THE CONUNDRUM:SERVICE vs. PRICE

Squeezed by a suddenly stingy consumer base and stretched thin by increasing operating costs, small and medium-sized business owners are motivated like few others to examine and exercise their communications options. CLECs have been wooing them at a 30% clip, according to a recent study by The Yankee Group. Price is the overwhelming motivating factor. But not every business is enticed to change providers based on price alone. The majority of them choose to stay with their current provider, motivated by quality of service.

SIDEBAR PREVENTION IS THE BEST MEDICINE FIGURES REASONS FOR CHANGING LOCAL SERVICE PROVIDERS WHERE ARE BUSINESS CUSTOMERS CHURNING? TOP THREE VEHICLES THAT GENERATE AWARENESS HOW KNOWLEDGEABLE  IS THE CSR STAFF?

For incumbent carriers that still control more than 90% of local service revenue, according to the FCC's yearly report on trends in communications, QOS becomes the guardian of their bottom line.

Unfortunately for some incumbent carriers, the price that owners of small and medium-sized businesses, or SMBs, pay for telecom services has the most obvious and immediate impact on their bottom line and often takes priority over the more nebulous benefits of QOS. Lower prices can and do provide all the motivation a business owner needs to change providers.

Although CLECs like to think otherwise, the majority of SMBs over the last year (up to 74%) that switched service providers based their decision on price, according to The Yankee Group report released in June. The QOS they like to tout as a differentiator of service was a priority only to approximately 10% of those surveyed.

According to the FCC's most recent study, CLECs had activated more than 193 million lines by the end of last year, accounting for 8.5% of all end-user lines. The Yankee Group reported that almost one-third of CLEC customers have signed on within the last 12 months—a dramatic increase since the FCC report was issued.

For instance, Allegiance Telecom, a Dallas-based CLEC founded in 1997 with service in approximately 35 markets, had its best sales month in the company's history in August, said Tony Parella, Allegiance executive vice president.

Credit for a portion of that growth could stem from a phenomena not measured in the study: a groundswell of sentiment among SMBs for doing business with competitive carriers.

“Being a small business owner, I strongly support new and upcoming businesses,” said Gus Liapis, president of Northstar Financial Services Group in Chicago.

Considered by The Yankee Group study to be a very small business, Northstar Financial Services Group is no exception to the price rule. “Our business is contingent on telephone service,” Liapis said. “I would never trade in quality for price.” But after word-of-mouth assurances from business associates about quality, and especially after comparing costs, Liapis switched to Mpower Communications, a facilities-based provider of broadband Internet and voice service that serves the Midwest.

“The main reason was cost,” Liapis said. “Mpower had packages that include unlimited calls for a flat fee. I can pretty much determine what my costs are going to be.”

I hate going through the hassle of switching phone companies,” said George Dravilas, chief operating officer of a Chicagoland Re/Max Preferred Properties franchise. Nonetheless, he has made the move a number of times. Currently Dravilas uses McLeodUSA, a facilities-based integrated communications provider that serves Midwest, Southwest and Northwest markets for local service. The Cedar rapids-based company also offers nationwide data and voice services. “They're much cheaper,” Dravilas said. “My bill used to be $3500 per month; now I'm paying about $700 to $800.” But price only goes so far. “You have to have a balance of price and quality of service,” he said. “I could have easily switched over to Adelphia and paid $30 a month for unlimited calls, but I don't know Adelphia. I don't know what kind of service they have.”

Overall, however, competitive carriers have made strides in service quality. Approximately 75% of SMBs were more satisfied with how their new provider delivered on its promises than they were with the performance of their previous provider, and 15% to 21% were just as satisfied.

As promising as that appears, it leaves 5% of very small businesses, 6% of small businesses and 7% of medium-sized businesses dissatisfied. That could account for some of the 25% of businesses that do churn and return to their incumbent carriers, according to The Yankee Group.

And why are they returning? Ask incumbents, and they'll tell you it's a quality issue.

“They leave for price and come back for service,” said Robin MacGillivray, vice president of business communications services for SBC's Pacific Bell. “We certainly see that borne out in our reality.”

Pac Bell recently was awarded the state's first “small business-friendly” certification by the California Small Business Roundtable and the California Small Business Association. “Whether we are competing for new business or trying to win back service we lost, it is always service that tips the scale,” MacGillivray said.

It also tips the scale for those SMBs that decide to stay. Customer satisfaction was the No. 1 reason that businesses decided to stay put. An average of about 45% of SMBs stayed with their current provider because they received good service.

There also are some less boast-worthy reasons. Some, like Dravilas, stuck with incumbents at times because it was too much of a hassle to switch—21.1%. And 15% stayed because of contract obligations.

So what makes good service good? “Service starts at the point of sale and continues throughout the life of the customer,” Allegiance's Parella said. He disagrees with the idea that customers come to Allegiance primarily for a better price. “People buy from us because they don't necessarily feel appreciated from the regional Bell carrier. They aren't made to feel special.”

However, he does agree that the way to keep them is through QOS. “My company will be successful absolutely based on how well we serve our customers. And it's not about technology,” Parella said. “Anybody can purchase, install or build a technically efficient network, but it is the people and processes you put in place to ensure personalized service that makes the difference.”

Allegiance recently turned up its 1 millionth line, and more than 92% of its lines are on its own facilities. The company doesn't advertise; instead it has 1600 sales people out on the street bringing its message directly to potential customers. This has been typical of CLECs but is beginning to change as money slated for scaled-back network buildouts gets redirected. Forty percent of medium-sized businesses learned of their competitive carrier through advertising this year.

To continue delivering personalized service, Allegiance has instituted a Customer Bill of Rights and placed a customer service manager in each branch location to ensure those rights are protected. “As you are growing from four to 4000 people, if you don't stay focused by having these processes in place, you risk the customer having a bad experience,” Parella said.

For service providers as big as the Bells, personalized service is next to impossible. But they can make up for it with quality customer care. So far they haven't. The Yankee Group study showed CLECs with a slight edge in the professionalism and knowledge exhibited by their customer care staffs.

As the number and complexity of service offerings increases, carriers have been forced to realize the importance of customer service representatives, or CSRs.

“Through August, we already invested over 100 hours of training per person in our customer care organization for business alone,” Pac Bell's MacGillivray said. “Every year for the last five years we have spent more on training than on the year before.”

Pacific Bell has also worked with the Communications Workers of America to increase wages and allow for other forms of remuneration. According to a Salary.com report from last month, the median yearly salary for CSRs in the U.S. is $26,205.

Despite all the effort by CLECs—competitive pricing, bundled services, network uptime, personalized service and more—incumbent carriers have seized another advantage, one that suits and salutes their snail's pace: stability.

Through rolling blackouts and worse this year, incumbent carriers—as well as more established CLECs such as Allegiance—have earned reputations for reliability, stability and availability.

But in an era where image is king, the incumbents have so far survived the economy and outlived many of their upstart competitors. “Clearly there is a contagion effect from the failures in the CLEC market, and that's something the individual CLECs have to work hard to overcome and to establish confidence in their company and their brand,” said Mike Lauricella, analyst for The Yankee Group.

Rod Woodward, industry analyst for telecom services at Frost & Sullivan, said there is consensus within the industry that three or four of the major CLECs are fairly secure and will likely be in service for the long run. They include Allegiance, McLeod, XO Communications and Time Warner Telecom.

However, he cautioned, “If I am having to wonder whether my provider is going to be in business next week, that's not good. That's not something I need to occupy my mind if I am the CEO of a small, medium or large business.”

Every once in a while something comes along that radically alters our perception of the status quo. This year the businessman's view of quality has been altered by the economy, the West Coast energy crisis and the terrorist attacks.

Rob Carlson, senior analyst of network services for Current Analysis, said: “With the number of competitive players that have gone out of business, long-term stability and viability of the business plan has quickly moved to the top of the [priority] list. It's more important right now than price.”

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PREVENTION IS THE BEST MEDICINE

Although the ultimate determinant of QOS is customers speaking with their feet, service providers do proactively and continually monitor the performance quality of their networks. Ideally, the process is so smooth and proactive that customers are not even aware of the diligence with which their providers maintain their networks.

Cincinnati Bell recently received an award from J.D. Powers and Associates for rating highest in its residential telephone customer satisfaction survey. John Howison, technical support specialist for Cincinnati Bell, said there is a direct correlation between that level of customer satisfaction and the quality of the signaling network he supports.

Howison relies on tools from Inet to ensure that quality. “One of the reasons for the award is our network is one of the best in the country as far as small ILECs go,” he said. “And one of the ways we make sure it is the best is by using products like Inet's GeoProbe.”

The GeoProbe provides carriers with visibility into every aspect of the SS7 network. It monitors all links, analyzes individual messages and reconstructs every call in the network. GeoProbe also can be used for troubleshooting number portability problems. “It is the first tool we go to for [local number portability] problems because we can see if the problem is in the LNP database or if we're delivering calls to the CLEC and the CLEC is rejecting them,” Howison said.

Inet's tools allow carriers to troubleshoot SS7 links without removing them from service. It also improves the efficiency of testing links in a mated configuration such as that with signal transfer points (STPs).

“In the early days with a hand-held analyzer, you were forced to sit at one STP and invariably the call you were looking for would go through the mate STP,” Howison said. “We called it the plug-and-pray method.”

The GeoProbe and other tools that perform call traces and identify building call volume help Cincinnati Bell keep its customers getting dial tone and receiving calls. “It is totally non-intrusive but reads every call and every message that goes over the network,” said Samir Marwaha, director of strategic development for Inet. “So you are pretty much monitoring 100% of the network at all times.”
BY TIM McELLIGOTT

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