Most growing competitive local exchange carriers (CLECs) consider themselves more than just CLECs. They often call themselves integrated service providers and are building convergent offerings, bundled packages of various services, to lock down strong customer relationships before incumbent LECs (ILECs) are permitted to provide similar offerings. These packages generally consist of a mix of local voice, long distance, mobile, Internet and high bandwidth data services such as asynchronous transfer mode (ATM) or frame relay.
The challenge, however, is that growing CLECs rarely, if ever, have the network facilities necessary to supply all of these services to their customers. This means service unbundling and resale are necessities--in other words, CLECs bill their customers directly and push, if nothing else, a brand name with which all services are associated, regardless of the underlying provider. A growing competitive provider needs its customer to know he or she is being cared for, creating a rosy facade to shield the customer from the chaos that often occurs behind the scenes.
CLECs aren't the only ones reselling service, however. More and more telecommunications services are becoming turnkey products, especially mobile and long distance, and increasingly are available off the shelf everywhere from Wal-Mart to 7-Eleven to the local auto glass company. This mix of suppliers and resellers raises some challenging branding, customer care, sales commissioning, marketing and wholesale-retail management issues that every provider must face.
Affinity Marketing and Resale
An increasingly common tactic for expanding sales channels is affinity marketing. A simple example of this would be in which an organization with an established customer base or audience, such as a motor club, church or retail vendor, buys wholesale service and rebrands and resells it. This tactic becomes easier as telecommunications services become turnkey, commodity products. For instance, long distance service commonly is resold or offered through alternate channels because it easily is identified as something a consumer wants and it doesn't take very long, or much effort, to switch a customer. The back-office function is automated, so it's as simple as pushing a button. A visible example of this is with partnerships between airlines and long distance carriers. The hook is that the customer receives mileage toward free air travel, first for switching over, and then for every dollar spent on long distance. In this case, the long distance carrier generally retains the right to bill the customer and doesn't lose any marketing access in the process.
This isn't always the case, however. The marketing channel can be lost when the reseller or affinity partner has control of the bill. The reseller could be, as mentioned earlier, a motor club. With a monthly long distance bill, the motor club has a chance to push its own marketing materials with the bill, and the service provider is left without access to the end customer. The bright side of this arrangement is that these affinity marketers often are viewed very highly and generate strong customer loyalty across a broad customer base; customer churn is minimized and there's an interested audience to which a provider can sell.
The real problem comes with customer service, one-to-one marketing and customer feedback. The motor club may not be very astute regarding the long distance service. When a customer calls to ask about things such as added features, two problems may arise. First, the customer service representative (CSR) may not be knowledgeable enough to sell the appropriate product or offer the correct advice. Delay and uncertainty opens the door to churn when a customer has easy alternatives staring him or her in the face. Second, there may not be a process by which the reseller collects customer feedback and requests. This information may never be passed back to the underlying service provider, making it very difficult to create new, targeted service offerings. Even if the data is collected, if it isn't delivered rapidly, products can't be brought to market quickly. The customer then may switch to the offering that gave him or her the idea to ask for certain services in the first place.
"Whomever you're selling through, you should push them for information about the end customer," says Deborah Strong, vice president of management consulting, DMR Consulting Group Inc., Montreal, Canada. "There are limits to how much you can do that, but right now there are trends to do one-to-one marketing. It's hard to get that level of detail, data-wise, if you don't get it from those people who are reselling and controlling the customer."
Independent consultant and billing industry veteran Jim O'Neill explains the flip side of Strong's argument. "As a wholesaler, you have to treat all of your resellers, including your own retail company, evenly," he says. "You give them all the same wholesale rates. You don't worry about collecting money, answering their inquiries about their cash flow or about their salaries. All of those things are taken out of the wholesale rate, period."
He explains that separating the customer from the network has been an organizational, emotional and cultural problem for many LECs that aren't used to doing business this way. He also explains, however, that the cellular business has operated this way from the beginning. He provides the example of the former NYNEX Mobile, in which corporate owned the network and retail companies owned the customer, buying wholesale minutes from the network provider. Law required the wholesaler to file its wholesale tariffs and the retailers to file their retail tariffs. O'Neill stresses that organizations must create a strong delineation between wholesale and retail. The wholesaler must stick to its business and not become concerned with how the retailers are marketing products; it's just not their business.
Cannibals Everywhere
Strong goes on to explain that the fundamental changes occurring in the way billing and payment are done greatly affect marketing efforts and control of the customer. Many people pay their telecommunications bills with a credit card, effectively consolidating all of their invoices onto a single statement. The problem for providers is that the credit card provider controls the marketing messages that accompany the bill; the carrier has effectively surrendered its right to direct bill and sell to the customer in an effort to provide some convenience. Returning to the airline example, this can come back to haunt a provider when its competitor strikes an affinity marketing deal with the credit card provider. The customer receives marketing material promising airline miles and/or free minutes with an 800 number that makes it easy to switch. All of a sudden, the convenience has become a cannibal and the customer is gone.
Strong notes that affinity marketing itself can be a cannibal. An affinity marketer or reseller will compete with a service provider's own retail effort. This isn't tragic considering the point of affinity marketing is to broaden market reach, and the amount of crossover is likely to be minimal. An odd scenario, however, is when a carrier expends a great effort to sell certain products that also are marketed, perhaps, in a retail store through an affinity program. The customer may be sold on the product, but happens to be walking through his or her local home improvement store and sees the same service on the shelf, with a discount on power tools attached to it. The customer may buy it on the spot to gain the value-add, and the carrier salesperson's commission goes up in smoke.
Problems that arise when external agents are used to sell a provider's service go along the lines of collusion. With a service that's easily transferred, such as long distance, external agents and internal salespeople may just trade customers back and forth to keep the commissions rolling. To prevent this, O'Neill says, commissioning plans will become far more complex, requiring billing systems to become more robust to manage them. Rather than a percentage of sales, commissions may be based on collections or customer longevity. The plans will vary depending on the service in question and the types of commission fraud to which they are vulnerable.
Because billing is changing and isn't necessarily the main avenue to the customer anymore, providers need new methods for collecting customer data and for reinforcing brand names. "The idea of building a data warehouse, mining data from the billing system, is an old paradigm that's going to go away," Strong says. "You're going to have to get information about your customers through different channels. You're going to have to get information from websites and through usage data from the network as opposed to what's on the bill. The implications of some of these things is that you'll have to do a little bit more astute marketing and have data warehouses that draw from multiple sources, not just the billing system."
Similarly, one only needs to switch on the radio, television or visit various websites to be bombarded by advertising pushing all variety of telecommunications service offerings.
A Tale of Two CLECs
As CLECs build their businesses faster than they can build out their networks, they become increasingly dependent upon ILECs to provide underlying services, either through loop unbundling or resale. The CLEC can't let the customer know this, of course, and it raises some challenges. David Vranicar, senior vice president of information technology with Kansas City, Mo.-based Birch Telecom provides a straightforward example that will apply to just about any CLEC. Though Birch does have some of its own switching and network facilities, it still relies on reselling Southwestern Bell service for a large portion of its customer base in Kansas and Missouri. Aside from access, transport and switching, Bell also provides Birch with directory assistance and operator services.
"We have very consciously tried to shield the customer from any confusion. We're trying to build the Birch brand and the idea that we're providing the service. We don't highlight the fact it's being provided by another," Vranicar says. As Birch is in its initial growth stages, its plan is to let customers know who's looking out for them, regardless of the underlying provider. In this case, opposite from those discussed earlier, Birch may not provide the service, but it does have the customer's attention, and a large part of that is accomplished through brand association--the products are branded Birch, the operators answer "Birch Telecom" and it says Birch on the bill.
This is all fairly logical, but not so simple. CLECs struggle with two major issues: customer activation and trouble repair. If a customer calls with a problem that is actually a Bell network problem, Birch must rely on Bell for the proper information and to go fix it. Similarly, when a customer is awaiting switchover and activation, there's no guarantee the Bell technician will show up onsite when he's supposed to. And Birch can't point the finger at Bell if it doesn't get done or get done in time. "It's difficult and in some cases takes longer than we'd like, but it's just the way it is. You have to find ways to work around that," Vranicar says.
Adding a Few More Twists
Vancouver, Wash.-based CLEC GST Telecommunications Inc. provides a more complex example. GST has made several acquisitions in the past year, mainly of small long distance carriers. It owns network stretching from Washington to Idaho, along the West Coast, into Arizona and over to Texas. The network involves 14 switches with intermachine trunks on which GST carries its own traffic as far as it can. For off-net customers, GST has agreements with AT&T Corp., Sprint Corp., MCI WorldCom Inc. and Denver-based LCI/Qwest Communications International Inc. The service providers pass usage data for off-net customers to GST and they bill customers directly. Customers are signed on to GST long distance service, unaware of the underlying arrangements or providers. In some cases, these customers use GST only for long distance and their traffic may never touch GST's network. GST does, however, retain control of rate plans and billing in all cases.
GST provides local service mainly with dedicated and channelized T1s, referred to as PowerTrunk and PowerFlex. In these cases, the T1 connection to the customer is provided by the ILEC, but GST provides all switching as long as the customer is within the CLEC's footprint. Some of its customers have locations outside the footprint, in which case GST must rely on resale to serve them. GST also purchases unbundled loops to serve those customers that do not require T1 capacity. The CLEC also owns a frame relay network, is building an asynchronous transfer mode (ATM) network and provides Internet access through its San Francisco-based subsidiary Whole Earth. At the moment, GST runs multiple billing systems, a result of its numerous acquisitions, and brands its services with the former service provider's name noted as a GST company. GST is in the process of moving its entire customer base onto Kenan Systems' Arbor/BP convergent billing platform to simplify its offerings and move to a solely GST brand name, says Patti Bowie, director of billing at GST.
Moving to the convergent system will allow GST to add value through the bill. First, by combining data for all services on one system, GST can implement promotions and discounts much easier than they can with multiple systems. Second, GST can offer numerous reporting and data manipulation features to the end customer by delivering bill detail on diskette or CD-ROM. "Most people don't want the bill just neatly presented when it's 1,000 pages of call detail," Bowie says.
But even with this effort to bring all of its services under a single brand on a single bill, GST does have cases in which it doesn't reach the end user. In a couple of instances, Bowie says, GST's customers are shared tenant services providers that request regular bill data delivery for inclusion on rent bills. In these cases, the tenant service provider owns the bill that hits the end customer and doesn't include any reference to GST. GST, in turn, does not receive specific data about the end customers and therefore cannot perform targeted marketing. The tenant service provider is responsible for paying the bills, which lessens GST's collections efforts and float issues, but if it doesn't use effective marketing and product development, revenue can be left on the table. Further, if GST provides excellent service, it doesn't receive name recognition because the end users will associate service with the building management, which is the tenant service provider, and not GST.
One of the essential pitfalls of convergence is handling partial payments. A CLEC might be the central provider and might own the bill, but it's also responsible for collections. Ironically, due to the nature of consumer protection laws that protect access to dial tone, if a subscriber only sends a partial payment, the payment first must be applied to the local phone service, the customer's emergency lifeline. Anything left over then is distributed to other underlying providers. This creates float issues for the wholesalers, unless they manage to guarantee payment from the LEC, in which case the LEC is on the hook for its own delinquent customers. If the other providers aren't paid, they can cut off services such as long distance or wireless, making the customer a churn candidate. Now, customers that don't pay their bills aren't necessarily customers worth having, but the CLEC needs to hold onto those customers who generally pay their bills and might just have a one-month problem. An unexpected service cut-off could drive away an otherwise good customer. The laws governing these issues vary from state to state, making this an extremely complex issue for any multistate service provider.
A Final Note on Things to Come
In recent months there has been much debate over establishing "truth in billing" requirements to combat slamming and cramming. Essentially, these rules will require billers to note exactly where charges are coming from and who's providing underlying services. This could be a thorn in CLEC brand managers' sides as they fight to establish their brand names by keeping customers shielded from underlying carriers. They may be faced with no option but to reveal the true patchwork of their networks in the fine print.
Jon Sehr is a contributor to X-CHANGE magazine.
