Bundling takes on new meaning

Bundle. That nice old noun conjures up images of brown paper packages tied up with string, but at some point in the last few years it has morphed into a verb in the telecommunications industry. Any carrier will tell you: "We bundle multiple telecommunications services to provide one-stop shopping for our customers."

It's an action-oriented reaction to the countless surveys that say customers are crying out for bundled services-one bill for local and long-distance phone service, wireless service, Internet access and sometimes even cable television. It's an all-in-one, integrated package intended to simplify life-absolutely every service you need is right inside.

But as analysts have predicted and companies throughout the industry are realizing, offering a service bundle isn't as easy as it looks. The Bell regional holding companies face organizational and technical hurdles, plus the difficulty of not being able to offer long-distance. Competitive local exchange carriers may be able to offer more services, but they don't have the brand recognition that RHCs have or the funds to increase their marketability.

Interexchange carriers have both long-distance and brand recognition, but they've run into trouble providing local service, and some have slowed their ventures into cable TV and Internet markets because they've found it tough to make a profit. Cable operators are trying, too, but not as energetically as they have in the past, and as they lower their interest in providing bundles, customers lower their interest in buying from them.

In the face of these challenges, however, many telcos and related companies are stepping up to the bundling plate. Vendors and Internet service providers are offering products to carriers that provide that golden "one-stop shopping" for customers. Carriers themselves are creating integrated devices to combine, at the very least, wireless and wireline services. And some CLECs are starting small-reselling several services to niche markets such as multidwelling unit customers.

One of these companies, somehow, some way, will find the perfect bundle and offer it in the most profitable way, says Rob Doctors, an analyst with Ernst & Young. And when one does, he says, the rest will follow.

Part of the challenge for telcos will be to revise their image, says Joe Kraemer, vice president of communications practice for consulting firm A.T. Kearney.

"If you think about it, most telephone companies have been built around products, and now we need service-oriented business companies," he says.

Another problem is in company structure. Many RHCs consist of several divisions such as local phone service, wireless and Internet services that have been merged but still work independently for billing and service. Bundling forces the different divisions to function uniformly-not only for billing, but for customer care and service.

This is one hurdle that none of the RHCs has managed to overcome, says Dan Ernst, an analyst with The Strategis Group, Washington. "The different divisions traditionally haven't talked with one another. Now they have to communicate, and this raises many organizational questions," he says.

These questions include whether salespeople must be familiar with every type of service a company offers, or if a discount is offered for a bundle, which division takes the "hit," Ernst says.

Doctors agrees that bundling brings up many turf issues. "The question comes up-who owns the customer?" he says. "If there's a problem with wireless service, can a customer call the wireline provider? And if a customer doesn't pay his bill, it's really tough to reassemble the puzzle of products to decide which service the money should come out of."

There's also the problem that high-profit lines of business may not want to give their attention and customers to less profitable areas, he says. In addition, bundling may reduce churn for the company as a whole, but not necessarily for individual lines of business. "If you're a low churn service like local phone, do you really want to mix with a high churn line of business like long-distance?" Doctors asks.

Different divisions also may do business differently. "Most wireless companies pride themselves on being less bureaucratic than wireline providers," A.T. Kearney's Kraemer says. "That may run against the curve when they have to work together."

There are also technological problems with bringing different lines of business together, Ernst says. "They each have billing systems and databases that may be completely incompatible with each other. Merging this technology is extremely difficult," he says.

It is also technologically challenging, but necessary, to have network management and customer care centers that run across all divisions, Kraemer says.

Despite these potential difficulties, customers are still frequently asked which company they would use for bundled services. Overwhelmingly, customers prefer local and long-distance carriers. In addition, a Strategis Group survey shows that a business' service provider choice for bundling is tied to brand recognition. The two most widely recognized names in telecommunications, AT&T and MCI, are also ranked significantly higher as first or second choices (Figure 1).

Customers also have strong opinions about what they want in their service bundles. An A.T. Kearney study compared what customers wanted in a bundle in November 1996 with what they wanted in June 1998. Long-distance and local phone service were ranked the highest in 1996 and continued to grow this year. Wireless services jumped from 44% to 71%. And only cable as a service option went down in two years-from 75% to 65% (Figure 2).

Of course, business customers and residential users are shopping for different services. There are also differences within the consumer market. For example, people who look for Internet in a bundle may not be looking for cable, Doctors says. Cellular phone users may not be long-distance callers. "With bundles, one size does not fit all," he says.

The RHCs So what are the different industry players doing to overcome these tremendous bundling hurdles? According to analysts, three large carriers have made workable efforts toward bundling: BellSouth, U S West and Bell Canada. Though the latter is outside the U.S. and can offer long-distance, Bell Canada faces organizational and technical hurdles similar to those that the RHCs are dealing with.

Through a partnership with Bell Mobility, a fellow subsidiary of Bell Canada Enterprises, Bell Canada introduced Simply One in late May as a "completely integrated" wireless and wireline service, with one phone number, one voice mailbox and one bill, according to Director of Product Management Bruce Easton. In development for a year, the program is a result of market research that showed that customers want simple billing and one-stop shopping. Though the technical integration was "quite straightforward," Easton says that the "real challenge was putting the pieces-separate wireless and wireline companies-together."

"Working with Bell Mobility did present challenges," he says. "It does get complex around fraud issues and credit checks, and coming up with airtime pricing was quite volatile."

The carrier would like to eventually expand Simply One to reach a broader customer mix, although it is now targeted to residential customers.

This trend of wireline/wireless integration could lead to wireless phones being used for everything, but Easton isn't worried about wireline services disappearing just yet.

"We see it as just as much an opportunity as it is a threat. In any case, we just have to deal with it because we have to give the customers what they want," he says.

BellSouth has "completely reinvented ourselves as a company" to offer service bundles to residential customers, says Joey Schultz, vice president of consumer marketing. "We did considerable market research, and it showed that 50% of customers wanted bundles but in all kinds of different combinations. Our challenge was how to take those complex needs and simplify them," he says.

The carrier offers bundles with local phone, wireless, Internet and, in some areas, digital cable-all on one bill. Variations of the bundles, called Complete Choice, have been around for two years, with the most recent addition being wireless.

As a result of the offering, BellSouth has trained customer sales representatives in all service areas. Customer care, however, has been a more "difficult nut to crack," Schultz explains. "People call with specific questions about the Internet or wireless; they need to speak to an expert in that area," he says. The carrier's solution is to have one customer care number where calls are routed to trained experts.

BellSouth's greatest achievement in bundling is its converged billing. Step one was to put everything on one bill. Step two was to redesign the bill to make it simple for customers to understand.

It also helps that the company is divided into business units rather than services, Schultz says. This means there is a consumer unit, a small business unit, a large business unit and a wholesale unit, where all the services are brought together.

U S West is designed a bit differently, but bundled offerings are threaded throughout its corporate structure. Perhaps its most innovative offering is its Access2 service, introduced in September. The service is actually a specialized PCS phone that integrates all of a user's phones into one number, one mailbox, one bill and one customer care number.

"Wireless is where the future is, and this product takes advantage of that," says a U S West spokeswoman. The phone's name will soon be changed to U S West Advanced PCS. The product has been designed to look and feel like a regular home or office phone, with features such as call waiting, caller ID and three-way calling. Access2 users can also sign up for Qwest long-distance.

Many analysts cite this kind of integrated device as part of a larger trend in bundling. "We'll be seeing more complicated cell phones and PCS phones that won't look like space-age devices in the future," Ernst says.

One way that almost all the RHCs will be bundling in the near future will come with the rollout of asymmetrical digital subscriber line (ADSL) service, combined with Internet access. U S West, for example, will offer unlimited Internet access and ADSL for $60 a month.

The IXCs Because customers-especially business customers-recognize the brand names of IXCs over local carriers and say they would choose IXCs for service bundles more than other telcos, it would make sense that these companies have developed large bundling strategies.

Sprint overcame a big hurdle for IXCs with its June announcement of its new Integrated On-Demand Network. Meanwhile, MCI has offered integrated MCI One packages for both residential and small business markets for more than two years. For small businesses, this means local toll, toll-free, MCI Internet, calling card, 800 number and international calling on one bill.

AT&T now offers Digital One Rate-wireless service without long-distance or access charges that lets a user call anywhere in the country and be charged for a local call. But as the carrier of choice for business bundling in The Strategis Group poll, and as the self-proclaimed first carrier to offer voice and data together, AT&T's bundling strategy for business is worth looking into.

Business customers are looking for simplicity, flexibility and a single point of contact, so AT&T offers several voice, data, wireless and Internet access services that can be packaged together (Figure 3). The carrier offers integrated billing for domestic private line and voice services, including local voice in some areas. It also offers one customer service number, which routes callers to experts.

"Our first level of priority was to integrate the services, then to offer a single point of contact, then to integrate the billing," says Michael Chaplo, director of marketing for AT&T voice services.

AT&T also offers one contract for all the services a customer chooses, with the flexibility to add services as they are offered. "Customers can easily move into new technologies," he says.

The carrier plans to offer integrated billing with international private line service, as well as frame relay, asynchronous transfer mode and wireless service.

The CLECs Teleport Communications Group, which will soon become part of AT&T, is able to offer local and long-distance services to provide a unique bundle for small businesses. Until now, many small and medium-sized businesses couldn't justify the cost of a T-1 line because it carried limited services. CLECs such as TCG recently jumped on the bundling bandwagon by offering voice services and high-speed Internet access over one T-1 connection.

"Fundamentally, it's the one connection that's the issue here," says Dev Ittycheria, director of product management and marketing for TCG. "One connection means less equipment to buy, which means lower operations costs."

A single connection allows that key word of bundled services: simplicity. "It becomes easier for us to provision services in one connection, it helps us reduce churn and it simplifies the technology and the billing for the customer," he says.

TCG's system is called CERFtone, and it can connect up to 16 local or long-distance voice lines and two, four or six dedicated Internet lines (Figure 4). It's part of TCG's focus on solving problems for smaller companies. In this case, CLECs do have an advantage over RHCs.

"People want a full solution," Ittycheria says. "They want one provider who can do it all."

Other CLECS are trying to provide it all, but on a smaller scale. OnePoint Communications has CLEC status, but its only customers are apartment and condominium residents. The company offers local and long-distance service, cable services (including regular cable, direct broadcast satellite, digital and high-definition TV), cellular phone service and Internet access. OnePoint offers these services in 10 states through reselling local phone service, acquiring cable providers and working with ISPs. Although it offers CellularOne service, there is a separate bill for wireless.

The company does well because "we're not trying to be everything to everybody," says Chantal Moore, vice president of network planning. OnePoint serves 25,000 subscribers in multidwelling units. It's a good market for bundled services because people are typically younger, interested in the Internet and entertainment, and are usually fairly wealthy, she says. The most challenging part of offering the bundle is working with the RHCs. "It's definitely a development in progress," Moore says.

Overall, however, bundling can work well if a carrier targets a niche market and provides service reliably, with one point (no pun intended) of contact. "Bundling is the way the world is working, and this is a really good way of doing it," she says.

The cable operators It is more likely, as can be vividly seen by AT&T's recent purchase of Tele-Communications Inc., for cable services to be offered from a telecom carrier rather than the other way around. Still, a few cable companies are trying their hands at being bundled service providers.

One particularly good example is Cox Communications. In certain areas, the multiple systems operator provides Internet access, digital television, and local and long-distance phone service, along with regular cable television. Cox is deciding whether it should combine all these services on one bill because of customer sticker shock, a spokeswoman says. Discounts are offered for customers who combine services, however.

Although several cable companies have ventured into phone service, many have temporarily or permanently withdrawn from the market, especially long-distance, because of low customer interest. Yet Cox remains a strong and avid player. Three incentives underlie this strategy, according to David Pugliese, executive director of voice and data marketing for Cox. They include creating additional value for the customer, retaining cable business by adding services and entering the telecom market. Cox's goal is to have Internet service (Cox@Home), digital TV, and local and long-distance on one bill by 1999.

The vendors Behind the bundling trends are equipment manufacturers and service providers that want to be part of what they see as the integrated future.

Several vendors are helping CLECs offer T-1 bundles through different equipment. Vina Technologies' Business OfficeXchange integrates voice, data, virtual private networks (VPNs) and Internet services into one device and connects to a T-1 (Figure 5). Introduced at Supercomm, the BOX has built-in voice switching, local call routing and voice features such as call forwarding and call waiting. Offering services in this way lets CLECs differentiate themselves, says Tom Barsi, Vina's director of marketing.

"Basically, the reason we were created was to allow CLECs to bundle to small businesses," he says. "Before now, there wasn't a device out there to justify that." This reasoning is also behind FreeGate Corp.'s Multiservice Internet Gateway, which the company provides through UUNet's burstable T-1, frame relay and ISDN LAN services. It integrates a router, firewall, Internet and intranet Web servers, VPN functionality and Internet access. "It's a very sophisticated, all-in-one network connection box, complete with a two-tiered management system," says Joy Pinsky, FreeGate's vice president of marketing. "It makes sure that a person at a small business will never have to know all the acronyms."

As for UUNet, this isn't the only way it, or ISPs in general, can provide bundles, says Brad Wise, manager of channel sales. Like its CLEC counterparts, UUNet also wants to sell to the small to medium-sized business community, but it makes more sense to work with vendors that sell to resellers. The ISP has worked with vendors such as 3Com, Ascend and Whistle Communications to provide access along with the hardware.

"It's a win for everybody. It helps us increase our market share, it helps the resellers and it helps the end user. We're trying to give our customers something that works," Wise says.

The real bundling future is probably closer than you think. Already, we're seeing the evolution of the integrated service providers-small companies that say they can offer almost everything, but in limited areas.

Ironically, the reason different players are developing such complicated plans is that customers have asked for something easy. The key to finding the customer's idea of the perfect bundle will be making it look like it's simple to do, analysts say.

"It's got to appear to customers that these services have been brought together seamlessly and that [the users] will receive them easily," Kraemer says. "Those who realize that and can provide that early on will have all the advantage."