WholesaleCarrier Report Card

Posted: 05/2002

Wholesale Carrier Report Card
Five-Year Lull in Reseller Satisfaction Index Ends

By Judy Reed Smith & Taher Bouzayen

DRAMATIC BANDWIDTH PRICE EROSION, fierce competition, extensive adoption of IP technology, rekindled asset acquisition activity and an increasing number of bankruptcies are redefining the wholesale long-distance voice and bandwidth arena.

Twelve months ago, few people predicted the collapse of major network providers such as 360 Networks, Global Crossing Ltd. and McLeodUSA Inc. Given the revenue figures and business outlook that these companies projected to Wall Street, the prospect of bankruptcy for any of them seemed quite remote to most observers.

However, if the question were asked today regarding survival of some well established enterprises during the next year, responses likely would be less confident. Some analysts would mention Williams Communications Inc.; others would cite Qwest Communications International Inc. or Level 3 Communications Inc.; and still others might even bring up MCI Worldcom Inc. or AT&T Corp.

Such uncertainty has a direct effect on the current wholesale market. Twelve months ago (PHONE+, April 2001), ATLANTIC-ACM analyzed factors that please wholesale customers and allow players to gain share over their competitors. The result was the "PIN Equation," which provides a simplified satisfaction index for wholesale carriers. In the PIN equation, satisfaction is equal to network availability and reach divided by price and interval speed.

The 2002 version must include a measure of "E," or expectation of survivability for the competitor offering the contract. Thus, satisfaction is equal to network availability and reach plus expectation of survivability divided by price and interval speed.

The PIN equation was developed based on wholesale market studies conducted during the previous six years. By working with the major wholesale providers and a large number of wholesale purchasers, we identified and tracked six factors that primarily influenced decisions to purchase wholesale products: billing, provisioning, network, customer service, products and pricing. The relative importance of these factors changes from year to year. During the past four years, resellers' purchasing decisions were influenced primarily by a mix of price, provisioning intervals and network reach.

Our latest research, in which resellers rated their wholesale carriers on each purchase driver using a 0 to 10 approval scale, produced a better understanding of the marketplace dynamic between wholesalers and resellers.

Scores

Until the latest research, the industry recorded its highest overall approval scores in 1996 when there were not as many competitors, fewer products and services, and less complex business requirements. From 1996 to 2001, overall scores fell sharply, reflecting resellers' frustration with all aspects of the wholesale business. Only boutique providers, serving fewer customers but delivering outstanding wholesale service on niche routes, retained consistently high ratings. However, in 2002, the industry's overall ratings improved substantially to nearly equal those of 1996. This improvement comes as wholesalers' have focused more on enhancing provisioning and network performance. It also was helped by bandwidth capacity pricing drops in 2001.

Sprint Corp. was one of few companies to win consistently high rankings in all categories. Despite financial turmoil, customers of Williams Communications and Global Crossing considered them among the top three carriers overall in 2002.

Billing. Wholesalers' focus on meeting resellers' expectations in billing services resulted in markedly higher approval assessments. Williams and Global Crossing led this category, distinguishing themselves in billing-flexibility and dispute handling. Billing-clarity and dispute management received relatively low scores across the board, therefore constituting areas of potential competitive differentiation.

Provisioning. Carriers' continuing efforts to shorten provisioning intervals finally paid off in 2002, as resellers expressed satisfaction by assigning higher scores to this item. Provisioning showed the greatest improvement of all the categories, rising by more than 20 percent compared to last year. Williams, Sprint, Global Crossing and Qwest led the way. AT&T scored lowest as a result of difficulties encountered by its reseller customers following the Sept. 11 tragedy. Provisioning capabilities will remain a key element affecting wholesalers' success in seizing and retaining customers.

Network. Network, historically dominated by AT&T, is another critical area that resellers weigh heavily in selecting a wholesaler. This was the first year since commencement of the research that AT&T did not finish first in the network category. Resellers awarded Sprint the top ranking. Williams was second, followed by AT&T, MCI WorldCom and Broadwing Inc. The largest improvements within this area were reflected in network-disaster recovery and network-availability where scores increased by more than 20 percent. This indicated resellers' satisfaction with and appreciation for wholesalers' disaster recovery achievements following the Sept. 11 terrorist attacks.

Provisioning Satisfaction Ratings
Source: ATLANTIC-ACM

Customer Service. Resellers rated their providers' customer service support on five points: professionalism, information/technical expertise, responsiveness, proactive/consultative selling, and marketing support. Resellers were extremely satisfied with customer service, as they gave it the highest score since the ATLANTIC-ACM wholesale satisfaction research began in 1995. Wholesale customers articulated particular satisfaction with respect to information/technical expertise and responsiveness. Opinions regarding proactive/consultative selling, however, suggest room for improvement.

Williams, Sprint, and Global Crossing led the group for their customer service, scoring well above the industry average. Resellers were unhappy with AT&T's and MCI WorldCom's customer service. In some cases, resellers' financial difficulties may have caused AT&T and MCI WorldCom to stop provisioning and supporting them. This may have resulted in low ratings from resellers.

Products. This category included voice and data products such as ATM, frame relay and IP. The 2002 overall product score rose above the previous year's ranking, reflecting availability of products better suited for resellers' needs. IP, ATM and frame relay scores increased by an average of 13 percent to 14 percent above the 2001 report card.

Network Satisfaction Ratings
Source: Atlantic-ACM

Sprint dominated the product category, followed by Williams. Resellers rewarded Sprint on its voice and data products' quality. AT&T, MCI WorldCom and Qwest lagged behind the leaders.

Pricing. Pricing directly impacts resellers' cost structure and margins and, therefore, weighs heavily in their choice of carriers. The past year proved to be notable with respect to bandwidth pricing. Carriers such as Global Crossing, Level 3 and Qwest were notorious for slashing prices and driving the market down.

Williams, Global Crossing, and Qwest received the highest marks in pricing. However, the "Big Three" were hurt since they opted out of the pricing war. The biggest pricing score improvement was in private line, as this product's price dramatically decreased.

Conclusions

It should be no surprise that the responses completed in November and December 2001 mark a new peak of satisfaction for purchasers of wholesale service. Many competitors vie for each company's service. Although the high point of the sales expenditures probably passed by second quarter of 2001, the new systems and hard work of management still are coming on line during the present quarter. The differentiation carriers seek are likely in 2002-2003 to be from systems that save time and money as buyers and sellers target their dollars and time of more limited personnel.

During the coming year as networks potentially come off the market, the new satisfaction index will require carriers to keep up customers' expectations for the carrier's survivability as well as their reasonable prices, short delivery intervals and broad, effective networks. The strong carriers will get stronger as each carrier reinforces its path to profitability. The carriers that aim time and money most effectively into key areas of service, build relationships with more targeted expenditures.

Since we developed the PIN equation (exactly a year ago), it can be stated confidently that the wholesaler's opportunities (represented by O in the PIN equation) have increased as evidenced by higher scores. As prices dropped, provisioning intervals decreased, and network quality and availability improved, resellers were more satisfied with their carriers.

Even though there is a cloud of uncertainty (financial and/or strategic uncertainty) hanging over several major providers, such as Global Crossing, Williams, Qwest and AT&T, they will remain strong players in the wholesale arena. The next 12 months will prove to be a critical time for financial and strategic restructuring, as most of these carriers clarify their paths to profitability. For instance, Global Crossing will survive, as it has more than 40 bidders to purchase its assets. We are certain the company will operate, though probably under another brand.

Bankruptcies and consolidations shook out the wholesale space and will keep filtering strong players. Resellers purchasing drivers will not change considerably during the next year. The combination of low prices, short provisioning intervals, and outstanding network performance will be key to luring and/or retain customers. Thus, the PIN equation still can still be used as a wholesale opportunity metric in the year to come.

Judy Reed Smith is CEO and Taher Bouzayen is senior project manager of wholesale and broadband markets for the Boston-based strategic consulting firm, ATLANTIC-ACM. They can be reached at atlantic@atlantic-acm.com.