Carrier Channel: Early Bird Gets E-Worm

Posted: 06/2000

Carrier Channel

Early Bird Gets E-Worm
By Casey Freymuth

The telecommunications sector is a permanent member of the Internet community. Hence, Internet services offerings are logical business extensions for telecommunications players, as is evinced in the Internet access and hosting initiatives of players..

As the world’s businesses adapt and evolve with Internet and electronic commerce applications, new revenue opportunities open to today’s telecommunications players independent of bandwidth ownership and irrespective of scope and reach.

Beyond Access

As Internet users jump online, access service offerings face the same competitive pitfalls as long distance–commodity pricing with little opportunity for differentiation among the other “p”s–product, place (distribution) and promotion. And while conventional wisdom holds that an added product is a retained customer, this dynamic does not necessarily carry through in simple Internet access offerings as ISPs burn through customers at rates higher than traditional telecommunications service providers.

Hence, while deploying access services to a telecom customer base contributes positively to average revenue per user (ARPU), the deployment may have little or no impact on average customer life (ACL), which is at the heart of the value of the provider’s market value.

E-services, on the other hand, is almost an attrition antidote (See Table). Companies that let businesses participate in the e-commerce revolution weave themselves into customer operations at an unprecedented scale as they integrate internal and external management functions into the intranet- and extranet-based application platforms necessary to sustain long-term competitive positions.

This entrapment is evinced by the fact that, when looking at the e-services sector, Internet services and business-to-business e-commerce-enabling firms are valued more on growth within customer base than growth of the base itself.

Big Guys Out Front

In terms of current market activity, the pursuit of e-services is a rare situation in terms of early movers in the telecom sector. Whereas small, niche players often lead the market in innovation, service and bundling, large players are ahead in e-services adoption.

In part, this is because large telcos have been made aware of and nudged into the
e-services arena by big consulting/accounting firms that exploit these relationships to create partnership-based distribution channels for their IT services units.

Additionally, any e-commerce services and applications are bandwidth consumptive. By weaving themselves into customer operations on the services side of the equation, telcos serving multinational corporations secure significant revenue streams for delivering the bandwidth components necessary to make e-commerce services and applications function.

Table: Customer Retention Attributes Telecom Services Versus

Nonetheless, small and medium-sized players are attuned to the opportunity.

“That’s exactly what our name change is all about,” touts ASCENT president Ernest B. Kelly III, explaining why the Telecom Resellers Association (TRA) changed its name to the Association of Communica-tions Enterprises (ASCENT).

“Our association is branching into three primary member types,” he explains. “First, we have the service providers, or ‘marketers.’ On another branch, we have the network, equipment and platform guys that deliver bandwidth and support services to the service providers. The third branch–the new one–is the content guys. These are the companies that will deliver applications to the service providers. Applications for software usage and data storage, for e-commerce solutions and other applications that emerge over time.”

Kelly identifies another key aspect to large providers’ lead in the e-services arena.

“But we’re not quite sure who these guys are going to be yet,” Kelly says, referring to the third branch. “Who’s going to fill that slot?”

In other words, no one has taken a strong position toward partnering with small and medium-sized firms to deliver applications and services. Whereas would-be partners and platform vendors actively pursue industry giants, their smaller counterparts have largely been left to fend for themselves.

Void Extends Across the Pond

Kelly’s observation is supported by my own firm’s work in this area. 1eEurope Communications (, an Internet services firm founded by veteran telecommunications executives, underwrote a Group IV
( study wherein executives from European telecoms were surveyed for their e-services plans. Contrary to the common belief that European executives lack vision in the e-commerce arena, the study found that European telcos maintain highly aggressive plans for e-services deployment. What remains unclear is how they will accomplish their objectives.

This underserved market is a major oversight on the part of enablers at large. Less than half of Europe’s telecom operators have deployed the internal e-commerce applications they plan to deploy, few executives can name a firm that can assist them with such deployment, and three-fourths would consider using an e-commerce vendor as a strategic partner for delivering services to their customers.

In other words, the telecom sector is a double play for Internet services and applications firms. Play one is the telco itself, and play two is the telco’s customer base.

Yet, the only contact many of these executives had by such firms was the study itself. This reality bodes well for 1eEurope, which established itself as a candidate for partnership in the sector by underwriting the study. It also underscores the fact that small and medium-sized players in numerous markets are significantly interested in deploying e-services to their customers. They just need the tools to do so, and those tools are on the horizon.


There is little doubt that e-services will creep into the portfolios of telecom operators serving U.S. small and medium-sized businesses in the not-so-distant future. As ASPs sprout from the software and ISP sectors, and even from within the industry itself, e-commerce applications meet all the hot buttons to justify development–market potential, recurring revenue streams, etc.

Currently, such services deployment could serve as a key differentiator. Firms that seek partners for e-services delivery early, as opposed to waiting for the partners to come to them, stand to gain significant increases in market value– from increases in retention and its subsequent impact on valuation models, and from the establishment of the services and support for an end-to-end solution, which in and of itself can deliver a premium.

While early acquisition activity at the top of the telecom food chain establishes the need for e-commerce products and services, those providers that weather the headaches to establish these services early will be heavily rewarded for their efforts as bigger fish seek out fast solutions to customer retention and keep up with the service offerings of market leaders.

Casey Freymuth is president of Group IV Inc., a Phoenix-based strategy consulting, and research and publishing firm. He can be reached at

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