Many competitive carriers are finding it's no longer enough simply to offer transport. Therefore, companies such as e.spire Communications Inc. are evolving from caterpillar-like companies that moved just one way--in this case offering wholesale fiber only--to more colorful butterflies that can adapt with the winds of change.
That kind of adaptability has become important as more competitive carriers join the market and existing carriers become more competitive themselves. Wanting to avoid a pricing war, companies such as e.spire are turning to value-added services to drive new revenues and capture new customers.
"There is explosive growth in value-added services for our customers--it's the fastest growing opportunity in telecommunications," says Randall P. Muench, senior vice president of sales and marketing at e.spire, Annapolis Junction, Md.
Beginning as a competitive access provider (CAP), e.spire--originally know as American Communications Services Inc. (ACSI)--began by constructing its own fiber-based network. Today, the e.spire network spans the United States with more than 25 voice switches, 387 data points of presence (PoPs) and 118,000 access lines in service. With this network, e.spire provides services from the Florida Everglades to Manhattan Island, from Chesapeake Bay to the Pacific Ocean.
A More Colorful Animal
Originally, e.spire sold wholesale bandwidth. From there, e.spire added local dial tone and data and Internet services. As the company grew, it continued to enhance the value proposition it offered the end customer.
"Today, you see that revenue growth in the wholesale market for bandwidth is being overtaken by other markets that are taking off," says Muench. He points out industry studies that show wholesale revenue peaking at about 17 percent of the total revenue for service providers in 1997; this is projected to be 6 percent of total revenue in 2000. Over the same period, value-added services have grown from less than 4 percent to a projected 38 percent in 2000. "Clearly, value-added services is the arena e.spire will play in," says Muench.
How this evolution would unfold was clear to e.spire early on. Simply laying and selling optical fiber has less revenue opportunity than lighting the fiber, extending access to customers and eventually ascending the value chain to offer services of increasing complexity.
Therefore, e.spire built onto its network, which was basically metro and regional access with pipes running at DS-1 to OC-3 speeds. The company layered asynchronous transfer mode (ATM), frame relay and Internet protocol (IP) transport technologies on top of that. From this transport layer, e.spire put together a comprehensive telecommunications package for its customers, which entailed consulting with customers and then designing, deploying, managing and reporting on their networks.
Better Visibility
Moving ahead to offer managed services provided e.spire an opportunity to differentiate itself from the growing number of service providers emerging from deregulation. For the company to thrive, it had to overcome two major hurdles: e.spire had to ensure its expanding network was up to the challenge of rapidly increasing business; and the company had to find the means to compete with established and emerging service providers.
"In 1997, we were a competitive local exchange carrier (CLEC) with little brand visibility and we needed to avoid one-to-one competition based on price. How could we enhance our brand visibility while assuring our customers about services?" Muench says.
At the beginning of 1997, e.spire's data network was growing rapidly. Operations staff at e.spire decided they needed a network performance baseline to measure the company's service effectively and thereby provide customers with the level of service they expect.
The management team at e.spire's network operations chose service management software from CrossKeys Systems Corp., Kanata, Ontario, to help begin the process of network management leading to competitive service level agreements (SLAs). The software allowed e.spire to set a performance baseline and begin measuring the capabilities of e.spire's network service.
Now e.spire can easily customize standard reports that match questions that arise about specific customer or technology issues. The reporting ability is scalable so it can grow and adapt with the company to address an expanding network and provide intelligence on more complex network configurations and customer services.
The company also can now assess the strength of its existing network to intelligently discern where to add capacity, reroute traffic and adjust network operations to fine-tune performance.
Operations staff were able to improve the data side of the network, resulting in a sales team that saw the potential of new business opportunities. By the close of 1997, e.spire recorded nearly $60 million in revenues, with about 20 percent from the data and Internet side.
Reaching A New Level
The company sales teams now guarantee service levels for new customers as the cornerstone of their business relationships. In addition to providing an effective first-contact sales tool, the sales team realized the customer-focused view of the network provided incisive views of customer accounts. The sales team now can offer enhanced services to customers as demands emerge, improving customer-provider relationships.
The differentiation strategy provided by offering and guaranteeing managed services as a product set also fueled e.spire's promotional efforts. The strategy avoided head-to-head competition with established providers based solely on price. The company also realized a head-to-head mass-market advertising war was a no-win situation. Company strategists decided the best way to compete was to arm their direct sales teams with the competitive SLAs for new customers and win them one at a time.
"SLAs give us the means to secure the confidence of our customers," says Muench. "The customer realizes that our company is mature, that we understand our network and that we are confident in our operations to be able to offer such guarantees."
Graph: Data Group Building From the Ground Up
While established carriers concentrated on offering SLAs to their largest customers, e.spire targeted the relatively under-served, but growing, small to medium markets. The demand from small and medium-sized businesses for data services mirrors the exponential curve in opportunity for value-added service revenues. If the change in sales focus from wholesale to value-added was the evolution, the demand from smaller companies is the revolution.
In 2000, small and medium-sized businesses are estimated to have a market opportunity of nearly $6.5 billion. The e.spire strategists realized customers do not care as much about how their applications are ported through a network as they care about whether they are receiving the business value they need.
In short, customers are not buying T1 links or ATM services, they are purchasing the necessary communications capabilities that allow their businesses to grow. Service providers, like e.spire, stand to capitalize on this huge market. SLAs demonstrate responsiveness to these customers' telecom needs. They offer security in lieu of the large internal telecom shops that may be found at incumbents.
As a measure of the success of its strategy, e.spire's revenue grew from $9.4 million in 1996 to $156.8 million at the end of 1998. This growth was founded on an increase in the number of business customers.
The company continues to climb the value chain from a firm foundation of service and network management. By pursuing its vision of being a leading integrated communications provider (ICP), e.spire furthers its strategic direction of offering better value to customers by bundling voice and data services and their value-added applications. It is in keeping with its strategic thrust of delivering business value for its customer base. In this case, small and medium-sized businesses are looking for bundled solutions rather than dealing with a bewildering array of service providers for various services.
Such value-added services include database management, transaction processing, e-mail and e-commerce. By delivering value-added services, e.spire can move closer to the heart of its customer to deliver more value than through managed services.
"When we look around today, we see that most data product offerings are strictly a traditional product sell," Muench says. "Tomorrow's data product offering must provide an end-to-end solution that completely fulfills customer needs as a more comprehensive value proposition. We believe many customers will want us to manage the solution for them. SLAs are critical to customers pursuing this service."
Understanding customer needs, behaviors and trends is also key.
"We must analyze a customer's unmet needs, habits and practices and then develop the solutions that will allow us to continue our growth," says Muench. "We work hard to get and keep customers. As we continue to offer greater and greater value, customers will see us as strategic partners in their businesses, not merely as a phone company."
Because the cost of acquiring a new customer is high due to the direct selling model, it doesn't take much of a positive change in retention to deliver a return on investment for improved customer care.
The value of service management is not limited to customer retention, however. Considerable savings are realized through automated network management and reports. With customers demanding SLAs, using manual systems to crunch reports is not an efficient option. Manual systems can mean considerable human resources rather than automated month-end calculations. Further, by proactively monitoring the network instead of waiting for faults to happen, e.spire saves money and time associated with responding to trouble tickets, customer complaints and repairs.
"We want to deliver additional services to our customers," says Muench. "The reliable performance of the e.spire network is critical to our ability to deliver services, and our future will be decided by our ability to ensure that this network delivers the value our customers need. Managing the network in these terms will be key."
John Blackmore is product marketing manager for CrossKeys Systems Corp., Kanata, Ontario. He can be reached at (613) 591-1600 x8936 and johnblac@crosskeys.com.
