Evolution of Competition

Historically there has been tremendous competition in the telecommunication services industry as evidenced by a consistent 25 year pattern of falling prices. Falling telecom prices has driven usage, validating the economic theory called the elasticity of demand. With lower prices, people/businesses made more phone calls, connected more sites to their network, increased their data bandwidth and invested in mobility solutions and advanced devices. These actions in turn brought more people to the Internet and wireless connectivity which beget even more demand for telecom services. All I can say is “Wow” when I reflect for a moment how competition in telecom has revolutionized the way we live, work and play.

I remember pre-divestiture of the Bell Monopoly, when a great deal on long distance was $.50 per minute in 1983 dollars. If you were a huge Fortune 50 enterprise, the large carrier I worked for at that time would cut you a real deal at $.39 per minute. Adjust these prices for inflation into 2009 dollars and the great deal of 1983 would be $.75 per minute today! The data side of the telecom industry is just as extreme. Just 10 years ago, a T1 point-to-point circuit from New York to LA could easily cost $15,000 per month. Today that kind of connectivity and bandwidth can be had for hundreds of dollars and with a lot more functionality and inherent value. Indeed, the breakup of MA BELL ushered into being real competition that has led to dramatic quality of life and productivity enhancements that have revolutionized the world.

The newest frontier of competition has been wireless, which has also been transformed in this decade especially since numbers became portable in late 2003. Remember being jealous of your neighbor who had the clunky $750 contraption installed in their car? Now everyone has a cell phone and wireless traffic has surpassed that of wireline in many countries around the world. The legacy RBOC entities (AT&T, Verizon and Qwest) are now rapidly losing residential lines as people are accustomed to using their mobile phones instead. An entire generation has now been raised without believing in or depending upon a landline to stay connected. With the mobility explosion and linkage to an ever evolving Internet and innovative services like Skype, the wireless industry has been turned upside down.

What About Competition Today?

The collapse of legacy wireline carriers earlier in this decade and the consolidation into a handful has led many to falsely believe that competition is no longer alive and well. Granted, there is less competition, but enterprises that believe there is none will get poor results in their sourcing initiative to validate their false belief. In the past, enterprises reaped benefits by sitting back and letting the competition come to them. The best prices and the pioneering contract terms and support provisions have never been freely offered, however, in today’s climate, it is paramount that the enterprise seize the initiative and take their needs and demands to the suppliers. The days of carriers throwing money at customers to win business without being coached, enticed or motivated are over. World-class deals are secured only by recognizing the competitive forces that exist in the market and executing a sourcing strategy that fully leverages these dynamics. Competition remains alive and well in the telecommunications industry. but the buyer bears a much bigger burden in terms of leadership of the process.

Competition comes in several forms. The big stalwarts AT&T and Verizon still seek growth, especially for their enterprise segment. Negotiation leverage played correctly works well as it just takes two to tango, yet this is more than a two horse race here in 2009. There remain several viable players, Sprint and Qwest most notably, as well as many other credible suppliers that focus on certain segments of the industry like local access, audio conferencing, VOIP, MPLS and plain vanilla long distance. Few enterprises should put all their eggs in one basket. Utilizing multiple suppliers provides diversity with the added benefit of a readymade source of leverage when it comes time to re-negotiate or rebid telecom services. Capable, strong suppliers remain to compete and offer competitive solutions for enterprises that understand the market and these supplier capabilities. As budgets get tightened in this tumultuous financial climate, enterprises must adapt to the changed competitive environment and take matters into their own hands. Savings and enhanced productivity and service value are there for the taking for those that understand the new market dynamics.

Wireless remains a very competitive segment with the two dominant players AT&T and Verizon having to remain sharp and focused on price, service and support to fend off the inroads of the secondary players including Sprint and T-Mobile and to defend their turf against the others. All these carriers recognize that to take market share away, they will need to overcome the obstacles of new equipment/devices and ensuring an orderly and seamless porting of existing wireless phone numbers. Incentives, performance guarantees, dedicated personnel, equipment rebates, employee benefit and other creative programs are available and all negotiable items. Do not let a limited frame of reference into these possibilities lead to missed opportunity. Wireless prices are coming down; I don’t care what your sales rep is telling you.

Beyond negotiating price structure and price level, these other contractual benefits and incentives are infrequently pursued by enterprises and rarely freely offered by the suppliers. Proper positioning, coaching and application of competitive leverage is necessary to drive the carrier behavior that results in a world class outcome. Incumbents should re-earn the business on the merits of their total program offer and fear of change should not be allowed to restrict enterprise sourcing actions.

Conclusion:

Telecommunication industry competition has adapted from the heyday of the past yet remains alive and well. No enterprise should roll over and play dead; in fact the economic collapse has created new opportunities that go against conventional wisdom. Ignore these opportunities at your own financial peril. Enterprises need to seize the initiative and take the action and their demand directly to the carriers. Based on my long exposure to the industry, every time a new precedent setting price was established, competition was being leveraged 100% of the time. Pioneering new price points don’t just show up on their own, they must be elicited via competitive leverage.

Rather than lowering expectations in sourcing and negotiations given the evolution in the industry, I would encourage enterprises teams to raise them. The key to any negotiations is defining leverage and the key to defining leverage is knowing all your competitive options and fully engaging the alternatives into your evaluation and decision making process. If there was one takeaway from this blog post besides understanding that competition remains strong and healthy it would be this:

REMEMBER: YOU HAVE MORE LEVERAGE THAN YOU THINK

Pete Wilson, is CEO and co- founder of TelAuthority LLC. A 20-year veteran of the telecommunications industry, he brings a unique perspective to the dynamics of carrier pricing, cost structures, procurement processes and negotiation strategies for large enterprise sourcing initiatives.