Move Over, Geek Squad

Telecom service providers are cautiously exploring the business model for technical support as a residential broadband service, expanding their offerings this year or launching new ones. But their efforts thus far are aimed largely at understanding this uncharted terrain and how it fits into their existing businesses.

In August, AT&T announced it was broadening its tech support offerings nationwide to include services such as PC repair and even home theater installation. That move came a year after peers such as Cox and Verizon began offering PC hardware and software tech support service for a fee ($10 extra per month in Verizon's case). Tier 2 carriers Embarq and Windstream also have tech support offerings.

These forays into tech support could be viewed as ways to boost average revenue per user, reduce churn or monetize an existing cost center — or even all of the above. First, however, they may serve to help carriers determine exactly how these services fit the residential telecom business model.

“At best, it might turn into an interesting new revenue stream,” said Craig Moffet, senior analyst with Bernstein Research. “But in the near term, it is likely more of a differentiation tool. As the services being offered get more and more complex, it gets to be more and more important to do some hand-holding.”

This is perhaps more true than ever now, as the broadband market has been fairly well-milked; any new subscribers added today are probably somewhat technology-resistant, having held out this long with mere dial-up service (or less). These support offerings also may help determine who wins the customer; while the most common reason broadband users give for switching providers is price, 30% of DSL users and 34% of cable modem users say they switched providers because of poor customer service, according to a recent survey from CFI Group.

One big reason for broadband providers to start offering tech support as a service is that they are already getting barraged with costly customer service calls resulting from problems unrelated to their service. Thus, charging for tech support is a vital attempt to monetize an existing cost.

“It's a business necessity that you signal to customers that a network operator can't be held responsible for all the things that might go wrong beyond the network,” Moffet said. “And they can't be in a position of providing troubleshooting for free.”

Reliance Connects, a broadband provider serving Arizona, Nevada and Oregon, typically troubleshoots problems for free. If a given problem turns out to be network-related, Reliance will fix it at no cost. But if it's determined to be unrelated to the network (involving the PC, for example), Reliance will tell the customer its tech support rates and ask how they want to proceed.

Any broadband provider knows that broadband users are notoriously more needy than other consumer technology users. According to the Pew Research Center, 48% of adults who use the Internet or a cell phone say they usually need someone else to help them set up a new device or show them how to use it. The most common response to a consumer technology problem is to call a support line, which is what 38% of consumers do. But consumers are more likely to call tech support if their broadband breaks down than they are for any other technology, Pew found: 45% of those with a broadband problem called tech support, while only 43% of cell phone owners and 29% of computer owners did the same.

And the situation could be exacerbated by the combination of the Internet's indispensability with consumers' vague understanding of it. At an industry trade show this summer, Dave Caputo, CEO of equipment vendor Sandvine, reported that about half of new first-time broadband subscribers call their providers within the first month of service to complain that the Internet “seems slow.” Providers often don't know how to respond to such a subjective assessment, so they typically tell the users to turn their equipment off and reboot — basically just to make the customer-care problem go away.

Tech support may be more of an opportunity for telcos rather than cable providers. While Charter and Cox have experimented with tech support offerings, no major cable operator has made it a chief initiative. “That could simply be a function of their different starting points,” Moffet said. “Cable operators are struggling to keep up with demand for their services and have already had to hire aggressively just to support rapid growth. Telcos are in the opposite situation; their growth rates in the wired telephone business have fallen dramatically, so they're reaching for any new revenue source they can find.”

Because these tech support services would be hard to manage en masse with a unionized labor force, however, telcos are likely to contract with third parties for these services. (AT&T reportedly uses 5-year-old OnForce, for example, and Windstream uses HiWired.) And that means that margins for these services are not likely to be high. But in telecom, Moffet said, it's all relative.

“When you enter a business like this, you have to throw away your existing notions of what a good-margin business is,” he said. “The return on invested capital in a services business, even with very low margins, may be better than what you can get out of traditional telecom. And at the end of the day, it's return on invested capital that matters.”

At the same time, technological evolution in networks and consumer technology alike are giving service providers greater ability to troubleshoot and correct problems remotely, said Geoff Burke, field marketing director for access equipment vendor Calix. Consumer electronics manufacturers increasingly are adding tools within their products to allow service providers to monitor their performance through the network, he said, and service providers are taking advantage of these tools to avoid truck rolls and increase customer stickiness.

“We have seen across our customer base a willingness to move their line of demarcation from the side of the home to inside the home,” Burke said. For example, an increasing number of IPTV set-top boxes can be reconfigured remotely by network operators to correct simple problems, such as settings that are mismatched to a given TV's screen resolution.

In installing and supporting new consumer electronics, telcos will compete with entities as diverse from them as Best Buy, which has the advantage of touching the customer before a product needing support even enters the home. There's still plenty of room for telcos in that game, but it's not clear how much room telcos even want.

“The in-home IT market is wide open — particularly with the bankruptcy of CompUSA,” Moffet said. “It's not clear that there's a retailer that's perfectly positioned to fill that role. It's not clear that telcos are in a position to fill that role either. [Telcos] becoming major players in this market is somewhat unlikely. And for now, that doesn't seem to be their ambition.”

Before telcos take a bigger bite out of this market, they'll want to understand the model better. They are likely to start with high-end premium offerings — perhaps mimicking enterprise IT offerings to some degree — before moving to down-market versions. One question they'll look to resolve is how to bill for such services. Telcos historically have shown an affinity for subscription-based models with regular recurring monthly fees, but such a model might clash with certain one-time offerings such as home theater installation.

The answer to that and other questions will become clearer as telcos observe the progress of their new tech support offerings in the market.

“Right now it's mostly an experiment,” Moffet said. “At this stage, it's not much more than a toe in the water.”