Seamless connectivity: Game-changing trends in the telecommunications industry

As companies seek faster, more efficient IT networks to boost productivity and lower costs, the telecom industry is faced with an urgent challenge: begin delivering seamless connectivity or risk being sidelined as competitors reap new, profitable market opportunities. Cost optimization may have worked for the industry during tough times, but now companies must seize new opportunities for revenue growth if they want to thrive. The industry's traditional business model is rapidly dissolving as the integration of voice and data brings greater flexibility and power to the enterprise IT network.

Businesses large and small want seamless, integrated IT networks for their employees, customers and suppliers. This is especially true in industries that are content-intensive, such as financial services, insurance, publishing and manufacturing. Employees are more productive when they have information at their fingertips to do their jobs. Customers who can transact business anywhere, anytime via a company's network, remain loyal customers. Suppliers with real-time access to inventory requirements allow customer orders to be fulfilled accurately and on-time.

As the demand for high-speed Internet access accelerates, so will the market opportunity for innovative new services tied to broadband connectivity. Over the next five years, broadband spending in the U.S. is expected to grow 30% a year, with U.S. household penetration reaching 50% by 2006. Research studies by Dataquest and Yankee Group also point to a significant link between economic growth and the growth in broadband network access. With broadband access, worker productivity increases, new products and services are developed and new jobs are created, according to The Telecommunications Industry Association. President George W. Bush, who set a goal of broadband access "in every corner of our country by the year 2007,"  noted in a recent speech that healthcare and education services, especially in rural areas, will be greatly enhanced through ubiquitous broadband.

How are telecom companies adapting to a changing business model and innovative new market opportunities? Savvy providers understand that four emerging trends will impact their future profitability:

1. Broadband access, while still expensive, is becoming a commodity. The traditional telecom business model delivered a series of independent products, e.g. local calling, long distance and DSL, or add-on services, such as voicemail and caller ID.  Now with broadband, customers want more than network access: They want a comprehensive set of services over a variety of network types, such as LANs and wireless. This expanded value proposition opens up whole new revenue streams. Over the next three-to-five years, smart telecom companies will offer connectivity, computing platforms, application software, integration and management services to both the enterprise and to consumers. Voice-over IP, video conferencing, virtual private networks, storage, Internet and voice services with full security are examples of the new products and services. 

Recently AT&T announced that this year, in addition to its standard service, it will begin offering voice-over-IP in 100 markets where customers have broadband connections. Cablevision, Cox Communications and Comcast Corp. have also launched or plan to launch the service. Cost savings of up to 30% are driving the market, leading a number of analysts to predict that voice-over-IP will eventually overtake conventional phone service.  For the consumer market, other new product possibilities include a set-top box to deliver voice, Internet and entertainment, and a home server to connect all digital devices to a big broadband pipe. DSL is serving as a stepping stone to next-generation services, including transitioning to completely IP-based networks, home security monitoring, health and education services.

2. Companies want to control network costs, and increase worker productivity while ensuring security to combat a growing number of service attacks. Small-to-medium businesses, especially, are looking for affordable broadband options. Telecom companies are responding to cost and productivity issues by offering tiered pricing, time-based services, and niche-differentiated pricing. Texas-based Grande Communication, for example, offers several tiers of service that vary in bandwidth. Time Warner Cable offers business customers tiered service with different fees, bandwidth and usage agreements. SBC Communications offers multiple service tiers to its broadband customers, including a less expensive rate for slower download speeds and discounted, bundled services which include broadband access, local, long distance and wireless phone service.

The market for bundling services to business is growing at a healthy 26% annual rate and is expected to reach more than $27 billion by 2007. Bundling is especially appealing to the small business market, because it offers both cost savings and the simplicity of one-stop shopping for all telecom services. Increasingly, companies want to pay for bandwidth only as they use it. In the near future, they will pay more during peak hours, or to guarantee capacity for high priority processes. Companies will want to differentiate the bandwidth requirements for employees based on their job functions: Administrative assistants, for example, have different requirements for network access than research engineers. Telecom providers, not just IT companies, are offering a wide range of managed security services, such as firewall management, intrusion detection and virus scanning to protect data and voice networks.

3. Increasing numbers of mobile workers will access their company's network remotely--from home, a branch office or a hotel--using a variety of devices, such as laptops, PDAs, and PCs. The number of mobile employees is expected to increase at an annual rate of 5%, and the annual growth rate for remote and branch offices is projected at 8%. As a result, companies will need to extend their networks beyond the corporate campus, while maintaining fast, reliable, affordable integrated access. They will need networks with blanket broadband coverage, stringent security standards, and application portability.  Both voice-over IP and virtual private networks will enjoy continued growth as companies seek ways to keep costs down and mobile workers productive. With voice-over-IP, mobile workers such as nurses, sales representatives and trial lawyers can be linked to their desk extensions wherever they are working, which makes the phone more flexible and portable. Virtual private networking, a market which is expected to grow to $4.1 billion by 2007, is a cost-effective way for companies to use the Internet to establish both remote access and site-to-site connectivity. VPNs are becoming a critical component of telecom expenditures for mid-market companies.

4. Companies will opt to work with partners rather than going to market alone. Telecom providers focusing on the enterprise market are beginning to see the benefits of working with strategic partners to start new ventures, offer new services and extend their market reach. Telecom companies who may be unable to provide all the services associated with seamless connectivity on their own will opt to work with partners to offer a broader range of products and services. Sprint, which serves 26 million customers in 100 countries, is partnering with IBM to focus on products which support the mobile work environment, and securely integrate wireless and wire line devices. SBC entered an agreement with EchoStar Communications in order to enter the emerging market for interactive TV. Motorola's broadband communication sector announced a partnering agreement with Cedar Point by which Motorola supports a cable IP telephony solution using Cedar Point's switching system. Also spurring this move to strategic partnering is the need to offer comprehensive, flexible solutions for vertical markets, such as manufacturing, retail and healthcare. Gartner Research points out that telecom industry competitors are already offering solutions tailored to specific vertical markets and suggests that the telecom companies need to do the same to attract new customers.

These four trends are creating challenges for the industry, but they are also creating opportunities that can lead to a growth and profits. Gartner recently predicted that the industry will diverge this year between companies. who understand the expanded broadband value proposition and those who don't, who will continue business as usual. Those who understand the new value proposition will garner new revenue opportunities by offering combined voice and data services, multi-tiered services, and better managed broadband access--all of which will translate into increased customer satisfaction.

Smart companies will respond to these emerging trends by adapting their business model, developing a robust market strategy and offering new products and services that will create the most value for their customers, as well as significant competitive advantage and long-term profitability for their companies.

Kerry Grimes is the founder and vice president of business development with Rocksteady Networks and can be reached at kgrimes@rocksteady.com.

Visit Rocksteady Networks online.