Competitive Carriers Cautiously Optimistic about Content and Customers
By Ed Finegold
December 2006

The industry cacophony over technologies like IPTV, IMS, SDP and SIP has become deafening. The hype surrounding these feats of engineering complexity has grown out of hand and is in evidence every time a conference speaker fails to communicate what killer services will be enabled in the next year or two. Because so many voices in the industry are once again over-promising on technology, practical questions such as what customers want and how quickly they’ll change to adopt new types of services seem lost in the shuffle. The common assumption in the industry is that new technologies will lead to user adoption of new services, which in turn creates new revenue streams.

But the truth is that customers never flock to technology en masse. They may flock to new, well-defined services that are easy for them to adopt and provide them with tangible advantages or convenience, but only if those advantages are easily understood and the number of options isn’t overwhelming.

Carriers in second tier, third tier and rural markets understand this about their customers better than anyone, often because they live in the same town. The smaller scale and entrepreneurial lean to their businesses also drives them to be more careful about adopting or investing in new technologies, so that they always ask the question, “Is there an easier way for us to do this?”

Views From the Smaller Players

A panel of representatives from four such competitive players, each with a different business model, discussed with Billing World and OSS Today their views on technology hype, market education, winning customers and the next killer service model. They were Kevin Cantwell, president of Big River Telephone; Greg Welch, CEO for Global Touch Telecom; Michael Kennedy, commercial manager for Carolina West Wireless; and Eugene McCord, CIO for PrairieWave Communications.

Big River Telephone, based in Cape Girardeau, Mo., is a facilities-based landline provider serving rural Midwestern communities. The company offers local and long distance voice service using various technologies, including TDM and VoIP, as well as business telephony, broadband and Internet services. Recently Big River has begun partnering with rural cable operators to provide their telephony service and back-office operations. Kevin Cantwell, Big River’s president, says, “We don’t talk about getting ESPN over the cell phone and what have you. We just try to work with customers and meet their business needs.”

Global Touch Telecom, based in Los Angeles, is a vertically integrated, white-label VoIP provider that operates from an ASP model. It designed and built its entire VoIP infrastructure independently and chose to utilize SIP at an early stage. This decision fortunately has paid off, according to CEO Greg Welch, who says choosing SIP was a bit like selecting a VHS machine over Betamax in the early days of videotape recording. He stresses the value of Global Touch’s SIP-based infrastructure, because it allows the company to offer simple or complex feature packages for no difference in cost, which in turn makes added functionality a real differentiator for his customers, who are already competing on price.

Carolina West Wireless is a facilities-based rural wireless operator serving customers in locations like Mt. Airy, West Jefferson and Wilkesboro, N.C. Though Carolina West’s primary business is voice, it currently offers mobile web browsing and is on the verge of launching services such as picture messaging, push-to-talk and more complete web and messaging bundles. Commercial Manager Michael Kennedy admits that his company’s services traditionally have been best for “middle aged white guys like me,” but he points to the youth and elderly segments as key areas for growth. Carolina West was one of the less publicized winners in the FCC’s recent auctions for Advanced Wireless Services spectrum, but whether this spectrum will be used for added cellular coverage or something like WiMAX is still under consideration.

PrairieWave Communications, based in Sioux Falls, S.D., is an incumbent LEC turned CLEC that offers residential and business telephony, Internet and cable television services. It operates a dual-built copper and coax network serving customers in South Dakota, Minnesota and western Iowa. PrairieWave has always been in the telephony business and entered cable in the 1970s, making the company among the earliest triple-play providers with the introduction of Internet services in the 1990s. CIO Eugene McCord says that as a last-mile network owner, PrairieWave is especially concerned about network neutrality legislation and the ability to receive compensation for value-added services that will traverse its networks.

Talking Business

BWOT: We are inundated with the hype around IPTV and IMS and can’t help but stop short when noticing all of the complexity. When you look at the next wave of services, what’s realistic to you, and how do you handle educating your customers about new technologies?

Eugene McCord, PrairieWave: In our case we are already a triple-play provider offering telephone, cable and Internet, so for us it is not so much about getting into those businesses as it is about optimizing them and moving forward. There are some new features we have to be aware of, but serving residential customers and small businesses in rural America, we don’t necessarily have to educate the public. We let the big guys do that and follow closely behind with a better, more suitable product tailored to our customer base.

So, for example, we already provide VoIP services and have for some time. But we don’t necessarily sell it as VoIP technology. It’s sold as a voice service. It’s fully 9-1-1 compliant and supported with battery backup. So, it’s just another delivery method.

We’ve also been a cable provider since the mid-’70s and have dual-build plant facilities with coax to all of our locations. For the cable television side of the house, content is our biggest issue. We can see that as you have convergence on an IP platform, being an ILEC and facilities-based, we are concerned about the compensation mechanisms in the network and letting just anyone jump in.

When we look at IPTV, I certainly think it will have a horizon to it, and we’ll monitor it and watch its growth. I do think it will be mainstream at some point, and I think it will enable a lot more providers to get into the TV business. But IPTV is really just a new delivery mechanism for an existing service. So the question is, what are the new services? To deal with that question, we’re poised to deliver multiple kinds of services over our networks.

BWOT: Greg, can you tell us a bit about your SIP-based infrastructure at Global Touch and how you deal with such a significant change to the way people use what’s no longer plain old voice service? How do you introduce all of the new features so that customers will incorporate them into how they use the service?

Greg Welch, Global Touch: Whatever you want to talk about in terms of killer applications, you have to ask what the customer wants. Guys are often out in outer space talking about applications that only a small percentage of customers would ever use. When I look at VoIP it is voice, and more folks now understand things like pushing a voice mail to an email. I think we need to spoon-feed these new features. We can tell a user we have 600 different applications. We’d overwhelm them to where they cannot make a decision. We have to understand what the threshold of pain or change is that the user wants to have and when it’s going to affect the buying decision.

BWOT: So, Kevin, how is Big River dealing with introducing new services or technologies and turning them into a business?

Kevin Cantwell, Big River: Eugene said that these various technologies are just delivery options—packet, SIP, fiber, coax—they are all solutions to deliver to the end customer. Our approach is to meet the customers’ needs and not hype them to death. We developed a lot of VoIP applications ourselves, like messages going from your home to your office, etc., and that’s what helps to drive our business.

We had to make some decisions to help us grow, especially with all of these companies trying to get into new applications. It’s a little like in 1996 when so many people jumped into the market and thought they knew telecom, but now most of them are no longer with us. You’re seeing the same thing with folks who will try to be all things to everybody. We just want to be the best at what we do and deliver to the customer. What technology we decide to use all just depends on what is the best solution for the end customer. If it makes business sense, we’ll do it. I don’t think that means that if we don’t build it ourselves, it’s not worth a damn. The big guys feel if it doesn’t have Bell Labs on it, it’s not worth anything, and historically that’s not the best way to go.

We are partnering with cable companies to roll out TV. Folks like Net-2-Phone went to the major players like Time Warner, who just bought Xspedius. Those major players are acquiring the telecom expertise in-house to create new revenue in these areas. Our approach was to go after the secondary cable companies who don’t have the expertise and don’t want to buy anyone. We help them deliver triple play and get them to quad play. We have nine cable companies for whom we provide the telephony service, and we provide all the back-office functionality for them.

We had looked at rolling out a Skype or Vonage type of product to expand our business, but in the rural community it really made sense for us to work with the cable companies and do a revenue split. We make the same amount of money, but they brand it. They know their communities and they focus on taking care of their customers the way we do.

BWOT: How about you, Mike? If anything, the mobile market is more saturated with hype and new applications than any other. How do you approach it all?

Michael Kennedy, Carolina West: In the overall scheme of things, as a small carrier, we’re not going to be the front guy in the wedge to cut through everything. We’d like to play it safe, let someone else be the sacrificial lamb, and we can follow. In the rural areas all of these new services and technologies aren’t as important. What’s of greater concern to us is that as a small carrier, we do not have the handsets available to take advantage of things like iTunes downloads. The cost of delivering it and the price we’d have to charge doesn’t make sense.

I enjoy going online with my phone and getting scores and weather, and we have a variety of things people can download and have access to. But we are dragging behind on the education part, because most demographics just aren’t that keen on it. Our customer base does not ask about the V Cast type of services as much as they ask about the new phones that are available. Our doors are being knocked down for the RAZR phone, and we could not get it for the longest time. The bottom line is that voice is our business right now.

McCord, PrairieWave: I’d like to add to that thought. In rural markets you also have people who are really concerned about reliability. For example, we had an ice storm in South Dakota that took out service for weeks, and there was a resurgence of landline phones because everyone lost cellular communications. In the Upper Midwest in the winter, that reliability becomes extremely crucial.

Welch, Global Touch: We do a lot of work in the rural ILEC world, and one thing we are finding is that a lot of the folks we deal with are worried about the shrinking size of their rural markets. The younger people are moving to cities and other places. So as the population shrinks they have to find ways to expand their markets. On the VoIP side you can reach out to that user who moves away and never comes back to Greenbrier, Ark., but you can still support them on your service.

BWOT: What about customer education? That would seem to be a special challenge because different segments—like youth versus elderly—will need different levels of education, not just about the services but about using a new device to access those services as well.

Welch, Global Touch: A challenging area for us is dealing with the international population. You have language barriers, you have functionality issues about how people use devices in foreign countries, but I go back to the concept of voice. It’s still a voice feature, and we try to keep that simple and manageable. That said, we’re deploying 2,500 to 3,000 video phones. We’ve got people who like the concept and use it, and some of them are grandparents. Video has been around for years, why is it just now starting to creep in? We have customers making an emotional decision to buy a video phone.

Kennedy, Carolina West: Whenever we introduce something new, the primary education is actually for our salespeople. The big hurdle is to make sure all salespeople, agents, dealers, whatever, are all educated to the hilt. That’s a big challenge, because there are many of them, and there’s a lot of turnover. But they need to be knowledgeable, because proper customer education at the time of purchase is critical.

Cantwell, Big River: Our approach—and remember that we chase the rural market—is that when we roll into a new town or community, I spend a lot of time trying to find the right person to represent us. I look for someone born in the community, who went to college and came home, and who comes from a good family. So much of it is relationship-building in our markets. I’ve had people in southern Missouri tell me, “Don’t send me a Yankee down from St Louis.” I hire a local person, born and raised. When they walk down the street, I want someone honking the horn and asking the guy to come see him. It could be during the day or at church or Rotary Club or a soccer game.

As long as we provide quality product and the reliability they expect, I can win the marketplace in those communities by hiring a local person. I might be 5 or 10 percent more than AT&T, and it’s killing them. They think it’s a price game, and it’s not. It’s a relationship deal, especially when you have prices at 3 cents or less—what’s 10 percent? Three tenths of a cent per customer for AT&T might be $2 billion, but in some small town in Missouri it’s nothing.

Welch, Global Touch: Kevin’s point about the local person is well taken, and consider the same scenario but, for example, with Vonage versus the cable companies. It costs them something like $240 to $350 per subscriber to get people to spend $24.99 per month. They are trying to educate both on a new technology and a new company. That’s part of the reason cable has done so well promoting their digital voice service—their users have no idea it’s VoIP. Why try to confuse the marketplace, when no one likes change?

Because we own our technology, every feature function decision doesn’t have to be “OK, what’s the cost? What’s the ROI?” We run an IP PBX to the core, and our cost base is the same whether it’s stripped down or fully functional. If you are a third party looking to buy and create all of these applications, you have to look at uptake and penetration to justify the investment. Instead of price compression, we can say we can add this feature pack, but the price stays the same, and we’re still playing with all of that.

You have to be careful not to overwhelm the customer. For example, SIP is fantastic and is a great concept, but the last thing you want to do is give your customer a Chinese food menu with 500 items, when all they want is a menu with three items on it.

Cantwell, Big River: I agree with Greg on that point. We had eight products when we first rolled out our voice service to cable. At the end of the day the customers chose two: all you can eat and basic. All you need is two of them. You get about a 90-10 take on the super unlimited. Now it’s not a Chinese food menu, it’s just “here it is, go with it.”

BWOT: The big question that never seems to get answered at various industry events is what will be the next killer application.

Kennedy, Carolina West: In our business it is hard to nail it down to one thing, because there are so many segments, but I’ll stick my neck out and say that the big mobile application is TV coming to wireless handsets.

Cantwell, Big River: To me, it’s like Greg said earlier, the industry has gone back to the early 1900s where one could ask the operator to find Johnny. The next big step will be that I’m going to dial a number and whoever I’m calling is going to answer it wherever in the world they are.

Welch, Global Touch: Building on that, I think you have to look at the community concept—not MySpace or YouTube per se—but this concept that it would be nice to have the photos of my 6-month-old so my mom in St. Louis can look at them without emailing them to her. I’m not just talking about unified communications, but also having all of your “stuff”—all of your messages, digital media and so on—reside in a place where you want them and can always access them. As much as you understand technologically, you can have it—as little or as much as you want.

Cantwell, Big River: I can relate to that because my son is studying in England. I talk to him more now because we use Skype for video calls all the time. He posts his photos on the Kodak site so we can all see where he’s visited in Europe. But it’s all separate now, so pulling it together into one unified place where you can pull people you trust into it, I think that’s the future. Right now the entities who are putting together the pieces are not the big guys who think they have to build everything. It’s amazing what’s going to happen here.

Welch, Global Touch: Right. … What gets me going is that I’ve been through the ups and downs in this industry. With this new technology, and given the changing cost of equipment and technology now compared to the old, big iron, it’s not necessarily going to be the big guys that win. Now anyone has that opportunity.