Competitive foresight

What if you opened a $100 billion market and nobody came? Although it might be comforting for carriers to believe that competition will come slowly to the local telecom market, their futures depend on looking further along the horizon.

Indeed, more than 1100 new local market entrants are approved for business nationally, according to the National Association of Regulatory Utility Commissioners. An incumbent or potential local service provider must monitor not only an ever-changing regulatory environment, but also shifting customer demands, increasingly cutthroat competitive bids and an almost weekly tide of mergers and acquisitions.

To compensate, potential competitors must have at their disposal the intelligence to make the right decisions and take the right risks in an environment of extreme uncertainty. That's business intelligence-knowledge and foresight of the competitive environment.

This knowledge is a prelude to executive decision-making because it assesses how a competitive issue might develop, and what that development means for a company's plans and strategies. When applied throughout a company, business intelligence can affect everything from how a carrier approaches the regulatory environment and make decisions about wholesale and retail pricing, to how to take advantage of the latest Internet telephony technologies.

Experience offers no guarantees The road to success in the local services market is fraught with traps. As any of the Bell companies can attest, offering local service is no easy proposition, especially to the largely unprofitable residential market. Yet the prospect of offering a bundle of services to end users-including Internet, wireless, cable TV and even non-telecom products such as utility services-makes dealing with the downsides of providing dial tone services worthwhile.

Even mainstream competitors AT&T and MCI are finding that the winning formula is difficult to come by.

CEO C. Michael Armstrong is refocusing AT&T's plans to compete for local service after several marketplace missteps. The carrier has all but stopped reselling Bell company services to try to redirect resources to investments in local markets. This includes a novel franchising strategy and mergers with competitive local exchange carriers.

MCI's anticipated $800 million in losses from local service operations in 1997 was a key reason its planned merger with BT fell through, enabling WorldCom to step in with a $37 billion, all-stock offer.

Much of the sluggishness can be attributed to regulatory bickering among the three major long-distance carriers and their Bell company counterparts.

Nevertheless, it would be foolhardy for telecom managers to ignore the best intelligence about the competition, regulators and end users.

Unfortunately, acquiring and using this intelligence requires more than reading the latest trade journal article or analyzing a competitor's annual report. Telecom executives intent on setting strategies, hedging bets and evaluating risk need a formal business intelligence system that acquires information from published and non-published sources, analyzes it and gets it to the right person at the right time.

What's more, this formal system must enable telecom decision-makers to anticipate market developments, not just react to them. In such a fast-moving and fluid market, the need for predictive intelligence is particularly acute.

What are the necessary steps?

* Ask the right questions. Decision-makers-including directors of strategy, regulatory affairs, pricing and non-regulated businesses such as wireless and the Internet-must identify the questions they need answered to make better decisions. Doing so helps boil down the uncertainty to a manageable level and ensures that the intelligence process focuses on acquiring and analyzing only the most relevant information.

* Get all the information. Carriers need to acquire information from published and non-published sources. Much of the "best" intelligence comes from people rather than text. Published information is, for the most part, yesterday's news. Much of the valuable human intelligence is available from company employees and industry experts; indeed, as much as 80% of the necessary intelligence is probably already inside the company.

* Analyze, analyze, analyze. This is a key step in understanding the implications of the intelligence that is being gathered.

* Deliver the intelligence to the right people. Dissemination to the right decision-makers in a timely manner is important. Unless intelligence is delivered to those with the authority and responsibility to act, no intelligence has been created.

* Create predictive intelligence. This enables telecom decision-makers to anticipate market developments, not just react to them.

* Foster the direct involvement of senior level decision-makers. Without their support, the system will not survive.

However, competitive intelligence plays an important-and often overlooked-role in helping managers understand how the competitor will steal their customers. It can help structure projections regarding churn and share loss, and support decisions addressing appropriate marketing responses, customer promotions, and internal organizational structures.

Size up the competition What are competitors' likely entry strategies? The decision to lease, build or resell can make or break a new local services competitor. Long-distance companies need to evaluate which strategy makes sense for them.

How will new competitors measure success? New competitors for local services must have some predefined measures of success, and incumbents know what those metrics are. The carrier must decide whether to pull out of a market or intensify its efforts. What should incumbents spend fighting off new local competitors given competitors' actual success?

Carriers must evaluate what the customer really wants. While the quest for bundled telecom services continues to drive the push for more open local markets, do consumers really want all their telecom services to come from one company and be charged on one invoice?

Of more immediate concern, what level of local service do customers expect, and can long-distance companies, which have not had to deal with on-site customer service needs, satisfy the consumer?

True intelligence moves beyond keeping pace with the competition and helps define the marketplace of the future.

Without a healthy intelligence system, however, companies risk making "bet-the-company" decisions in the dark and risk being bested by a more knowledgeable competitor. With $100 billion at stake, it's a risk few players can afford.

What about competitive local exchange carriers and Internet service providers?

These two new entrants into the telecommunications industry need to ask different questions when attempting to understand their competitive environment.

The most effective local services competitors are CLECs that have built their own fiber networks in urban and suburban areas. These players now claim 1.6 million access lines and 2.6% of the market, according to Merrill Lynch.

Their share could double by 2000, with their focus almost exclusively on the business market. The most important question that these two segments should be asking is: What is the most effective market entry strategy?

They also need to ask what factors will determine success in local service competition, what the likely incumbent response is to CLEC or ISP efforts to compete for local service, what's the best pricing model for local services, and what's the most effective sales strategy-direct sales, alternative channels or compensation plans.

Here are some key issues that apply strictly to CLECs:

* What other competitors are already in the markets in which you want to compete?

* How should you segment the market among residential and business customers?

* What are the regulatory issues that must be considered?

ISPs need to look at a slightly different group of questions:

* How do I best position my company against the incumbent?

* What's the most effective way to bundle services?

* Are there any alliance partners I should look at and who are they?