Moving from bandwidth provider to service provider

I’ve written a lot about the distinction between bandwidth providers and service providers. For incumbent local exchange carriers, it’s not just semantics: The difference has a real impact on their futures.

I’ve written a lot about the distinction between bandwidth providers and service providers. For incumbent local exchange carriers, it’s not just semantics: The difference has a real impact on their futures.

To recap, bandwidth providers offer low-margin, undifferentiated services that serve as building blocks from which users can craft solutions; service providers offer higher-margin, customized services tailored to users’ needs.

What’s the difference? Customer focus. To offer bandwidth effectively, a provider has to have outstanding operational efficiencies, which means making simplified assumptions about customer desires. Remember Henry Ford’s axiom that a customer can have any color he likes so long as it’s black? That’s the mindset.

To offer services, a provider needs excellent customer intimacy. That means more than just understanding how well a customer likes what he’s buying – it means knowing why he’s using your services and coming up with new services that meet those needs even better.

Now even though it might surprise some regular readers, here’s a good word for the ILECs: They have a natural advantage as service providers, if they would only recognize and act on it.

For one thing, they have the best information on users’ purchasing habits.

An example: Any household that purchases more than two phone lines probably has either a) teenage children; b) a demand for high-speed Internet access; c) one or more adults who occasionally work from home; or d) more than one of the above. Why not put together a service bundle that includes high-speed Internet access, a VPN product and maybe bundled local and long-distance service for a flat-rate monthly fee?

Admittedly, regulation hinders ILECs from offering many of these differentiated service offerings. But here’s a radical thought: What if the ILECs focused their lobbying on fixing those regulations, instead of expending millions of lawyer-hours on challenging unbundled network element-platform pricing?

Or an even more radical idea: What if an ILEC agreed to purchase the network elements across which it offered these services from a third party (maybe even the cable companies). Then the ILEC could use its customer service and marketing muscle to provide the bundling and customer support in exchange for a share of the profits? Competition is fostered, customers are served, and the ILEC slowly but surely migrates out of the bandwidth business.

Getting into the service business requires that kind of “out of the box” thinking, including a willingness to consider the idea that what you thought of as your core service is actually something that you can purchase more inexpensively from someone else.

Two additional notes:

In a recent column, I misrepresented the sponsors of MPLSCon. It’s actually managed by Trade Show Management Corp., under the able guidance of Irwin Lazar.

Second, thanks to all who wrote about Nemertes Research. To find out more about us and what we’re up to, please check out our Web site at www.nemertes.com.