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How telecom leaders are driving enterprise business growth

Stream | January 14, 2022

Despite the world’s rapid mobilization, then digitalization over the 21st century, wireline networks have remained a foundational part of enterprise communications infrastructure. As such, they’re also still a high-priority business for telecom leaders like AT&T and Verizon.

But the communications landscape has changed (and is still changing), and so too must the strategies these providers use to maintain business loyalty and see continual growth. How are mobile services integrated (or not) with wireline sales? What are companies looking for now from providers that they may not have needed when traditional wireline was the only element of enterprise connectivity? What does the future look like for telecom providers as technology continues to evolve?

This expert interview with a former AT&T executive who spent 20+ years with the company explores how exactly wireline and other enterprise telecom offerings are organized, what the competitive landscape looks like for the enterprise telecom business, and how providers are preparing for the future with forward-thinking strategies for growth.

Quick Takeaways

  • Enterprise business creates important market presence that ripples out to other business segments.
  • While wireline and data networks are foundational to enterprise customer relationships, managed services is the primary growth driver for this segment.
  • Network infrastructure and managed services create sticky business; switching providers is inconvenient for enterprise customers and would take several months to do.
  • Growth drivers for consumer and enterprise business are opposite; for consumers, it’s more data, and for enterprises, it’s added and/or better services.
  • The trend of shorter contracts (one year vs. three) for enterprise customers has not affected business retention.

Wireline (and it’s evolving definition) within AT&T

When you think about primary business drivers for telecom companies like AT&T, mobile phones are likely what comes to mind in 2021, and certainly mobile is one of them. But equally important to their business stability is traditional wireline for businesses — especially large enterprises — that has been around for decades and continues to be one of the most reliable arms of telecom business strategy.

Its benefits are manifold. Wireline is a sticky business by nature, and continued service to the likes of Fortune 500 companies is a contributor to strong market presence.

“Business wireline is a key part of AT&T. Without the Fortune 500 companies, AT&T [would] lose a lot of [its] presence in the market. It has a lot of management attention. That’s where the big presence is compared to other companies and especially if you compare it to a T-Mobile, that doesn’t have enterprise business. Other than the mobile phones, wireline is key for AT&T.”

This wireline-driven market presence ripples out to other business segments, including mobile, which is now integrated with wireline services at the enterprise level, and other opportunities like AT&T’s FirstNet, a wireless platform specifically designed for public safety organizations that has recently won huge contracts with the FBI, U.S. Coast Guard, and U.S. Air Force (to name a few).

The competitive landscape

The competitive landscape for enterprise telecom business really belongs to two main players:

“The main competitor is Verizon. Basically, the other companies like T-Mobile, they have an enterprise salesforce that taps into large companies. However, the only service that they use is mobility. The key thing about Verizon and AT&T is that they can offer both the wireline and the mobility service and give a better deal or a single shop deal.”

Interestingly, competition between the two telecom giants is not strictly about convincing companies to go with one versus the other. Factors out of the control of AT&T’s and Verizon’s sales teams — like geography, for instance — affect who wins business and in many cases, the same companies are doing business with both providers concurrently.

“Companies have different vendors because the coverage that you have is not exactly the same. There’s some areas in the country where Verizon has better coverage, so your employees want to use Verizon. U.S. companies want your employees to use Verizon. There’s internal competition from the mobility services to try to expand your share of the mobility services that enterprise companies buy.”

Managed services are key growth drivers

Wireline and data networks are reliable revenue drivers because they support core business functions for enterprise customers. In other words, no one is deciding to get rid of them (or jump ship to another provider) overnight. They’re also high-margin endeavors thanks to their massive scalability.

“On the traditional data services, remember, the footprint and the network is already there. The cord network is there and has plenty of capacity, so you don’t have much cost associated other than the last mile. That’s why it has a huge margin that I think is 60+%.”

Managed services, on the other hand, have higher costs because they’re more user-dependent.

“[Managed services] is driven by the amount of people that you need to have managing those services, the infrastructure that you have to buy, for example, cloud infrastructure that you need to build or buy. The costs are driven about by the number of users that you’re supporting, unlike the data that is the same cost, the same additional cost that you have to incur for selling 500 Mbps link or selling 5 GB or an OC-12 link because you already have the network capacity there.”

So if managed services have higher costs and are more complex to deliver, how are they serving as primary growth drivers compared to networks and data? According to this expert, it’s because of the stickiness they create with customers. Data and networks are the foundation on which additional services are built, and as companies add more and increasingly strategic services, the connection between provider and customer becomes stronger.

Here’s an overview from the interview of what the managed services portfolio looks like for a telecom provider like AT&T:

“The portfolio of services for wireline is basically data. That’s the MPLS network and the internet . . . Then you have the advanced or strategic services where you have things as security, things as IP telephony, other things like LAN management, those sort of services that go on top of the wireline service that are layered over the wireline data link. Then, we have the mobility service, the individual, the devices that you sell for them. Then, you have the advanced mobility services or the services that you can ride on the mobility network, for example, IoT, the Internet of Things. It’s a big part of the enterprise services and also a very good potential growth and creates stickiness with the company. The growth is going to come from the strategic services, security, IP telephony, LAN management, network integration services, and the advanced mobility. The data and the just regular mobility lines, those are the two areas, the two parts of the portfolio that are always decreasing or there’s zero-sum in the market.”

And there are ways for AT&T, Verizon, and the like to make managed services more profitable with intentional strategic focus. Software services, for instance, yield higher margins because they scale better than device-driven services. Outsourcing, too, is key to keeping the cost of human resources down to increase profit.

“. . . the whole business of managed services is based on outsourcing all the human part. There are service centers that are in other countries that subcontract to other vendors. If AT&T wouldn’t do any outsourcing, forget it. The managed services wouldn’t be profitable at all.”

What’s next for telecom

One of the most interesting insights from this expert interview is the comparison between the future of consumer telecom and enterprise telecom. The juxtaposition between growth drivers for each — data for consumers, and managed services for enterprises — highlights why these business strategies, while both critical, require such separate efforts within the organization.

Here’s an overview of the consumer business landscape:

“The strategy on the consumer [end] is growing the data. It’s the opposite of the business because in the business side, it’s been decades that companies have had wireline services, network services, whereas in the consumer side, the Internet penetration has to continue growing.”

“[For example], banks always have had networks that interconnect all the different branches. You always have to have that decades ago since banks operate on a network basis. The fact that you buy more bandwidth or you change providers, that’s a different story, but you always have that network, whereas homes have never had a network and internet connection before. There are more homes, more consumers that are buying Internet services. That’s where the growth is. That’s why AT&T is building up infrastructure fiber, so you can provide a high bandwidth.”

“For example, in my building, I live in an apartment building. Five years ago, we didn’t have fiber from AT&T, so the higher services that we would have was 20 Mbps of Internet services. They build fiber, and then they offer that to the residences, and now I can get 100 Mbps.”

“. . . before, with 20 Mbps, I would have been able to surf the web and maybe work from home and all that, but I wouldn’t be able to have a service like Netflix . . . I wouldn’t be able to have each of my children using Netflix or other services and each of them consuming bandwidth. You used to have your bandwidth for homes that was driven by the home. Now, the amount of bandwidth that you consume at home is driven by the number of people you have sitting at home. Each of them are doing their own thing because now, they have their own TVs, they have their own tablets, they have their own mobile devices that are accessing the Wi-Fi network to get into the net.”

For enterprise customers, established networks will remain a core component of customer loyalty:

“I would say that the stability comes from the install base that you have, meaning there’s a big cost for companies to switch from one provider to another. It’s a really big pain. The bigger the client, the more complicated it is to switch providers . . . if you look at it from another perspective, it’s a commodity service like buying electricity. If you have the presence where the company is, it is unlikely that you’re going to change the power company that provides you power.”

“. . .  while managed services will continue to drive growth. This is reflected in evolving contract models between telecom providers and enterprise customers.”

“It used to be a three-year only. The minimum was three years. Now, the minimums are 12 months. Because they’re sticky services, most of them are still three years. What they have in one year, we negotiate and see. ‘I’ll give you more business. You give me a better price if I buy more services’ . . .  Even switching to a one-year or lowering the minimum hasn’t impacted retention at all.”

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