Convergence is king

As companies rush to deliver a greater variety of services, the need for a holistic view of each customer becomes paramount.

by Tim Walters

Technological, regulatory and market forces are reshaping the landscape of the $400 billion-plus communications marketplace. Cable TV companies now offer instant delivery of movies and broadband Internet access; long-distance companies provide dial-up, broadband and wireless Internet service; wireless carriers compete with wired companies by providing a plethora of new services-gaming, Web-browsing, streaming video and online shopping-through high-speed 3G networks.

Convergence has created a "hyper-competitive" market where company survival depends on delivering a smorgasbord of services. But the variety of new offerings can create a quagmire of redundant, fractured data resulting in unnecessary administrative costs, misguided marketing efforts and crippled customer service. Carriers hoping to survive and thrive must accurately:

		Measure profitability by customer
		Manage customer interactions
		Measure financial results across new services

Landline: a new package
Traditional landline carriers face significant customer losses and decreased profitability. In the U.S., between 2001 and 2003, incumbent local exchange carriers (ILECs)-local phone companies before the 1984 AT&T breakup-lost 30 million lines. Net income fell from $14.6 billion in 2000 to just $4.2 billion for 2003, while more than 70% of the lost lines were acquired by competitive local exchange carriers (CLECs) challenging the incumbent monopolists for last-mile service.

Telecoms in Europe and Asia are seeing similar landline decreases, but it has been wireless carriers rather than last-mile-service providers that have acquired their business. Leading Danish telecommunications provider TDC reported a nearly 20% drop in landline wholesale revenues between 3Q 2003 and 3Q 2004. South Korean telecom KT, which accounts for 95% of that nation's landline subscribers, saw annual revenue from fixed-line calls drop $4.8 billion between 2000 and 2003. Not surprisingly, both countries are among the top 10 in mobile phone users per capita.

The bright spot for landline companies is a result of convergence: delivery of data services. According to DSL Forum and U.K.-based analyst Point Topic, U.S. telecoms had captured 12.6 million DSL subscribers as of September 2004 to help offset declining revenues from traditional voice-based services, and Japan-where wireless technology reigns supreme-reached 12.7 million subscribers. According to Maribel Lopez, vice president of Forrester Research, "Right now, ILECs are focused on replacing lines with broadband revenue, both DSL and fiber."

Long-distance providers also see traditional revenue streams shrinking. "The long-distance carriers are focusing on additional services for the business market, like storage, security, hosting and business continuity, and Voice over Internet Protocol (VoIP) services," says Lopez.

The essential tool for seeking new customers? An enterprise data warehouse. Jason Briggs, program manager with the Yankee Group, notes, "Most very large carriers are on the path of deploying enterprise-wide data warehouses."

Briggs says that one of the most important benefits of a data consolidation is churn prevention as incumbent carriers utilize data warehouses to prevent their most profitable customers from leaving. "More and more are using data warehouses for customer segmentation, customer profitability and customer lifetime analysis," he says.

When offering more complex products, revenue assurance also becomes paramount. Even small improvements translate into significant bottomline impact. In the past, says Briggs, "carriers have viewed revenue leakage as a virtual piggy bank. They are now starting to consolidate disparate efforts into one group and increase their investment in revenue assurance."

Wireless: today's service hub
As wireline telephony seeks to exploit broadband data delivery, mobile communications traffic has soared. At the end of 2004, the International Telecommunications Union (ITU) announced there were 1.85 billion wireless subscribers worldwide. Revenue generated by mobile business increased ten-fold between 1993 and 2003 to $440 billion, while overall telecommunications grew only 8.8% during the same period.

Wireless carriers expect further growth, though understandably at a slower pace. Charles Golvin, principal analyst of Forrester Research, says "There's certainly not the same type of growth opportunity as a few years ago, but carriers are still adding subscribers. Most tend to come from segments underserved in the past. They are coming on to carrier family plans and prepaid services and from lower income households."

To entice users and boost revenue, wireless carriers continue to add more services. Data speeds are increasing as carriers deploy 2.5G and 3G network upgrades. In the U.S. and Europe, wireless customers now can access the Internet, retrieve e-mail, send pictures, play games and more at speeds comparable to dial-up wired access-things mobile subscribers in Asia have been able to do for years. In Japan and other areas, where wireless use is nearly double that of the United States, mobile users can also use their phones to pay for services and even scan coupons in magazines and catalogues to make online purchases that are debited from an "e-money" or credit card account.

"There's more and more interest in applications that will drive new revenue streams for wireless carriers," says Briggs. "As companies upgrade their networks, they're seeking ways to monetize the investments, and they're starting to see success."

Wireless carriers face three critical issues:

• Network optimization
• Fraud prevention
• Data management across markets

In optimizing networks, notes Briggs, "Most network monitoring (currently) occurs in the engineering group with their own data sets and data marts. They are extending further and further into the network to bring in additional data for optimization."

While digital networks have eased fraud concerns over original analog transmission, subscription fraud requires constant data scrutiny. Briggs adds that some carriers use centralized data warehouses for fraud detection purposes.

Globally, mobile providers continue to offer more and more services and 3G options. The largest worldwide mobile provider recently launched 3G service across 13 countries.

That technology can transform mobile phones into multimedia devices that can boost revenue, but it also raises new data management issues. Not only must financial data be consolidated across markets, but diverse content providers must also be compensated.

Change: the only constant
New entrants into voice communications are altering market dynamics. Cable companies currently lead in providing bundled services. Beyond video, some offer the "triple-play" of video, voice and data services. For phone companies, cable providers present formidable new competition-which some view as opportunities. One approach is partnering to deliver much-needed services or expertise-a cable company might sign a voice customer, while the phone company handles installation.

VoIP technology has the potential to be truly disruptive. VoIP digitizes voice into packets that are transferred over data networks, eliminating the need for large and expensive switches. As a result, traditional carriers, both cable and telecom, are rushing to deploy VoIP. One company estimates there were 5 million VoIP users worldwide as of mid-2004, with more than 1,000 providers. About 4 million of those VoIP users are in Japan.

In turbulent markets, speed of decision-making becomes vital. By identifying customers likely to respond to different offers, CMOs and CFOs create real-time value propositions that are responsive to market dynamics.

Not only do carriers want to provide converged services to capture additional wallet share, but also customers are increasingly demanding bundled services. Many are looking at consolidating more services with one carrier. When J.D. Power and Associates asked 10,500 residential local phone users in the U.S. whether they would be likely to switch any additional telecommunications services (wireline, Internet, wireless and television) to a multi-service provider, 43% of respondents report they "definitely" or "probably" would do so.

The key reason bundling is so popular? Forrester's Lopez relates, "Customers want more bandwidth for less money without a compromise in quality. And they want both fixed and mobile."

In order to deliver appropriate bundles, carriers seek to view a customer's total business through their data warehouse. "Carriers would like to take an enterprise view of customers and their business," Lopez states. With a holistic view, it's possible to reduce marketing costs by targeting consumers likely to respond to a particular bundle, as well as increase customer satisfaction by anticipating a customer's need.

That's particularly important for wireless carriers in the U.S., where the slower move to higher-quality networks has led to a somewhat tarnished reputation. Wireless companies were second only to car dealers in the number of Better Business Bureau complaints in 2003 and ranked next to last in the University of Michigan's Customer Satisfaction Index.

Customers: the true profit center
In the past, carriers measured revenue as a proxy for value. Increasingly, carriers are performing sophisticated profitability analyses of their customer base, drawing upon all of the data in their data warehouses. "Margins can vary widely based on usage patterns," says Yankee's Briggs. "A $40 customer can be profitable based on his usage, low customer service needs and other factors."

With knowledge of each customer's profitability, companies can alter customer treatment. "Carriers are providing priority queues for call-in and extensive customer relationship management for high value customers," Golvin adds. Carriers can also personalize messages and offers based on customer value.

Along with customer profitability analytics, financial management has become critical. "The pressure is on to disclose as much as possible about average revenue per user per month," says Briggs. "Financial reporting will become more complex in the future because of Sarbanes-Oxley and the services offered." The data warehouse ensures consistency of measurement.

The converged future
To compete, carriers must make the right offer at the right time. They can only do this through implementation of a data warehouse that brings all elements of the customer's experience together for a single, accurate view. In short, converged technologies and services demand converged data management. T

Tim Walters has written about marketing and IT for Advertising & Marketing Review and Wireless Weekly.