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- Networks and Telecommunications: Design and Operation, Second Edition.
Martin P. Clark
Copyright © 1991, 1997 John Wiley & Sons Ltd
ISBNs: 0-471-97346-7 (Hardback); 0-470-84158-3 (Electronic)
46 ~ ~~
Public Networks and
Telecommunications
Service Providers
Historically, telecommunications networks have been run by state-owned organizations, who have
operated as legally protected monopolies. These organizations tended run telecommunications
to
in a manner similar other public utility services (electricity, gas, water, etc.), providing only a few
to
very basic services, but in a reliable and well-engineered fashion, and available at almost any
location to anyone who cared to apply. Recently, the trend has been to ‘privatize’ the established
‘publictelecommunicationsoperator’(PTO)andallow new operators to setupnetworksin
competition. The objectives in so doing are to improve the quality and diversity of available
services, while simultaneously reducing unit costs and attracting private capital investment; in
other words there is an attempt to make the PTOs more commercially responsive. Where com-
petition is now a reality, the public telecommunications operators (PTOs) are forced minimize
to
running costs to work at maximum efficiency and so keep their prices competitive. In addition,
PTOs are forced to adopt a much more commercial attitude towards marketing and business
strategy. This chapter reviews briefly how some of the basic principles of marketing may be applied
to a telecommunications marketplace and in addition outlines some of the PTOs’ options for
business development.
46.1 COMPANY ‘MISSION’
Like any good business, a PTO needs to define its business objectives clearly, including
its overall mission and its strategy for achieving it.
A typical mission of a PTO might be:
0 to provide a sufficiently diverse range of telecommunications networks and services
to meet business (and/or residential) customers needs
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0 to provideservices of highquality at afairpriceandtooperate in an efficient
manner, developing the business to sustain growth in company earnings
0 (possibly) to accept an obligation to serve the community at large, providing tele-
communications remote
for areas, other
and specialized services forminority
groups, including the handicapped
0 to establish and maintain a certain market share
The mission needs to be sufficiently clear to motivate company staff appropriately, but
sufficiently flexible to allow for change in business circumstances.
Realizing the company mission and determining day-to-day strategy is the task of
company management. Each of the various functions and organizational departments
need to be kept working in concert - serving their customers. It is no good having a
brilliantly well-designed product orservice, if the customers for whom it intended are
is
so unaware of it that they do not buy it. Similarly if it is far too expensive, not well
enough made, simply too difficult to purchase, or if the customer service is poor, then
customers will not want to buy it.
46.2 IDENTIFYING AND ADDRESSING THEPTO’S MARKET
The first part ofaPTO’smarketingprogrammemustbe to identifyacustomer
requirement. A good deal of insight, imagination and research is required to analyse
potentialwaysinwhichacustomer’sbusinesscan be improved by aproduct or
service,in returnforpayment.Theproductor servicemay makethe customer’s
activity easier, more effective, cheaper, more enjoyable, or may be attractive for some
other reason.
A large PTO will be wise to maintain a balanced portfolio of products and services.
Dependence on too few products leaves a company prone to rapid loss of business
whenever there is a sudden and significant change in market demand, or when a rival
company rapidly introduces a much better product. Nonetheless, each product must be
of
clearly defined in terms the customers need that serves.In classical marketing terms
it
this means getting the four P’s right: product, price,place and promotion. In PTO
service terms we interpret these as follows:
46.2.1 The Product
Telecommunications products (or services) shouldnot be specified only in termsof their
technical characteristics; the quality and customer service aspects the product should
of
be defined as well. The ‘quality’ is not only the service or manufacturing quality, but
also the target in-service reliability and back-up measures any). The customer
(if service
arrangementsshouldincludeanynecessaryenquiryservice, and thestandardand
expected speed of repair should be defined.
- IDENTIFYING AND ADDRESSING THE
MARKETPTO’S 833
46.2.2 The Price
Price is an important consideration in the customer’s final decision whether or not to
purchase. The customer may be unable to afford too high a price, no matter how ‘fair’
the price may be for a very high quality product. Paradoxically, however, too low a
price may produce customer perceptions of a low quality product.
As a first estimateof a suitable price, it valuable to undertake a ‘cost-plus’ analysis.
is
Figure 46.1 illustrates the costs and revenue associated with a given product. Costs
includefixed costs and variable costs. Fixed costs are those costs that are notrelated to
sales volume. For the telephone service, the fixed costs are the costs of the telephones
and the exchanges. These items are needed by all customers, irrespective of how many
calls they make.
The variable costs include those associated with the lines interconnecting different
exchanges. The number of circuits provided (and so the cost of them) can be adjustedto
costs
and
revenue
Number Break
even o f units
Less I sold
units f- I More
[loss) 1 units
I (profit)
Figure 46.1 Determiningproduct price
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match actual
the inter-exchange demand.
call Othervariablecosts
include those
associated with staff costs (service level could be adjusted), administration, etc.
The revenue from the telephoneservice is the total money collected, and it is equal to
the total numberof call minutes times the price charged per minute. The relationship of
costs and revenues is as shown in Figure 46.1.
The break even point shown on Figure 46.1, is the point at which the revenue just
equals the costs. At this ‘point’, sufficient products (i.e. calls or whatever) have been
made for the company to break even. Selling fewer units than this will result in a loss.
Selling more will generate a profit.
The number of units that have to be sold to break even can be adjusted, by adjusting
the price charged for each unit. The higher the price charged to customers for each
‘unit’, the smaller the number of units that need to be sold in order to break even. This
is also illustrated in Figure 46.1.
The degree to which the number of sales is sensitive to price is known as the price
elasticity. Normally, one expects a lower price to attract more sales and a higher price
to deter sales; but different products have different price elasticities, so that with some
productsa higher has price little effect on number
the sold, whereas for other
commodity products the only important factor in the buyer’s decision may be which
competitor’s product is the cheapest.
46.2.3 The
Place
The place at whicha productor service is available is also important.For some
products, customers’ loyalty will make them travel long distances to purchase a given
‘brand’ of product. For other products (for example, foodstuffs) the customer is likely
to choose from the brands available on the nearest supplier’s shelf (e.g. supermarket).
The placeelementofatelecommunicationsmarketingplanneeds to lay out the
geographic availability of the service (for example ‘lines are available nationwide’ or
‘lines are available in major cities’). The plan also needs to lay out the location of sales
and customer support staff, and the method by which customers may ‘buy’ the service
(e.g. by going to the local telephone office, or by calling a freephone number, etc.).
46.2.4 Promotion
Promotion is the means by which the intended customers of a productor service get to
hear about it. Including ‘advertising’ and ‘publicity’, the reader willbe familiar with
many techniques used in this field.
46.3 PTOPRODUCT
DEVELOPMENT
Duringproductdevelopment, it is helpful to developaset of documentationand
proceduresdetailingtheproduct,itslaunchandsubsequentsupport.Onepossible
means of doing thisis by means of a ‘product manual’. Suggested topics to be covered
in such a manual are given below.
- PTO PRODUCT DEVELOPMENT 835
46.3.1 Product Manual
e A full description of the product (or service), describing its customer applications
and itstechnicalattributes,
including precisely how customers’ equipment is
connected to the network.
e The
competing products internal
(both products
and those
of
competing
companies); the expected product lifetime,and the changeover strategy for products
which it is planned to replace.
e The geographic availability of the product and any relevant service availability or
‘upgrade’ dates.
m The expected reliability of the product, and the methodology for
pre-service and in-
service quality assurance monitoring checks.
e The price of the product and any discounts; the warranty,service, maintenance and
regulatory conditions.
e Safety and Technical Standards may need to be declared. Customer premises
equipment ( C P E ) may have to be type-approved for connection to the network.
Data protection regulations may apply to the computer storage of personal data
(e.g. addresses) and further regulations are
likely to govern communications secrecy,
i.e. maintaining the confidentiality of information or other messages carried on
behalf of customers.
m Is the product to be sold by direct sales or will an agency outlet be used? What
advertising and promotional methods will be used?
e Is the product tobe sold and transported to thecustomer’s premises (e.g.an item of
CPE)? Or does it need specialized installation, in the case a network access wire
as of
to the customer’s premises (for a Network service)? Products and back-up spares
should either be freely available to meet the demand of customers or be deliverable
within the target lead-time.
e Ordering times installation
lead and durationtimes need to be determined.
Resources need to be allocated, and training given to company staff. An ordering
procedure should to be established.
0 Salestargetsand incentivesneed to beset. An exhibitionsuiteisneeded to
demonstrate complex services, and shops are needed for retail sales. A full price list
must be available.
e Records of customer names, and of the applications to which products will be put,
can be invaluable. For example, knowledge
the that telephone
line is used
predominantly in conjunction with a facsimile machine may help maintenance and
network design staff.
m A telephone number is needed for customer enquiries and fault reporting.
0 Adequate training needs to be given to all staff, and reference information made
available.
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0 Means and procedures are needed to measure the ongoing performance of the prod-
uct, not just in technical, quality and reliability terms, but also from the marketing
and sales perspective, and in financial viability terms.
0 A proper procedure should be established for updating the product manual.
46.4 PTO BUSINESS DEVELOPMENT
Finally, we consider the directions in which the world’s major public telecommunica-
tions companies are likely to evolve and develop their business over the next few years.
Historically,mostPTOswererestrictedtoprovidingtelecommunicationsnetwork
services within a single country, with international extension of network services made
available as a result of bilateral agreement between two or more PTOs.
Figure 46.2 illustratestypical
a spread a
ofPTOs currentactivities, the
with
predomination of business in thehome country.
Most business is in ‘basic
the
interconnection market’, though there is growing business resulting from international
traffic interconnection, and there may be a considerable source of income from CPE
sales and value-added services.
From this position, PTO
each must develop business
its strategy,takinginto
considerationanumber of factors,including size, legal constraints,thedegree of
deregulation in its home market, the sophistication of its customers, the degree of its
network development and its capital resources.
One PTO may decide that its appropriate short termgoal is simply to make its
established business grow in financial terms, without a significant change emphasis in
of
1 Information technology
and value -added service
markets
c PE
sales, cellular
radioetc.
Home country \ Overseas
markets market *
lnternational
traffic
Main business
i n basichome
market telecomms
Basictelecommunications
interconnection
market
Figure 46.2 Typical PTO business (late 1980s)
- PTO 837
itssphere of activity. In thiscase, the activity and resources of thePTOcan be
concentrated on developing the sophisticationof its established network, on increasing
itscoverage area (perhaps by increasingthe proportion of households with a tele-
phone), and maybe by diversifying the number of basic services offered (for example,
by introducing a packet switched data network). In support of this strategy, finance is
needed for network developments, modernization, research and development (R&D)
and product innovation in the home market, and revenuereturnaccruesfromthe
expanded home customer base, until the point of home market saturation is reached.
In contrast, some of the world’s large PTOs, already operating in deregulated and
well developed home markets, appear to wish to diversify their business into other
spheres of activity. Opportunities for diversification include the specialist international
service markets, and the whole field of value-added and information services. It seems
possible that by the early 21st century a small number of major PTOs will have grown
into large international conglomerates with spheres of business activity much wider
than their previous operations. Notably British Telecom (BT), AT&T,France Telecom,
DeutscheTelekom, MCI,Sprint,Unisource (a joint ventureofthe PTTs of the
Netherlands, Sweden and Switzerland) andCable & Wireless appearto havethis
goal. Figure 46.3, illustrates an example in which a PTO’s business is diversified over a
large range of markets throughout the world, with steady and balanced growth in each
of the markets.
How will these companies achieve thislevel of expansion? Well, their first stepwill be
the generation of spare cash from their established business. Then, diversification into
the new markets will come about by financial venture in those countries where new
deregulation permits it, by joint venture or by simple company acquisition. We can
@ Balanced business
expansion
t Informationtechnology
and value -added service
markets
Basictelecommunications
interconnection
market
Figure 46.3 Business sphere of major international PTOs (mid to late 1990s)
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thereforeexpecttheestablishmentoracquisition of anumber of PTO subsidiary
companies.Largelyautonomousat first,thesecompaniesmay be keptsmall and
dynamic to cope with the initial market entry, but will be able to call on the massive
resources of the parent. Later on, fuller integration of the subsidiary organization into
the main company structure may help further development of the company’s ‘core’
business. EachPTO’s primebusiness and itsprimecompetitors will constantly be
changing. We may see majoralliances of PTOs withtelecommunicationsmanufac-
turers, computer hardware and software suppliers, and may even see enormous PTO
conglomerates, operating in a numberof regions of the world. Aspirations to become a
‘global’ PTO have already been demonstrated by a number of PTOs, which have sought
variously to infiltrate overseas CPE markets or to run foreign networks on a franchise
basis.
Some PTOs are already in close joint cooperation, specifically aiming to meet the
telecommunications and value-added service needs of the world’s multi-national corp-
orations. This is a crucial market, since the top 60 corporations have annual turnover
between E 10 billion and E100 billion, and valuable telecommunications business. PTOs
will ignore this business at their peril.
In Europe we can expect a fight for the domination of the single European market
( S E M ) in the European Union and a ‘goldrush’-like scrambling between western PTOs
as they attempttocapturemarketshare intheunder-developed parts of eastern
Europe. The fight for the North American domestic market is already raging and the
gloves are off for the world market battle! A major business conflict in prospect, and
is
we can expect some of the world’s major PTOs, as well as some computer and tele-
communications equipment manufacturers, to get bruised on the way! Let the fittest
company survive!
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