Broadband, bundles lure SMBs

THE EMPIRE FIGHTS BACK

But the incumbents are not sitting on their hands as SMBs march out the door, figuratively speaking.

“We have been seeing competition since the '90s,” said Mike McLaughlin, director of strategic business marketing for Verizon Business. “They come at us left and right, but eight out of 10 of the losses we have ever incurred, they come back to us for the service, the value proposition and the ability to increase the productivity in their business.”

The knock on the incumbents has been that they are focused on larger, more profitable targets and don't serve the SMB space well. It's a charge they reject.

“We are constantly looking for ways to serve the customer better,” said Tom Wilson, executive director of SMB customers marketing for AT&T. “We have a portal with thousands of pieces of information. We help them find financing, Webinars and a lot more — it's not just a sales transaction. In the 10- to 20-employee space, we have technical experts that can talk about more technical products, not just a standard bundle.”

Both AT&T and Verizon are taking steps to add to what they can offer to SMBs. AT&T is launching EoC services in its legacy SBC turf to go along with what BellSouth had started before the merger, in part to enable the company to take more sophisticated Ethernet services to a broader range of its customer base, including SMBs, said Greg Harris, director of product management for Ethernet services for AT&T.

“We are seeing a lot of downmarket push for Ethernet services because of how simple, scalable and cost-effective they are,” he said. “There are a lot of SMB customers that are familiar with this technology.”

AT&T also is adding mobility to its service bundle. Wilson said. “Wireless is a major differentiator; it's a key need for the small business.”

Yankee Group's Hilton isn't so sure. “Small businesses can do that today; it's kind of a yawner,” he said. “What's more of an issue is that we know that mobility solutions drive productivity for small businesses. I think for AT&T, it's less a matter of stealing share than continuing to grow the entire size of the pie by increasing the awareness of that message.”

Verizon is leveraging its FiOS fiber-to-the-premises deployment to directly extend fiber into more small businesses, McLaughlin said. With its Expansion Pack service, it bundles voice-calling features, broadband services at up to 50 Mb/s and other features. And the company is looking at EoC, he said.

But the real challenge for incumbents is an internal one, Cochran said. “The primary issue they have is cannibalization and also pricing,” she said. “How do you price the service when it is that low?”

Ethernet and IP-based services are delivering much higher bandwidth at lower prices, but there is little incentive for an incumbent to go to an SMB and offer to cut their prices in half to deliver more bandwidth, Cochran said.

“If you do the price per megabit, then these are very attractively priced products,” she said. “The dilemma is how do you price it, not so it is going to sell, but relative to the services you are already selling. Based on average price per bits, Ethernet is a real bargain.”

Because they are incumbents, AT&T, Qwest and Verizon have a much smaller base of potentially “new” customers they can target with their newer, cheaper services, Cochran said. But no one is counting them out.

“To their credit, they have dealt with the CLECs now for quite some time,” Hilton said. “They know they are going to have to play some kind of game with the cable company. They succeeded in playing against the CLECs in the regulatory arena. First they play with their attorneys, then in the regulatory arena, then they'll actually compete. I don't think they are going to be able to play with the cable companies in the regulatory arena, but we'll see.”

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