there are more IP users than traditional phone users, perhaps the PSTN users will be obliged to pay to access the IP network. As access prices wend their way down, "if you’re a company that runs a network, you have a bit of a problem," Saunders noted. His opinion: if carriers intend to pull through, they’ll have to give up the business of squeezing the network cash cow, and consider applications and communications features as their new bread and butter.

Carriers get creative with service strategies

News | 04/12/2006 4:00 am EDT

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