Posted: 10/2000
Carriers Get the Equipment Bug
Providers Find Bundling Services for Small Businesses
Makes Cents
By James R. Dukart
In today's small-business telecom market, service providers increasingly are finding their way into the CPE business.
They have discovered that offering access lines, minutes of use and equipment in one bundle meets the needs of the surging small-business market, and opens up new, growing revenue opportunities.
"The idea is 'one-stop shopping,'" says John Malone, president and CEO of The Eastern Management Group Inc. (TEMG, www.easternmanagement.com) of Bedminster, N.J. "What the CLECs are doing is they take their sales force and try to grab customers for transport first. But with everybody out there offering 2 cents or 5 cents a minute, you have to look for other ways to extend sales. CPE comes right to the fore. It is a logical kind of sale."
Malone explains the logic comes from the CLEC and the small-business customer viewpoint.
"Small businesses are predisposed to buy gear from the CLEC once the CLEC is in place," he says.
Malone cited TEMG from several years ago, which measured small-business interest in getting CPE through an incumbent carrier. The study found an overwhelming preference to buy equipment from the same provider that delivers access and minutes.
"If you are the incumbent and the customer needs CPE gear, you will probably get in excess of 90 percent of the sales to that customer," Malone says. "Service providers are going to have to be in the CPE business."
Many already are.
Rochester, N.Y.-based Mpower Commu-nications Corp. (www.mpowercom.com) began as a local phone service provider in Las Vegas. Now it provides broadband data, Internet and telephony services to business customers throughout the country. It recently launched a bundled service offering called Consolidated Broadband Services 2.0, which includes turnkey installation, configuration and integration of a Netopia Ethernet router.
Mpower's offering gives small-business customers integrated voice and data, up to eight separate voice lines, 1.5mbps Internet access, domestic long distance at 5 cents per minute, web hosting, up to 10 e-mail addresses, custom calling features and full software and hardware support.
"For small businesses, basically the product pays for itself," says Scott Hagedorn, Mpower's vice president of business communications. "One customer said the package was kind of like buying a king-size bed--you don't know how much you are going to use it until you have it, but once you do, it's almost too good to be true."
Direct savings that come from using symmetrical DSL (SDSL) technology to carry voice and high-speed data via existing copper and the service's hardware component have been huge hits with small-business customers, Hagedorn adds.
"The customer is not saddled with the equipment," he explains. "Technology is changing so fast that they don't want to try to keep up with it. We are taking a lot of the guesswork out of what they need to do."
Creating Alliances
Praxon Inc. (www.praxon.com), a Campbell, Calif.-based manufacturer of integrated communications platforms, recently unveiled a carrier alliance program to create what it calls a "converged reseller."
The company's director of business development, Craig Vallarino, says the program is for services and equipment aimed at the small-business market. He adds that converged reselling is good for end-user small-business customers and for service providers alike.
"If you look at the current situation, a lot of small businesses have four or five pieces of equipment sitting on a folding table next to a copy machine, and that is the communications center," Vallarino says. "Not only is that hard to maintain, but in a typical sales cycle, the customer ends up talking to three or four or five different vendors. It slows down the sales cycle for everyone involved."
Vallarino argues that it is better for a customer to find a converged reseller, usually a service provider or value-added reseller (VAR), who is familiar with a set of equipment to sell services and to install and maintain CPE.
"The converged reseller needs to have a bag of services they can reach into, including equipment installation, maintenance and upgrades," Vallarino says. He adds, carriers have the option of outsourcing some or all the equipment-based services. The key from a customer's point of view is there is one point of contact. The key from a service provider or reseller perspective is expanded sales opportunities.
"It becomes something of a marketing and field-level army program--more feet on the street," Vallarino says. "You might start out with a lead for just long distance, or just a new phone system, but it can grow in phases, where the customer will at some point need more advanced, integrated services."
A case in point is Praxon ICP user Ellipsis Graphix Inc. (www.ellipsisgraphix.com), a print broker and graphic designer in Los Gatos, Calif. Ellipsis' president Frank Shuman explains that his business faces the challenges of rapid growth coupled with demands for advanced communications systems that he hardly could afford through his previous incumbent carrier.
"When I was first doing this at home, I was using GTE's version of a Centrex system, and it was costing $300 per month for just basic telephone service plus voice mail," Shuman recalls. "I wondered how I was going to do e-mail and Internet access and more."
Shuman got in touch with Praxon through a reseller, and installed a 3-slot Praxon PDX that gives him state-of-the-art communications, provides for current growth and future expansion and takes the burden of equipment configuration and maintenance off his hands.
"When we started out, there were three of us, and now there are 15," he says. "Now, when I have a new person come in, I can have them online and with their own voice mail box in about 15 minutes," Shuman says. "When I'm on the road, I can get all my voice mail messages made into e-mail and read them from my laptop. The auto attendant is definitely saving us money."
Shuman adds that Ellipsis nearly has reached its current system's maximum capacity. But the situation brings no fear of upgrade or expansion problems. "All we will have to do is add a card, and we will have 16 more spaces," he says.
That ease of use and peace of mind means a tremendous amount to the owner of any small business, Shuman says.
"We are a sales organization, not electronics people," he says. "I just want something that is plug and play. Ever since I got this system, I have never doubted, for one second, the decision I made. I don't even have to think about the phone system anymore."
Thinking About the Phone System
Executives of companies thinking about the phone system, and about how to make it something small businesses do not need to think about, is TEK DigiTel Corp. (www.tekdigitel.com) of Germantown, Md. TEK DigiTel works with service providers to install its V-Server OfficeBuilder platform, an ICP that combines data routing functionality with a VoIP gateway.
The company's president, Rocco DiCarlo, says the idea is to offer small businesses the advanced, affordable PBX, data and voice services that traditionally only have been available to large enterprises.
"One of the issues is, if you are a small business, the traditional PBX package is targeted specifically to large enterprises or at least the 100-person or 100-lines-plus business," DiCarlo says. "There are services like Centrex but they can be very expensive. We are in the business of making small businesses look like big companies through advanced voice services and communications."
He adds, service providers benefit in a number of ways. One is that the equipment allows an ISP or CLEC to expand geographically without a great deal of capital expense.
"They can get into Dallas or Phoenix without putting in local loops," DiCarlo explains.
Another advantage is the equipment features remote manageability. This means service providers can install boxes once and add new bundled services later.
"It is particularly lucrative for an ISP," DiCarlo says. "They can add in e-mail boxes, maybe add in some long-distance minutes, a few extra lines, and can package it all to make it more attractive, soon becoming the primary carrier for a company."
Small-business customers are clamoring for "powerful, extensible, affordable phone systems for $1,500 or less," says Mitch Karey, director of product development for converged voice and data services for Salem, N.H.-based CPE Bizfon Inc. (www.bizfon.com).
The company uses service provider partnerships to market its Bizfon 680 fully digital small-business communications platform to small businesses. Karey says the key markets are real estate or insurance offices that have large field sales forces and may share phones and desks or technology companies that have a significant complement of staff working from home.
"In the past, you were talking about $6,000 to $10,000 for the best services, or else pizza boxes that had no real advanced services," Karey says. "The small-business market has been underserved in this market for some time."
He adds, CLECs welcome the chance to sell equipment to small businesses.
"They have been very excited about the product from the start," Karey says. "Most of the CLECs are still very busy finishing up their infrastructure or their land grabs and are just turning up their initial customers with voice and data, so we feel we are going to intersect with that momentum in the first and second quarter of next year."
A similar tale is told by Sunnyvale, Calif.-based Vertical Networks (www.verticalnetworks.com), which provides the InstantOffice platform that combines full PBX services, full voice mail, LAN and WAN connectivity and a multiprotocol VoIP gateway.
Vertical Networks' strategic marketing director, Roger Merrill, says InstantOffice is targeted at businesses of up to about 100 people, and the company has had a three-plus-year co-marketing agreement with AT&T Corp. (www.att.com) as well as service provider partnerships with Bell Canada (www.bell.ca), Telecom Italia SpA (www.telecomitalia.it) and NTT (www.ntt.co.jp) in Japan.
"This is a big, big market, and also an underserved market," Merrill states. "A lot of the technology has been developed for large enterprises where IT staff and technology is available. When you get down to a small business, you can't just pour bodies on it the way you can with a big company."
Merrill says another advantage to service providers working with equipment makers is standardization across multiple offices or locations.
"The carrier has to have standard products," he explains. "They shudder to think of all the different flavors they already support."
When a provider works with one or a limited number of equipment companies or platform providers, the complexity of installation, maintenance and support are significantly reduced, he says.
Standardization also helps end-user customers, Merrill continues. As an example, he cites ARAMARK Uniform Services (www.aramark-uniform.com), which provides uniforms for the food service and other industries. It decided it wanted uniformity in telecommunications. The company has decided to purchase and install 27 Model 5500 and Model 3500 InstantOffice systems this year, and it will continue to roll out systems in 2001, Merrill says.
"It's not very complicated. But today, for businesses to be competitive, they need to invest in next-generation infrastructure and be confident it will work," Merrill says. "ARAMARK had lots of locations that are the same size and have the same telecommunications needs, so standardization makes a lot of sense."
Just Make It Work
"The full-service model is one of the key things the small-business market is looking for," says Victoria Desidero, vice president of marketing for Bethel, Conn.-based Merlot Communications Inc. (www.merlotcom.com), a company that sells its integrated communications equipment through carrier channels.
"Small businesses want a system they feel they can grow with, and they want one bill, one person to call. It is unbelievable what a major deal that is to them."
On the service provider side of the equation, Desidero says providers see adding CPE to their offerings to increase revenue generation.
"If they are voice only, they can add data, or if they are data only, they can add voice through advanced customer premises equipment," Desidero says. "There are thus new revenue opportunities and higher margins, and it is completely remotely manageable. Service providers don't have to send trucks out to the location to do moves, adds and changes. It is a customer loyalty generator."
Malone says adding CPE to the service provider mix is a revenue generator because of the nature of equipment as opposed to services.
"It gives you a reason to keep knocking on the customer's door," Malone explains. "CPE will eventually break or need to be replaced, and as a service provider you want them to call you for that. It is a somewhat sticky strategy. It gives you a reason to go back to your loyal customers."
Vallarino adds that customers will be delighted more when a service provider offers all-in-one, equipment-included solutions that allow business owners and managers to concentrate on their core business rather than to pay attention to their phone services or equipment.
"The technology moves so quickly, the acronyms fly by so fast, and there is no way that the small business owner can focus on this," Vallarino says. "All they want is to stick the equipment in the corner and make it work."
James R. Dukart is a free-lance writer based in Minnesota. He can be reached at jdukart@rr.mn.
