One of the most-formidable challenges any service provider faces in today’s market is a radical shift in business model and revenue sources. Consider Creative Interconnect Communications, which sells Ethernet connections and hosted IP telephony to business customers in the San Francisco Bay region.
In 1975 Creative Interconnect was selling phone equipment to residential customers. By 1978 it was selling phone systems to small and mid-sized businesses. Along the way it transitioned from analog to digital switches, then, after the Telecommunications Act of 1996, become a competitive local exchange carrier and an Internet service provider.
By 2007, though, the company made a careful review of its business strategy, and didn’t like what it was seeing, namely that it was having a tougher time making a go of selling and supporting business phone systems.
“We didn’t want a declining business that was just harvesting its cash flow,” says Bill Wilde, Creative Interconnect president. Instead, the company decided it had to get into the Ethernet access business, and transition to fully-managed IP telephony services, decisions that required a complete revamp of its technology approach, business practices, pricing and support models.
“We decided it was best for us was to do a greenfield build, completely new, as though we were a start-up,” says Wilde. The company now operates completely in the IP domain, with the exception of the TDM trunks it must use to hand off traffic to other carriers.
All access is handled using Ethernet, even when Ethernet is delivered using a T1 physical layer, and all voice services are handled using the MetaSwitch Network platform and MetaSphere applications. All new customers are supported on the new platform, and the company has been moving existing customers off an old TDM switch and onto Ethernet access, with plans to decommission the old switch in the near future.
“We didn’t think we could bolt on a softswitch and make it work,” Wilde says. “We had to start clean.”
You might wonder why Creative Interconnect decided to buy a MetaSwitch platform instead of any other option available to the company. There were a number of reasons, says Wilde. “We had decades-long relationship with Adtran, so we wanted them for Ethernet. They have a close relationship with MetaSwitch, so we figured we’d encounter fewer interoperability problems that way.”
The cost of making a decision also was important. “We are a small company,” says Wilde. “We can’t put a committee of five on this for six months.”
“You need reputation to do the heavy lifting,” Wilde says. “The people we’ve known that bought MetaSwitch were uniformly happy, and when the time came for actual proposals, MetaSwitch provided the best value in terms of total cost of ownership and support.”
“Some people might think the proximity of their offices was important,” says Wilde. “That wasn’t it. They won on the merits of the value proposition.”
Also, the company was viewed as stable and in the market for the long term, an issue that typically is important in a turbulent environment.
Wilde also has some advice for other companies considering similar moves to hosted IP telephony services. “People tried to tell me this was going to be a big change, but I still didn’t get it,” says Wilde.
“After 30 years in the business, I knew nothing,” says Wilde. “It was humbling.” In a sense, Creative Interconnect “didn’t know what it didn’t know” about IP telephony, primarily that “most local area networks are in terrible condition.”
“We didn’t think it was such a big deal, though we were warned,” he says. “Even if the customer’s wiring is good, the configuration is horrible.”
“They are accidents waiting to happen,” says Wilde. “Having to remediate so many problems in the LAN was the biggest headache.” But the company learned how to do the LAN diagnostics and remediation in house.
That actually wasn’t part of the business case the company had foreseen, and “was a surprise.” He would not change any of the company’s decisions, but Creative Interconnect underestimated what was involved in getting hosted IP telephony to work in an actual customer’s setting.
There have been changes in terms of service packaging and customer support, as well as billing practices, he says.
The support model has changed, for example. The high-availability core network, with terminals in field, means the company organizes its support efforts differently. The company can serve more customers with fewer support personnel, and updates are automatically loaded twice a year, without having to dispatch a field staff to make the changes manually.
“That doesn’t happen with a PBX approach,” Wilde says. Because the unified communications updates are transparent, the company doesn’t have to upgrade customers location by location.
The other angle is that the company now can sell service to some customers that would have been prohibitively expensive in the past. “Even though not focused on real small offices, we can do it and still be profitable,” says Wilde.
The company’s real specialty is businesses with multiple locations, so it now can supply the same grade of service and features at every location, something it could not always do in the past.
“All sites have same rich features, but are not loss leaders for us,” he notes. In the past, that sometimes was the case: to get an account, the company might have to serve some locations at a loss.
Also, “we have cut out layers of complexity,” Wilde says. That’s important because “complexity kills a company like us.”
The company’s marketing challenges actually have more to do with explaining why Ethernet adds value, more than anything else.
“In our circles, customers are sophisticated much of the time, but even then, haven’t thought about Ethernet,” says Wilde. “There’s a customer education process nine times out of 10.”
“We don’t use the term latency, but in explaining the value, use the analogy that Ethernet is like stuffing five pounds of flour in a two-pound sack,” he says. “Customers get that.”
They understand they get more actual throughput when upgrading to two physical T1s, when they use Ethernet.
Creative Interconnect generally relies on leased circuits, but is planning a series of small targeted builds to places where it makes sense, he says.
The company also uses its own billing system, and early on discovered that it was selling flat rate services rather than needing to meter. That allowed Creative Interconnect to rework the basic billing functions first, while adding the other rating tasks later.
About the only thing that hasn’t changed in some fundamental way is the target customer base. These days, the products, support model, revenue model and marketing methods are fundamentally different than they were in 1978.
The point is that it is possible for a small company to make a huge transition of business model and revenue from analog phone systems to Ethernet, IP and hosted communications.
“I like to think it’s the model of the future,” says Wilde.
