Delivering triple-play services often means venturing into uncharted territory -- a cable operator getting into voice or a telecom service provider venturing into video. This SearchTelecom.com guide looks at how to build business and technical plans to make sure all of the bases are covered for delivering high-quality services that can be efficiently and consistently managed. To make the cut, triple-play providers need to focus on new generations of customers with high expectations and invest in billing systems that can deliver what customers want at the right price.
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The triple-play imperative
Today's triple-play services -- offered by telecom service providers and cable companies -- bundle telephone, TV content and high-speed Internet access services into discount packages for residential customers. The packages enable telecom carriers to encroach on cable companies' traditional markets and vice versa. The deal offers customers discount prices for 12 months, then the prices return to their unbundled levels.
Discount bundling serves as a way to attract early customers, but it doesn't deliver capabilities that customers can use to increase the efficiency or ease-of-use of capturing content, playing games or carrying out everyday tasks. It also ignores the potential value in delivering integrated services to business customers. Largely, it leaves wireless services out of the mix altogether.
Providers of all kinds that offer triple-play services -- and eventually quadruple-plays that include wireless -- must look toward making the transition from rudimentary discounts to real capabilities that address customers' growing demand for personal and professional functions that work across any device, anytime and anywhere. That means delivering customer-context-aware content, applications and entertainment across computers, cell phones, smartphones and televisions.
Addressing triple-play customer needs
Successful triple plays must incorporate all modes of transport. Over the next five years or so, customer sophistication will outgrow carriers' market message of TV, high-speed Internet and voice bundles. Transport transparency will sell triple-play services that will have to evolve to meet customer needs for applications and content on any screen at any time and in any place.
The customers who grew up during the transition from the Bell System to the Internet can and do pay for triple-play services. But tomorrow's customers represent the generations that grew up with PDAs, cell phones and high-definition television as everyday items. These generations use technology in ways their parents couldn't imagine and don't comprehend.
The addressable market for triple-play customers includes three generations of Americans: baby boomers, Generation X and Generation Y. Baby boomers comprise about 76 million people and the bulk of current paying customers. Generations X and Y have about 50 million and 70 million potential customers, respectively. While size estimates for Gens X and Y vary, depending on who defines the beginning and end of each one's birth period, they total at least 120 million prospective users, representing significant future demand. That demand comes from people who think of their communications devices as fifth appendages and encompasses the need for sophisticated, easy-to-use and integrated capabilities.
Triple-play services attract big spenders
Carriers will pay attention to these young customers because data indicates that this population size not only exceeds that of the baby boomers, but its members also seem to be bigger spenders. Consumer market researchers say Gens X and Y are very brand conscious and are willing to pay for their status symbols.
When these new customers come in for the latest smartphone or content-display device (e.g., future versions of smartphones, laptops and flat-screen TVs), the carriers will have to make their services at least as compelling and as cool as these devices. These customers will use communications services and equipment for a blend of personal, professional and educational applications. As such, the carriers' triple-play services must leave behind the billing gambit and start touting content, contact and context so customers can work and play.
Triple-play services must complement and complete the capabilities of the latest equipment so that they're more a part of the purchasing criteria than they are now. Carriers will have to use triple plays that encourage customers to buy the latest "service" in addition to the latest "device."
Even though carriers have struggled for years to extend their brands beyond connectivity, the evolution of triple-play capabilities and demand presents the perfect opportunity to actually create brand desire. And moving from a billing play to a services play could do the trick.
Triple-play services: A step above past performance
Past performance suggests that it's not likely carriers can do this, however. But making this shift and touting it would let carriers use this chance to identify their brands with leading-edge technology. Shedding their stodgy images and creating buzz around their services will definitely attract the next generation of customers -- probably more than discounted commodity services, which have failed to transform any carriers' image since the start of price competition.
Another element in the triple-play mix that the carriers must deploy and exploit is their ability to help customers manage security and identity. Because customers will increasingly mix personal and professional data and applications on the same gear, network services must be able to assist users and their employees to keep their work and private lives separate.
This market will undoubtedly develop within the next five to 10 years as Generations X and Y gain market power and responsibility. There may be some delay in demand growth over the next 18 months to two years as a result of market and economic instability. But when things return to normal, demand will undoubtedly rebound. And if we don't get past the economic crisis, we shall face far more pressing problems than how to bring triple-play capabilities to the market.
Differentiating the triple play
Changing demographics in carriers' target markets will require a much more applications-focused approach to triple-play services. The next generation of users will want next-gen services, not rehashed billing plans. Carriers will see their opportunities grow, but they will have to do more to build customer loyalty than they're currently doing.
Today, pricing is the basic differentiator, even though cable companies and telecom carriers have both gravitated to triple-play pricing between $100 and $120 per month for the first year. But to create more sustainable differentiation, the two types of carriers will have to create greater distinction in the market. To establish successful positions to capture market growth, carriers must kick their discount capacity habit and start meeting residential and enterprise customers' increasing needs for content and applications.
To start differentiating beyond price, cable TV and telecom carrier approaches take somewhat divergent triple-play paths.
On the cable side, Comcast stresses its Channel 1 on-demand service as a differentiator. This service enables customers to watch some programs whenever they want to. Comcast does not control which programs are available on demand, however; that choice is up to the producer and distributor of the program.
Another approach -- in New York, New Jersey and Connecticut -- comes from Optimum (Cablevision), which differentiates itself by offering a bundle for about $100 per month, which is less expensive than Comcast's package (about $120). These two carriers don't often compete directly with each other, but Optimum does compete directly with Verizon in many geographies. Optimum says it can retain customers' existing phone number through the transition from telecom to cable, but a number of customers have found that option unavailable to them. Since most customers expect to keep their numbers, failing to provide portability is the wrong reputation to establish through word of mouth.
The two major triple-play telecom carriers in the U.S. -- AT&T and Verizon -- focus their differentiation on fiber optic transport. Cable TV companies deliver services primarily over coaxial cable. But telecoms must carefully compare customer neighborhoods to calculate and justify the expense of deploying fiber to the home. In some locations, local regulatory environments block a carrier's ability to pick and choose the neighborhoods it wants to serve. In Boston, for example, the mayor and regulatory authorities have blocked Verizon's FiOS installation unless it rolls out to the entire city rather than select neighborhoods. And AT&T's triple-play offer is available in 22 states; it will address the others with future capital investments.
Developing triple-play for next-gen customers
During the early part of the century, it seemed likely that carriers would deliver triple-play services based on existing network infrastructure. But cable companies and telecoms both had to make additional investments to guarantee that their networks could support high-quality services in their respective competitors' home domain. That meant cable TV companies invested in the ability to provide voice, and the telecoms had to deploy fiber with the capacity to transport high-definition TV.
Although this approach initially made sense, it quickly locked carriers into price competition. The investments necessary for carriers to extend their service to deliver triple play run into the billions of dollars. For example, industry estimates of Verizon's capex for FiOS exceed $20 billion in plant and equipment. To recoup these expenses, the carriers will have to deliver more than discount transport. They will have to bring their customers applications- and content-focused value-added services that will justify higher prices and better margins for the carrier and greater utility for the customer.
Today, most consumers can't objectively compare service quality, so the only thing keeping them "loyal" to their triple-play provider is the arduous process necessary to switch carriers. This holds even after the discount period runs out and higher prices kick in. Although the higher prices may encourage consumers to switch again, they will probably think twice, given the difficulty.
The next generation of consumers will want more than inexpensive connectivity. They live in a world of universal connectivity, but what drives use are the applications and content they access. Carriers' initial decisions relative to protecting and expanding their customer bases were based on discounts, which made sense at the time. But future retention and expansion will require a greater emphasis on, and support of, integrated services and applications.
Triple plays mandate systems and network investment
Cable companies and telecom carriers leverage their billing systems to provide customers with discounts for signing up for triple-play service bundles. By leveraging existing investments in their billing systems, carriers lower their costs to deliver triple plays. To continue managing billing bundles and start delivering advanced capabilities, carriers must exploit their existing back-office systems.
Back-office systems' initial responsibility is making sure customers are billed accurately for the services they use. Carriers' back offices also link to their IT systems, which monitor and manage service delivery. Although triple-play services are initially delivered to residential customers, the monitoring and management systems that carriers use can play a broader role.
Carriers' IT systems monitor and manage customer services across operating regions, customer segments and user profiles. As the triple-play services evolve to include wireless access, as well as applications and content delivery for both consumers and residential customers, carriers will leverage their back-office IT systems to provide high-quality, consistent capabilities wherever and whenever customers need the resources.
Delivering service consistency
Verizon Business's global billing capability provides an example of software capabilities that could help it support consumer and business triple-play services. If Verizon can adapt its global billing system to a broader audience than its original large enterprise target, it will be able to spread the investment across a much larger addressable market and reduce the cost to serve that market.
To deliver uniform billing across services and borders, Verizon's system consolidates billing data from all regions into one centralized data repository. Customers use a portal to access the system to pull up overview reports -- detailed reports that reflect usage by service and/or geography -- and then review their bill before paying it.
This enterprise offer represents a system developed by Verizon's engineers that could be adapted for a broader range of customers that use the triple-play services -- high-speed Internet access, digital TV service and voice capabilities -- for a mixture of business and personal applications.
Since pricing bundles create short-lived competitive differentiation, cable companies and telecoms must use the systems they've deployed throughout their networks to create unique communications products that will deliver customers' personalized data and content.
Triple play strategies that work
Another interesting example of a carrier's approach to delivering uniform services for a variety of customers who are based in, and move throughout, numerous geographic and regulatory regions is provided by France Telecom and its Orange unit. Although current triple-play offers are limited to U.S. customers, cable companies and telecom carriers can learn from the complexities France Telecom addresses through its IT and network initiatives. France Telecom has to manage its network investments across developed and developing nations. In each country, the level of development varies and starting points are different -- some wireless and some fixed.
For each geography, France Telecom builds its IT and network according to the same architecture so it can manage consistently. It is also developing a unified infrastructure that is "access agnostic." Customers can reach service platforms and controls whether they use fixed lines, fiber optics or wireless devices. Like France Telecom, U.S. telecom and cable operators offer triple-play services to customers in multiple demographics and various regulatory environments.
Just as Apple has begun opening its iPhone to users so they can build applications, France Telecom gives APIs to its customers so they can build the services they want, using the carrier's global IT architecture. In this way, the carrier enables individual customers of all walks of life to build the applications they need, then run them on the France Telecom infrastructure, where they can be available to other customers.
Taken together, the France Telecom and Verizon internal systems provide directional examples for triple-play carriers. Once the novelty of the pricing discount wears off and customers begin demanding the ability to create applications, access corporate and personal content, and use them to meet daily responsibilities, the cable companies and telecom carriers should look at the management infrastructure investments they've made and leverage them to meet burgeoning customer needs. This type of strategy will help them keep service costs down, meet their customers' needs, instill greater loyalty and improve margins.
Summing up the triple play
Triple plays offered as billing gambits -- independent of the service provider -- offer residential customers a discounted bundle of voice, high-speed Internet access and digital TV services. But they run the risk of limiting their long-term appeal. Bundles rarely substitute wireless connectivity for any one of the constituent services; they don't integrate applications or content across the different communications modes; and they almost completely ignore demand from business for integrated services that would enable employees to work wherever they are, whenever they have something to do. Carriers have back-office systems that could support more applications-defined triple plays. Successful carriers will leverage all their capabilities -- billing and service delivery -- to capture and maintain the long-term loyalty of future user generations.
Podcast: Triple threat or trip to success?
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In this podcast, telecom analyst Paris Burstyn looks at the status of triple-play services among service providers and what needs to happen to move beyond their initial "discount billing" status for customers and into more advanced services, applications and technology platforms that will increase carriers' revenue, as well as customer loyalty.
About the author: H. Paris Burstyn, senior analyst at Ovum, has more than 25 years of experience working to help clients design and implement creative, effective and efficient approaches to competitive situations. He founded Paris Consults to provide analysis and consulting to competitors in the telecommunications industry. His background includes positions at Yankee Group, IDC, Arthur D. Little and HeavyReading.