This column is the first of a two-part series examining how Tier 2 and Tier 3 service providers are approaching the market with VoIP offerings – for both consumers and SMBs (small and medium businesses). These operators comprise a significant segment of the telecom market, especially in the U.S., and have a distinct set of challenges compared to their much larger Tier 1 brethren.

 

In many ways, this is an exciting market for VoIP and emerging services like IPTV, as these operators are ready for change, and out of necessity are embracing these new technologies. While their subscriber base is not typically cutting edge, they are getting the benefit of new services faster than subscribers living in larger urban markets. As such, Tier 2/3 service providers offer some leading insight as to how operators are transitioning to IP.

 

To address these, I’ve conducted a two-part interview with John Macario, who is President and one of the founders of Savatar, a management consulting company that helps telecommunications clients succeed in selling VoIP solutions to the SMB market. The firm works with large carriers, wholesalers, equipment providers and software developers to define product, establish sales channels and optimize sales techniques for VoIP products in the SMB market.

 

Savatar’s ground-breaking market research provides authoritative insights on this market, which John and I explore in this column. Our second interview will focus more on their most recent research findings, and I encourage you to follow up with John on how to take this further. So, let’s begin with Part 1.

 

 

JM: It’s a pretty wide ranging customer base. The core MetaSwitch customer is a Tier 2 or 3 incumbent or competitive carrier but, over the last couple of years, I’ve started to see some larger service providers like One Communications, Qwest (News - Alert) and Embarq and cable MSOs attending the event.

 

 

 

JM: As a group, they have three big challenges: developing a portfolio of IP products to help retain existing customers and acquire new ones, managing the inevitable transition to an IP network and finally figuring out how to increase revenue and margins while doing these things.

 

 

 

JM: They’re both very important. On the consumer side, these carriers are under increasing competitive pressure from “triple play” offers from the cable MSOs so they need to be able to compete with very low prices for voice services. On the business side, they need to keep pace with new entrants, the VoIP pure plays, in their LEC territories while taking share from the incumbents in CLEC territories. Both markets can drive revenue to the provider but, on balance, the opportunities are richer in the business market.

 

 

 

JM: It really depends on the specific carrier. Quite a few are offering services outside of their LEC footprint. In these situations, it’s all about acquisition. They want to offer better services with better economics for the customer. Inside their LEC footprint, it’s about protecting turf. The smaller carriers want to have products that help their customers use communications more effectively to keep them from being tempted by outside brands.

 

 

 

JM: The operating environment is different in the ways you describe but the challenges are the same as with larger carriers: how do you bring value to the customer while returning margin to the business? IP is a key in addressing this challenge. On the consumer side, it allows carriers to compete with MSO “triple play” offers. On the business side, with IP the carrier can bring economic benefit, better (and easier) phone system management and a host of sticky and productivity enhancing features.

 

These carriers do seem to be adopting IP more quickly. They are willing to make investments in infrastructure to reduce operating cost but, more importantly, are moving to IP to retain customers and compete for new ones. While some are challenged because of a lack of technical expertise, we are talking about migrating less complex networks than say, AT&T (News - Alert), so the scope and scale of the problem is diminished.

 

 

 

JM: Again, I agree. The smaller carriers are moving more quickly in this space largely for the same reasons: keeping existing customers by offering a broader range of services that the customers value.

 

 

 

JM: Strangely, no. IP really does represent a very real, very actionable direction for these companies. The next moves are likely to be in the area of Fixed Mobile Convergence (News - Alert) (FMC) and, for some, possibly into managed services.

 

 

 

JM: Jon, this is the real struggle: how does the carrier package, price, market and sell IP based products? Savatar has been measuring trends in the SMB market for 5 years now and we’ve seen adoption of IP products by SMB move much more slowly than it should. The larger operators are neglecting this market. Their sales operations and business process is geared to sell to larger enterprises and it is difficult for them to reorient to address SMB needs. For example, in our latest competitive research, we found that large operators took up to 12 weeks to provide a quote on a Hosted IP PBX service for a 60 person company. Clearly, that’s too long. No SMB is going to wait that long to buy any product.

 

Most of the smaller operators have modest skill sets in sales and marketing. Their issues are about trying to figure out how to communicate the IP value proposition to SMB. A bill insert is not going to get the job done. The smaller operators need to come up with a systematic plan to attack the market if they want to succeed.