For the small and medium-sized enterprises (SMEs) located in multitenant units (MTUs), as well as for the building owners that house them, accessing broadband is a costly, inconvenient and resource-consuming proposition. Looming bandwidth-heavy services, such as videoconferencing and other high-speed data services, will only increase telecom pressures these companies (and their buildings) face. Consequently, service providers can tap into an attractive market by building future-proof architectures and offering the multiservice packages that deliver loyal market share and generous profit potential.
Market Snapshot
The good news for building-centric service providers (BCSPs), or building LECs (BLECs), is that recent construction trends indicate strong growth in the MTU real estate market beyond the urban limits of traditional central business districts. Oncor International (www.oncorintl.com) recently reported that in eight suburban markets, each has more than 3 million square feet of space under construction. These markets alone account for 45 percent of all new North American office construction today.
Among existing U.S. MTUs, there are approximately 7.6 billion square feet of commercial multitenant office space. Of this, companies with fewer than 100 employees occupy 5.4 billion square feet--more than 27 million workers. Translated into employees per square foot, the number of people excluded from high-speed Internet connection gives new meaning to the term "Digital Divide."
So while telecom providers continue to compete in traditional business districts for large companies, the MTU market remains largely ignored. Yet according to Kent Barner, senior vice president and CTO for Prentiss Properties Trust (www.pplinc.com), property owners are increasingly feeling the pressure to provide high-speed access and future-proof networks.
"A couple years ago, prospective tenants began asking us if we had fiber when they were considering our properties," Barner says. "We kept hearing 'fiber' over and over again as if it were a standard part of their checklist. Whether they know why they need it or not, prospective tenants understand that fiber is where things are headed."
Such tenant interest is reflected in the numbers as well. According to Prudential Securities (www.prusec.com), SMEs are already investing in telecom solutions to keep pace with larger, more technology-laden companies, yet they rarely receive any capitalization or pricing advantages. Consequently, SMEs and MTU owners are individually and collectively motivated to achieve high-speed access and utilize e-business applications. The realities of actually getting wired, however, can be another story.
Tenant and Landlord Challenges
When SME tenants prepare to move into a new space, they face numerous obstacles. The first often involves attempting to contract with a traditional RBOC. Due to their small stature, RBOCs may view SMEs as having limited or no profit potential. As a result, the SME may be ignored or forced to wait as long as two months for local service installation.
Even more challenging are the capital expenditures SMEs must undertake to build their office infrastructure. They know their business demands Internet access, high-speed networks, some form of LAN or WAN, and fiber optics--all to keep pace with business tool development. Yet equipment and installation expenses can exceed $200,000 in up-front costs, with annual service contracts and staffing expenditures estimated at $90,000. Tenants must then evaluate how fast their investment will become obsolete as technological advances occur, access speed is increased and bandwidth is stretched.
Building owners, meanwhile, face the challenges of helping tenants achieve voice and data access. Keeping tenants satisfied, occupancy high and property maintained is challenge enough. Yet, if owners don't participate in telecommunication requirements of all their tenants, the result can be multiple service providers grabbing telecom room space, stringing wires up walls, damaging property, and inconveniencing property management and tenants. Moreover, MTU building owners and managers don't have the "bandwidth" or desire to become telecom experts. They are not qualified to resolve tenant telecommunications issues when lines or equipment fail.
"Having a technician there to help if we have a question about a telecom need is key," Barner says. "We're a medium-sized enterprise ... Imagine what it's like for an eight-person enterprise. That high level of service is a godsend for a small company. Having on-site or dedicated service support is absolutely a value--one which many providers will likely have to offer to be competitive."
For these reasons, the service provider has an opportunity to build loyal market share by providing custom-designed, reliable and integrated telecom solutions. The first step is building the future-proof architecture that will deliver high- powered Internet access and services as well as provide building owners with a competitive advantage by offering a value-added amenity to tenants.
Unlocking the Future
To meet the unique needs of building owners and tenants, a provider must first build the necessary architecture--a fiber network. By creating a future-proof optical network, providers can deliver to tenants carrier-class, immediate online access and services, as well as 24/7 service--a significant value to MTU management. In addition, the optical networks are better positioned to fulfill the growing and unmet need for gigabit speeds.
Unlike using legacy copper systems, "lighting" the building with a fiber network means buildings can be provisioned from regional network centers (RNCs). So, as opposed to "renting" the pipe, RNCs enable providers to deliver and ensure higher levels of customer service. In addition, they require little onsite equipment and can utilize one building as a hub for other multiple buildings--a far better solution for space-conscious MTUs. Moreover, an RNC offers better flexibility for upgrading and altering a wide range of services, removing the need for future rewiring of the MTU.
Finally, optical networks can actually cut building operation costs by managing power usage, such as heating/cooling systems and other power generators, more efficiently. Hot spots from in-house equipment are reduced or eliminated. Tenants are more comfortable, and operating costs are minimized.
Packaging
Once the high-bandwidth system is in place, providers can develop a portfolio of value-added services brought directly to the desktop. Subscribers can choose from a range of comprehensive e-business solutions including content, e-commerce applications, advanced voice, data and web-hosting services. Providers can also partner with other vendors to provide additional value-added options such as news and information; and payroll, accounting and human resource services.
Industry studies indicate that demand remains high for commodity-based aspects of the web-hosting package, such as floor space and raw bandwidth. But rapid increases in available bandwidth, improvements in caching, faster switching technologies and the evolution of private peering--combined with a dramatic increase in available data center space--will have an impact on the economics of providers offering connectivity and little else. In other words, bandwidth-only companies will suffer.
In the tenant's case, packaged services bring a great deal of value. First, "cafeteria-style" packaging allows tenants the flexibility to subscribe to services that appetites or budgets allow. As business needs grow, so do the selections. Features such as human resources training, e-commerce applications or managed services allow tenant companies to stay focused on their core business. The services add value to their business as opposed to merely running the business.
From a cost standpoint, managed services such as web hosting and voice mail also eliminate the need to pay for and maintain large infrastructures. Outsourcing also means tenants no longer need dedicated space for servers, groupware and other hardware. This is especially important during economic downturns, when being efficient and staying competitive is key to business survival. Again, packaging allows the flexibility to outsource as much or as little as necessary.
For the building owner, service packages and onsite technical support reduce the building manager's workload. No longer required to help tenants solve access issues, building managers can focus on growing and maintaining occupancy in other ways, while reducing overall occupancy costs. Moreover, IP-based amenities make the building more competitive and provide a distinctive point of differentiation.
Service packages also encourage tenant loyalty and fuller occupancy. Tenants become more tied to their building architecture, making moving a less appealing and more difficult option.
For the service provider, the benefits of multiservice packages deliver more than the obvious revenues. Importantly, these services strengthen the relationship between subscriber and provider. The tenant relies on the provider and the custom-designed solutions to the extent that switching providers becomes less attractive, even inconvenient.
Jeff Barnell is vice president of marketing for UrbanMedia (www.urbanmedia.com). He can be reached at jbarnell@urbanmedia.com.
