Contents
Executive Summary
An Alcatel partnership is a viable
business, but not for new entrants into the telecommunications industry. The hypothetic scenario of starting a small
busines and partnering with a large manufacturer will only work by joining an
exising business. The structured method
of starting a partnership seemed attractive with its channel manager helping
with a business plan, providing training, marketing, and technical service. Existing partner advice, Alcatel channel manager,
and suveys indicate that a small business would not have the resources needed
to compete for product sales.
Alcatel is a French manufacturer of
telecommunications products. Indirect
channel selling through a partnership with a reseller is a common way to sell
products. Cisco, for instance, sells 90%
of its switches and routers through its indirect channel partners. Alcatel sells converged telephone systems,
which allow businesses to integrate voice, data, and video into one
system. The manufacturers are driving
this product into market to displace current phone systems and features and
advantages are a hard sell. Despite lack
of obvious advantages, older telephone systems will not be supported and these new
ones will take their place. Alcatel’s
converged telephone system will compete against Nortel, 3COM, Avaya, and
Toshiba.
Partner satisfaction survey results
show no significant differences between Alcatel and its competition, although
they did score higher overall. 20
questions each worth 5 points, pertaining to satisfication, such as rating the
level of customer service, marketing, and training from the manufactuers were
given to three static groups. Alcatel
was one group, the other manufacturers such as Nortel and 3COM was the second,
and the control were businesses with no partner affiliation. Alcatel was first compared with the control
group to determine if partnering is advantageous. Alcatel scored higher than the control group,
but the variance was not statistically significant enougth to determine that an
Alcatel partnership is a better business than a business without a
partnership. Testing continued, although
the hypothesis has been disproven.
Alcatel channel manager and
existing partners provided supplental evidence to decide against the business
venture. The US channel manager
indicated that partnerships to sell Alcatel products can only be done by
already established businesses. Alcatel
headquarters does not make this stipulation, but the US channel manager’s
subjective remarks still served as a clear barrier to entry. Existing partners added that the price of a
partnership, with all the test equipment, was around $300,000.
The decision to start a partnership
with a manufactuer came about after studing the telecommunications industry and
finding no other entry. Alcatel was
chosen over other manufactuers because of its reputation with Verizon as the
number one equipment supplier.
The choice of business propositions
can be understood by looking at the trends in telecommunications. Except for incumbant local exchange carriers
(ILECs), the telecommunications industry was deregulated in 1996. The ILECs still faced enumerable government
obstacles to degregulation, such as forced unbundling of their network to
competitors for low prices. The ILECs
did not want to invest in new fiber optic networks if they had to sell it
without a profit.
The competitive local exchange
carriers (CLECs) thought they could make a fortune buy investing huge amounts
of money into new networks. Most of the
CLECs went bankrupt as the demand was severely overstated. The CLEC stock market crash coincided with
the dot-com stock market crash. Om Malik
refers to a group of executives as the “Broadbandits” for their overstating
their telecom companies worth and stealing its money.
As we are recovering from the
recent unfavorable trends in the telecommunications market, finding a prospect
for a telecomunications business was difficult.
Working directly for Verizon or another ILEC is not possible due to RFP
procedures that do not offer enough business opportunity. The Alcatel partnership has good
qualifications. The partnership
satisfication survey deemed an Alcatel to have above average qualifications in
finances, competition, product versatility, ease of startup, and employee
satisfaction.
The recommondations of the study
are in the form of a marketing plan. VP
of S. Co., a South Carolina Alcatel partner was examined in the plan. The company wants to diversify and make a
transition from data to telphony. Their
opportunies include a broader market range and an accepted product, the threats
are to what degree will the product be accepted and how will they compete
against EPS, another Alcatel dealer in the Carolina area. Alcatel is positioned with medium-high prices
and and average quality, based on Business Communications Review research. Its strategic advantage is having partners
such as S.Co. with strong personnel and strong customer relationships. Some of S. Co’s key employees are military
veterans who deal with the US Navy on a daily basis.
Chapter One –Introduction
The purpose of this chapter is
to give the reader an overview of the barriers to entry when starting a new
business in the telecommunications industry.
The reading analyzes telecom trends from the carrier’s, manufacturer’s,
and reseller’s point of view. The
government regulates many of the innovative products these companies sell,
which influences the entrepreneurs decision to go ahead and support the less
restricted channel marketing businesses.
The text uses the terms
‘partners’, ‘brokers’, ‘new small telecommunication businesses’, and
‘consultants’ interchangeably.
This chapter will raise research
questions that most new companies have to face:
How to create a successful business and minimize risk? And, How to
compete against well trenched competition? (Limon)
Management problem
How can a new business
support and facilitate telecommunication customers in a profitable way?
Market segments
are difficult to enter. There is no incentive
to start a small company to compete against the baby bells as examples have
shown that many small carriers, such as Northpoint and Rhythms, have failed
during the economic downturn. (Sewell,1)(Borland,1). Growth in the less mature mobile sector is
not as susceptible to the economy as local phone service, but mobile revenue
growth has been steadily declining.
Broker and
consulting companies who support small and medium sized businesses (SMBs) can
only succeed if hard fought contract bids can be won, but spending is
down. Companies are spending only for
necessities. “The budgeting/expense
problem is going to be with us for some time,” sys Bill Levine, CIO AXA
Financial. “The days of the late ‘90s
when money was flowing are probably gone forever. In those days, we capitalized a lot and now
we are paying the mortgage. (O’Donnel
, 22)
Industry Trends
Bill Clinton
signed the Telecommunications Act of 1996 that deregulates the industry and
makes it more competitive. Now, any
telecom company can compete in any US telecom market it likes. Qwest and other incumbent local exchange
carriers (ILECs) are no longer protected from competition. Competitive local exchange carriers (CLECs),
cable multiple service operators (MSOs), and long distance interexchange
carriers (ICXs) can now compete for subscribers that were off limits
before. For instance, Cox Communications
can sell local digitized phone service and compete with Qwest’s monopoly. (Green, 4)
In order to break
up the ILEC monopoly, special requirements were put on Verizon, Bell South,
SBC, and Qwest to prove that they are allowing competition. They may enter previously restricted markets,
like long distance, after there is at least one facility-based competitor
established and selling local service within the state of application. Other requirements include: Fair
interconnection fees to competitors and unbundling of their network at
wholesale prices.
The telecom markets are opening
up, but breaking up the monopolies has met with little success. In fact, since 1996 ILEC consolidations have
increased leaving only a handful of local telephone companies, a landscape that
is looking closer to the Bell phone monopoly throughout the 20th
century. The long distance companies are
not making any breakthroughs outside their normal business either. “The major long-distance
carriers, including No. 1 AT&T and No. 3 Sprint, haven't made much of a
dent in the Bells' dominance. MCI offers local service in just 11 states and
had about 1.5 million customers at the end of last year” (Backover, 1).
What the
telecommunications industry needed was a breakthrough technology that would
give all telecom companies the chance to gain subscribers. Digital subscriber link (DSL) technology,
which speeds up Internet connections at an affordable price, was marketed in
1996 and was suppose to be that competitive breakthrough. DSL was actually invented decades ago at a
Verizon affiliated laboratory, BellCore, and like many inventions formulated in
large setting, commercialization of products needed the stimulation created by
competition. (Tzuo, pp. 21-28).
ILECs, IXCs, CLECs, MSO, & Satellite Carriers
Incumbent local
exchange carriers Bell South, SBC, Verizon, & Qwest, customarily known as
regional bell operating companies are still leading the industry in revenue
(ntia) despite attacks from government regulation, competitive local exchange
carriers, interexchange carriers, and multiple system operators. Global Crossing was founded after the
Telecommunications Act of 1996 leveled the playing field for competition
allowing new entrants into the market.
Instead of competing with the bells as was their original purpose,
Global Crossing and other competitors got distracted by the dot-com frenzy of
the late nineties and created get rich quick schemes of their own leading to
unethical practices. (Om Malik, 63)
“Internet traffic
doubles every 100 days” was a myth that started the pouring of billions of
dollars into broadband companies. When
the demand did not meet expectations, Global Crossing swapped bandwidth with
competitors and put this down illegally as revenue on their income
statement. CLEC CEOs, encouraged by
commission minded stock analysts, did everything they could to inflate the
telecom stock price and unload the stock before the company went bankrupt. While executives got rich, many
telecommunication employees lost their retirement. Former Global Crossing vice president Roy
Olofson blew the whistle on Global Crossing, “While I was on leave, I learned
that Global was having a very difficult time meeting its [2001] first quarter
revenue projections. I learned that
Global ultimately was able to meet its numbers in part due to some large, last
minute transaction where Global swapped IRU capacity [illegally] with other
carriers.”
This type of
business practice caused hardship, but the competition it created was an
agitator for commercialization of broadband technologies. The bell companies, cable company MSOs, and
satellite carriers were encouraged to bring new high-speed Internet
technologies to the market faster. “Like
its predecessors, the radio, railroad, airline, and automobile bubbles, the
broadband bubble will soon become a distant memory.” (Om Malik, 83).
Geography, Footprint, & Growth
Before the
divestiture of AT&T in 1984, there were 22 Bell companies. After the divestiture, the landscape looked
like the following:
(Bell)(Backover2)(Rosenberg)
Consolidation continues as Bell
Atlantic merged with GTE and Nynex becoming Verizon. SBC bought Ameritech, Pacific Telesis, and
namesake Southwestern Bell Corporation.
US West merged with Qwest.
Financial Snapshot
| World
Telecommunication Statistics 2003 |
| Revenues have
reached an all time high of $1.37 trillion |
| 1.2 billion fixed telephone lines |
| 1.3 billion people carry mobile phones |
| 665 million people have access to the internet |
| Consumer spending on telecommunication is growing faster than any other
industry. |
(Economist, 1)
Value Added Reseller Trends
The telecom
industry has been in an upheaval during the last few years 2001-2004; layoffs
have become commonplace. After two years
of employment at Avcom, Rob Wolfe, who ran the successful East Coast business
found himself on the unemployment line when the twenty year old company
shutdown due to potential financial hardship.
The job market is saturated with architects, operators, technicians, and
cablers who share Wolfe’s fate, but instead of leaving destiny to chance, some
destitute engineers are going into business on their own starting value added
reseller companies providing channel distribution, which is the key sales
mechanism for Microsoft, Tanberg, Lucent, Best, and HP. (Zarley, 6)
(Doyle, 18) (Wright,
1)(Follett, 8)(Spark, 1)(Butler,
1)
Wolfe made plans
to purchase the East Coast unit from Avcom using his personal savings. “At 7 a.m., we got the call that Avcom was
shutting its doors and by 9 a.m., I had articles of incorporation written up
for AvcomEast,” Wolfe says. “The opportunity was too good to pass up.” (Wright,
1) Wolfe will add more
complete turnkey solutions for his customers compared with the way his former
company’s strategy and he believes in VAR success. Wolfe maintains, “It sounds unbelievable, but there's no
better time to do this,” Wolfe says. “There's a lot of opportunity in the
midtier solution-provider market. How could we do anything but start our own
business?”
Whether they call
themselves a dealer, a reseller, or a value added reseller (VAR) by
diversifying their product line, many small businesses are popping up that
resell name brand telecommunication products to small and medium sized
businesses (SMBs) despite the economy. (Falkag, 1). The
small business telecom reseller is becoming such a niche market because of its
value to the manufacturer that “channel partner” is now the preferred
nomenclature used by the manufacturer.
Manufacturers are rewarding channel partners for sales that major
manufacturers like Microsoft would have been unable to reach. According to VARMagazine, “Microsoft counts
on them [VARs] for 90% of its sales”, and gives cash rewards for top
players. (Doyle2, 24)
Are the VARs satisfied with their program?
VARMagazine polled
VARs in August of 2003 and asked them to rate their level of satisfaction with
the manufacturer they represent. The
following figure shows aggregate results by satisfaction and dissatisfaction
percentages for the top five manufacturer programs. Synnex was the leader with 44% satisfaction
of respondents who use this channel compared with 8% dissatisfied and 48%
undecided.
(VAR Survey1) Notes: Remaining respondents were neutral. Base: 61 to 119 responding VARs for each
distributor in July. Source: CRN Channel
Satisfaction Survey.
The biggest
concern for the small VARs is the level of support given to them from
manufacturers compared with the national larger scale VARs. The national companies are doing high volume
hardware sales and taking the service and support side of the business
too. The service and support side of the
business is what the smaller VARs are most interest in and Nortel is addressing
this issue by directing its smaller firms to converged data and voice
markets. “[Converged market] require
high levels of services and customer satisfaction be successfully
implemented”. (Follett2,
5). Nortel is also
revamping its reward program by hiring a third party to rate VAR customer
service strengths in addition to just sales volume.
The following
figure shows that, per CRN poll instructions, if you subtract the dissatisfied
from the satisfied IBM small gets a score of 28 compared with 35 satisfied for
large. Partners often complain about
marketing and sales and Microsoft has recently started a MS funded interactive
direct mail program to correct this. (Lahey, 18)
(VAR Survey2) Notes: Remaining respondents
were neutral. Base: 451 to 484
responding VARs for each vendor over the four-month period from March to June
2003. Source: CRN Channel Satisfaction
Survey.
Low margin is a
concern. The VARs have additional costs,
such as installation and custom configuration, and lower volume due to
competition. Product costs are
considerably higher for the VAR compared with the manufacturer. Microsoft CEO Steve Ballmer feels that
lowering its prices will not increase sales, rather pumped up support by
product training and production research is the way. (Doyle2, 24).
Case
Massachusetts’s
BlueSocket, a wireless local area networking (WLAN) company, recently added a
partner program that handles 100% of its sales and found that their third
quarter sales results equaled their last year aggregates. (Lingblom, 33). “Its [results] are attributable to two things
– the quality of our partners and the efforts of our partners.” says channel
marketing manager Bob Blatchford.
(Lingblom, 33).
BlueSocket
competitor John McIntyre from Southern Business Communication says that
BlueSocket’s success comes from its smaller size and its agility in serving
smaller companies with quicker response times.
“They [larger vendors] have quite a waterfall of products to deal with
whereas Bluesocket has been able to focus on a critical area.” (Lingblom, 33).
BlueSocket answers
to the many critics who complain about lack of face time by sharing the cost of
sales and marketing and doing this at events where common values concerning
mutual interests are expressed.
According to Blachford, “This kind of face time [personal engagements]
means that partners receive repeated firsthand exposure to information about
BlueSocket’s products and what it takes to sell them.” (Lingblom, 33).
Financial Survey
VARMagazine
conducted a survey of financial information showing 39% of surveyed grossed
over $10 million. They reported that
large VARs met their goals while 45% of small VARs said their sales were short.
(DeMarzo , 1)
(Markowitz, 1)
Overview of Business Problem
Competition & Market Saturation
A steadier outlook has replaced
the telecommunication industry’s stock market downturn. "The industry has entered a new phase that
is much more a maturity phase than a growth phase." explains Cable & Wireless chief executive Francesco
Caio. (Economist, 1)
The bankruptcies of Global
Crossing, 360networks, Williams Communications, Viatel and WorldCom remind us
to remain cautious of hyper-growth yet aware of opportunity. After two years of chapter 11 bankruptcy
Global Crossing has emerged again with less debt, “We’ve fundamentally
restructured the business and moved it away from one that was entirely
wholesale and based largely on IRUs [indefeasible rights of use] to one which
is accounted for on a service revenue basis,” says Global Crossings director
Phil Metcalf. (Wieland,
10).
Despite a calm exterior, a closer
look at the US industry shows slower penetration rate and high
competition. IP service is a substitute
for local telephone service, which is a completely saturated market due to
maturity and commodity pricing. Long
distance competition has also priced product low. Lisa Pierce, VP and research fellow at Giga
Information Group says companies can make large contracts with carriers for
huge savings. “You can get dedicated for
under 3 cents a minute; I have seen some switched rates at around 3.1, 3.2
cents.” (Krapf,
24)
Mobile telephones, which have a great
market following, simply cannot sustain growth.
Forbes magazine recently ran the headline “WIRELESS LATELY HAS ALL THE
APPEAL OF A TOXIC WASTE dump. Market penetration is nearing 50% of the U.S.
population, meaning slow growth ahead…” (Lambert,1)
New products such as broadband
have a penetration rate of 41% and 74% of Internet users for homes and
businesses respectively, but the growth has been stagnant. The problem with broadband growth is not that
we cannot reach high acceptance rates, but that we have slow growth. US has low acceptance rates compared with
Korea, Hong Kong, and Japan. 93% of
Internet users in Korea use broadband and Japan is leading the way to voice
broadband from copper connectivity. (Roach,1)
Regulation
Americans have
prided themselves on their democratic government and free enterprise. Competition is the key for customer
satisfaction in terms of both lower prices and higher quality of products and
services. Competition drives to continually
lower production costs while maintaining quality.
Ordinarily this
system works fine on its own, but in the telecommunications industry, the
government has had to step in and regulate business in order to ensure
competitive fairness. In 1983, the
AT&T monopoly was broken up into nine regional bell companies. In 1996 the government continues its
oversight and the Telecommunication Act signed by the President Clinton gave
every telecom company the right to sell any product it liked, but limited the
regional bell companies.
The only major
stipulation of the Act was that Verizon and other local carriers had to open up
their network to resellers at a wholesale price, well below the fair market
value (unbundling). This was an attempt
to break up the telephone monopolies.
Early on the cable
companies seem to be exempt from having to unbundle and this gave them a huge
competitive advantage in broadband high speed internet sales and telephone
services.
If our free
enterprise system if made of natural activity without government interference,
is it ethical to put regulation on the local telephone companies? Is it fair to regulate them and not the cable
companies?
Regulation hurts
progress and keeps companies from spending money to upgrade their system if
they know that they will just have to unbundle it at unfair prices.
Choice
Despite the intent
of regulation to open up barriers to competition, it seems like a daunting task
to create a new business in the telecommunications industry. The new business product is narrowed to the
three growth industries, mobile phones, broadband, and IP services. (Economist,
1) IP services eases the integration of
voice, data, and video, by allowing all three to run on a single circuit,
lowering the business cost.
After the choice of product to
offer has been decided, the problem of how to compete remains. Finding an opening to compete against giant
telecom companies, and a myriad of midsize competitors is a challenge. The
ability to start a venture, add value, market a product, and skillfully run a
business is difficult.
Main Research Question and/or Hypothesis
Can a structured
partnership program from a reputable manufacterer be the best way for a small
business to enter the telecommunications industry? A follow up question is: Can the researcher
create a business test market to measure the results of a proposed
partnership? In other words, can the
results from surveys, given to businesses, show acceptance of products and
services that the partner will sell to companies?
The independent
variable in this case is the stimulus of creating and marketing a business
based on a formal process of understanding and acting on customer needs. The dependent variable are contracts
established or in the case of the study, evidence to support success.
The partnership
creates an abstract training and marketing layer that is conducive to obtaining
feedback. Partnerships, especially
multi-party arrangements, have all their resources in a single place. For example, all partners contribute to a
joint marketing fund and receive benefits such as member directories. The directories can be used to poll opinions
on how well the manufacturer is doing to provide its resellers with ability to
sell products.
Success can also
be measured by the degree to which the solution satisfied the customer’s need,
which leads to the choice of sub-research question 1.
Sub-Research Question 1
Can a new business be created to support and facilitate
companies by brokering out third party telecommunication products and services
to companies based on their needs? The
ascertation of a company’s telecom needs are through a study of purchasing
trends and the study of telecommunications and data communications
manufacturers.
By partnering with
a major reseller, customer needs are already available and embedded within
manufacture’s product lines. For
instance, partnering with CISCO would involve paying registration & fees,
training, and reselling products that are pre-established or promoted by CISCO
as customer favorites. This turnkey
operation is in contrast to starting business without partnering with a
manufacturer and having to survey customers on their telecom purchase
decisions. It is much easier to have a
manufacturer know what IVR systems, Aspect systems, or some type of
processor-based switch is popular.
Sub-Research Question 2
How can a marketing plan
demonstrate a successful entrepreneurship?
While a marketing
plan in itself does not demonstrate success, the favorable opinions of business
leaders surveyed and interviewed will demonstrate acceptance of a broker
business and confidence in the marketing plan.
The marketing plan (kmb chapter 5) relates strategic marketing concepts
to a broker startup, and explains the “4 P’s of marketing (price, place,
promotion, and product) within the thesis case (MKT646 PowerPoint).
Research Objectives:
l Measure trends
in the target market industry (telecommunications) for use in deciding what
businesses are hot.
l Verify target
market (any business) needs.
l Choose
brokerage services best suited for the target market by understanding the
positioning of the competition and determining strengths and weaknesses
(drawing upon this information to present a stronger case and offering the best
available support services). (RES601)
l Demonstrate a
marketing plan for the particular business of choice
**********************************
Measure trends in the target market
industry (telecommunications) and the broker industry.
Verify target market (any business)
needs.
Choose brokerage services best
suited for the target market by understanding the positioning of the
competition and determining strengths and weaknesses (drawing upon this
information to present a stronger case and offering the best available support
services). (RES601)
Contrast a successful marketing
strategy using a predefined target
market with a marketing strategy that has no
predefined target market (qualify customer needs versus product focus). Demonstrate a marketing plan
Scope of the Study
In order to solve
the problem of starting a broker service firm to support business’s ability to
grow its customers base, interviews and surveys will be used to gather
information from telecommunication providers, resellers, telecommunication
customers, brokers, and general businessmen and women. Magazines, books, journals, annual reports,
provide background information of the telecommunications and broker firm
industries.
Glossary:
Chapter Two – Problem Context
Literature Review
WIU research began
as a managerial study of telecommunications, particularly the formation of
unique strategies for Verizon following the 1996 Telecom Act of deregulation,
leading to increased competition and the need to diversify lines of
business. For example, instead of
providing simply local telephone service, Verizon now offers cellular
telephones, broadband business applications, fiber optics, and long distance
telephones.
Central office
switches, trunks, and billion mile of cable that make up the US telecom
infrastructure are owned by the four remaining regional bell operating
companies (RBOCs) Verizon, Southern Bell, Qwest, and Bell South.
Legislation to force RBOCs to
unbundle and sell off their networks to competitor means these companies must
diversify their offerings in order to maintain customers.
This study is a
reactionary study because the theories would certainly not supercede the dozens
of doctoral telecommunication experts and managerial executive expertise that
now guide Verizon.
To make the thesis
case more interesting and anticipative rather than reactionary, the tactic is
to create a small business in anticipation of telecommunication customer needs
and to support and facilitate these needs.
To start a business that can have an ensured market share from
inception.
An example of an
ensured market share would be in the healthcare industry supporting HIPAA, the
healthcare act with strict regulations for compliance to meet timely, standard
claim responses. Business has created
dozens of projects and jobs to help agencies comply. For instance, demand creates jobs to automate
the workflow and imaging of documents that will enable a healthcare
organization to make the transition to a post HIPAA environment easy. Managers create companies like KnowledgeLake
and Datacap, or already formed companies changed their specialty to market
products especially for HIPAA and health organizations. Interaction Information Technology Inc. of
Scottsdale creates HIPAA 834 transactions, which is key to claims processing
In the
telecommunications industry, the search for a product in anticipation of a need
has been the focus of this study and partnering with Alcatel will provide the
point of entry. Alcatel provides and
manufactures thousands of products and services including Digital Subscriber
Lines (DSLs), switching equipment, IP services and voice integration systems,
3G mobile telephones, and security for all sectors of business including oil
refineries, public transportation, and the US Navy. Alcatel products will be delineated in the
following sections. They are categorized
as broadband because they take advantage of a large volume of data transfer.
In a
post-regulated environment, the Federal Commications Commission (FCC) considers
broadband a new and non-regulated entity with growing popularity. Alcatel offers registration and certification
programs for reselling its broadband based Omni product line to businesses
ready to work with the next generation of voice and data solutions these
products provide. Alcatel was chosen as
a partner after they achieved notoriety from contracts with Verizon to produce
broadband telephone-switching equipment in 2002.
Alcatel is truly a
global corporation operating in 130 countries with 99,000 employees
(VZ-Alcatel, 1) offering voice video and data (triple play). The company is headquarted in France. It is broken into three categories: land line
(fixed) technologies, mobile technologies, and private technologies (vertical
technologies). Alcatel is losing money
(Dec 2003 results) with its handsets and its optics business, but it has
agreements planned with other companies and is hopeful about market economic
upturns. (Alcatel-Ref) The mobile
architecture business, which deals with cell sites, is doing well, despite poor
handset sales. Alcatel is a leader in
broadband, a common technology throughout all its business categories.
*Other telecom manufacturers also had a net loss
(Motorola (2.485 billion)). AFC 2002
annual
report recognizes industry wide loss due to
poor market for comm. equipment.
(Alcatel-Ref) (Motorola, 5)
DSL/FTTP
The following
figures are an overview of DSL and Fiber to the Premises (FTTP). The simpler diagram is of DSL showing wired
and wireless computers connected to a DSL router which is connected a DSL modem
and out to the internet. DSL runs over
regular copper wire; the same wire which transmits the usual telephone signal
and is split for dual usage. Proper
equipment also needs to be set up in each neighborhood central switching
office.
(HomeNetHelp)
The fiber optic
view is from a deployment angle showing new builds, AKA greenfields, having
buried lines connected to optical network terminators (ONTs) or
destinations. For brownfields, or
existing structures, the two lines between telephone poles represent overlays
to existing copper lines. For overlays,
the carrier will string fiber alongside older lines. In some overlay situations fiber optics will
go right into the structures, and in some cases it will stop at the curb and
then the carrier will splice it into existing copper for the last mile. These are called hybrid or fiber-copper
installations. Optical line terminal (OLT) shown is switch used for
fiber optic channel sharing.
(White)
The optical
network terminators (ONTs) make up the major portion of the onsite equipment
(OE-II). This is contrast with the
onsite equipment for DSL (OE-I). A
customer upgrading from DSL to fiber optics will require $1,500 of new
equipment to get to the level II status.
Telephone companies pay this cost.
The cost should go down with economies of scale.
Market Niche
The following
figure is a timeline of product generation technologies. It shows how the new products are developing
and at what point a new broker will come in and attempt to gain an ensured
market share. Ensured is defined as
least risk to obtain a medium profit.
In retrospect, an
example of a low risk venture would be in mobile telephony during the 1996
cellular telephones craze. If a business
were created to support this growth in 1996, there would be a guarantee of
market share. The manufacture of covers
to fit onto cellular telephones, for instance, would be a success. This type of venture looks at:
· Being an opportunist and how this fits into
creating a business
· Using foresight and formal business
strategies to understand and take advantage of an opportunity.
The following
figure shows that despite the fact that AFC has won a recent fiber optic
contract with VZ, Alcatel continues to produce IP Services including telephony
and DSL. Notice its position in the
preceding diagram between business services and fiber optics. IP services using DSL and high-speed cable
are the technologies of today, while fiber optics has not yet arrived to the
customer site. For this reason we will
focus our business plan on IP Services and DSL.
Alcatel
In
the US, Verizon leads the industry as the number one local phone company and
the number one cellular telephone company, but is not the leader for broadband
sales. Surprisingly Verizon falls behind
SBC for Digital Subscriber Line (DSL) sales and despite lowering its prices,
Verizon seems to be hedging it’s bet ten years into the future on fiber
optics. With the industry looking
forward to the enhancements fiber optics brings to voice, video, and data
applications, and the high penetration rates for high speed internet, perhaps
now is time for small business to join forces with a prominent vendor such as
Alcatel. Alcatel offers a structured
partnership program and sits between small business and Verizon.
In
2002, Verizon signed a contract with Alcatel to sell their IP switching
products to fortune 1000 business and government agencies. This move will give Alcatel a huge reseller
and provides Verizon customers with Genesys teleconferencing software. Genesys was originally a Verizon divested
company picked up by Alcatel. The
relationship between these two companies are so strong that in mid 2003 when
Verizon sent out a vendor RFP to obtain bids for fiber optic equipment the
media was sure that Alcatel would win another contract. (Alcatel-PR)
Advanced
Fiber Communication (AFC) won the bid.
Estimates are that AFC will see $40-$160 million dollars in additional
revenue. (Telephony) In order to be competitive many bidders
lowered their price in hopes of making it up in volume (LightReading). Verizon will take advantage of AFC and keep
their prices down as part of their plan combined with shuffling capital
expenditures from other units to keep stockholders content with minimal
increases in capx. (ConvergeDigest)
Alcatel
will have to rely on other business besides the major RBOC fiber optics
rollouts.
Vertical Growth Agenda
(Alcatel-Ref2) Alcatel is increasing its presence in
transportation, oil & gas, government & communities, retail &
distribution, and financial institutions.
This vertical focus, also popular by other communication manufacturers,
is a result of the integration between information technology (IS), software
applications, and telecommunications.
Jenna Thomas, marketing agent from AFC spoke about successful sales,
“[what is important now compared to five years ago when niche marketing was
still feasible] is componentized systems [standards] and vertical growth.”
(Thomas)
Alcatel
has typed four services that it feels are integral to specialty markets: Transport Solutions, Satellite Solutions,
Integration and Services, and Enterprise Solutions.
(Alcatel-Ref2)
Alcatel
feels that the vertical marketplace, vis a vis, selling to a diversified
customer base (eg transportation companies and oil & gas companies) rather
than simply telecom carriers such as the regional bell operating
carriers (RBOCs), allows them to meet the market’s integrated needs. Courtesy of Alcatel, the following Figure
demonstrates the services in the previous Figure mapped to the customer
(transportation companies and oil & gas companies, etc).
(Alcatel-Ref2)
For
example, oil and gas companies buy integration services (telephones),
enterprise solutions (networks), and satellite solutions, but do not utilize
transport services. The diagram leaves
fixed communication and mobile communication as constants and not as important
as the new specialized service targets.
Alcatel has over
100 transport service customers in 50 countries providing solutions such as
voice/data networks, information display, public address, traffic monitoring,
and security systems.
(Alcatel-Ref2)
(Alcatel-Ref2)
For the oil &
gas/utility companies Alcatel has 10 major customers including Esso and
Phillips 66. Alcatel provides services
for research and development, pipeline operations, and refineries &
distribution.
(Alcatel-Ref2)
Horizontal Solutions
Alcatel purchased
Verizon’s Genesys company which does customer relationship management
applications (CRM). CRM is an important
application in today’s business, profiling the customer for additional sales.
Alcatel divested
its optical company, which manufactures optical equipment such as microscopes,
in order to keep costs down while focusing on broadband services. According to CEO Serge Tchuruk, “[We will
provide] solutions for carriers who are concerned with revenue growth
opportunities in broadband access and mobile infrastructure and applications”
(Alcatel-Ref).
Sampling Alcatel’s Broadband Product Line
Product Name
|
Description
|
Picture
|
As mentioned in …
|
Alcatel 2315/2325 Hotel Sets
|
Phone handsets that work behind a pbx; part of Fixed
Communications (46%)
|
na
|
Sales Breakdown diagram
|
One Touch 331 Mobile Phone
|
Part of the Mobile Communication sales (26%)
|
Sales Breakdown diagram
|
|
Alcatel OAL Repeaters for
Submarine Systems
|
Allow for oceanic signals to be amplified. Along with the transportation industry,
part of Private Communications (28%)
|
Sales Breakdown diagram
|
|
Alcatel 7340 Home Optical Network Terminal -- ETSI version
|
An example of an optics product. This one provides an interface between the
home and the optical network
|
From the Annual Report diagram. Also shown many times on the FTTP diagram
|
|
Alcatel 2000 Litespan multiservice access/transport
platform with integrated ADSL
|
Provides DSL and TDM (time division multiplexing) services
over SONET (point to point networking).
Please see thesis glossary in appendix for definition and web site
links for this and other terms
|
From the Annual Report diagram.
|
|
SpeedTouch 350i DSL modem
|
The entire DSL product line has been handed over to
Thomson Multimedia
|
DSL diagram
|
|
Alcatel OmniSwitch 7000
Series for Enterprise (OmniSwitch 7700 and 7800)
|
LAN and IP telephone capabilities that allows virtual
circuits to be maintained for data & voice
|
FTTP diagram. Text
on Alcatel certification
|
|
Alcatel 1570 Optical Fiber
Distribution Network over HFC (FITL Broadband)
|
A family of products that includes splitters for Hybrid
Fiber Coax (HFC).
|
na
|
FTTP diagram
|
Alcatel 7340 Packet Optical
Line Terminal -- ANSI Version
|
Head end equipment manages the multiple two-way
connections. Connects to the PONS,
which creates the fiber transmission scheme.
Think of this unit as taking raw bandwidth and allowing it to be
formatted for fiber use.
|
FTTP diagram
|
|
Alcatel OmniPCX Enterprise
|
Key product giving intelligence and voice integration
(VoIP) to companies
|
Text on Alcatel
|
|
Alcatel 6650 NetTrac Central
Control System for Urban Rail Applications (NetTrac MT)
|
Answer to SCADA Supervisory Control and Data Acquisition
Systems. Tunnel ventilation, fare
collecting, etc.
|
na
|
Alcatel’s integrated solutions: European railway example
|
Alcatel 7385 Wireless IP
Antenna Unit - Radio Equipment
|
Links network backbone for receiving and transmitting
|
Real Time Video Security for Transportation Industry
(Terrestrial Wireless)
|
(Alcatel-Ref)
(kmb)Are companies this product diverse only in France?
Partnership (Alcatel-Ref)
The partnership is
not a partnership in the sense that two equal people are going into business,
but rather where one is in control and the other follows protocol and gets the
benefits of a large company. Benefits
include logos, procedures, instant reputation, and great prospects for
customers.
A partnership can
bring product to dealerships anywhere in the world, including war torn
Serbia. Telekom Srbija will partner with
Alcatel to provide the former Yugoslavian country with updated data and
telephone access. The Serbian general
manager remarked, “We have a long-standing, strong relationship with Alcatel which includes deploying
over one million lines in our national network…" (Serbia,1)
Applications
Alcatel offers new
and existing businesses the opportunity to join with them in a pseudo
partnership program. Alcatel
Applications Partnership Program (AAPP) gives its members and partners the
software development kits (SDK) and application program interfaces (APIs) or
points of entry to develop programs that will work with Alcatel switches,
office suites, and other products. When
an AAPP member builds an approved program, the ‘member’ status becomes a
‘partner’ level.
Application
partners receive technical support and use of Alcatel logos. Applications that meet the highest standards
receive the "Premier
Application" mark. There are
hundreds of applications listed in the application partner directory. For example, AudioCodes makes a fax over IP
application and their listing contains test reporting information and links to
their website for customer ordering.
(Alcatel-Ref)
AAPP program is
for software development shops that want to sell Alcatel integrated software
through Alcatel channels. Applications
and products covered include (put pictures next to each one- reference and
include acronym in dictionary):
Terminals
Operator
consoles, Blind operator consoles, SIP (Session Initiation Protocol)
terminals, IP gateways, audio conference.
|
Communication
applications
Mobility
IP
(Internet Protocol) wireless telephony, Notification server.
|
Management
Accounting,
service level management (SLM), user management and directory, network
management system (NMS), remote management system.
|
Security
Firewalls/
virtual private network (VPN), authentication, denial of service, system
protection and integrity, content security, IDS/IPS, vulnerability
management, security management.
|
Contact
Centers
Customer
relationship management (CRM) and helpdesk, interactive voice response (IVR),
quality management (QM) and voice loggers, work force management (WFM), wallboards,
headsets, small and medium Contact Center.
|
Vertical
markets
Hospitality,
healthcare, finance.
|
( Alcatel-Ref2)
Alcatel’s global training program
for partners offers hundreds of classes from ADSL Overview, IP Services
Ethernet and TCP/IP, to Omni switches.
To become an AAPP,
fill out the registration form, wait for approval, and make a capital
investment.
Fees
“Program member” membership fee, first year
|
1200
|
“Compliant Application” membership fee, first year
|
4800
|
“Compliant Application” or “Program member” membership
fee, annual renewal
|
1200
|
(Alcatel-Ref)
All dollar amounts are in Euros and
do not include product module fees which are separate and include charges for
equipment, and product information.
There are approximately eight optional one-time product module fees for
each of the three main products: Alcatel OmniPCX Enterprise (office IP switch),
Alcatel OmniPCX Office (home IP switch), and Alcatel OmniTouch (call center
application). Each fee is between 200
and12,500 euros and brings programming ability such as XML, or data transfer
ability, to a specific product. For
instance, the OmniPCX, routes calls coming into a business and calls can be
logged and transferred via XML to a customer relationship management
system. (kmb2 A call will put into
Alcatel to see if they offer modules for more than OmniPCX Enterprise, Office,
and Omnitouch – they have about 500 products including DSL equipment and an
electronic cable TV guide for cable companies, so they should offer more APIs).
Accredited Business Partnering
Terra Telecom, a
telecommunications reseller since 1980, says “Finally ONE company that can
handle all your communication needs…” and proudly display the Alcatel logo
acquired in 1996. This medium sized Tulsa, Oklahoma business sets up telephone
systems using copper and fiber optics and is among the 33 ABPP’s in the US.
According to
Alcatel the goal of the AAPP program is to ensure quality of service for
customers, empower the partner with training and support, provide a common set
of branded products with certified support, and to leverage the investment by
the partners. Partners are provided demos,
testing labs, and pre-sales support. The
sales support usually equates to an accelerated revenue breakeven point. Stacey, a representative from the sales and
marketing department at Fulton Communications agrees, “Yes, they are really
supportive [in the area of sales support]” (Fulton).
Each partner needs
to purchase “multimedia computers, Internet access office data collection tool,
DECT coverage tool, LAN analyzer and ACTIS as a configuration tool.”
(Alcatel-Ref) A DECT coverage tool is
used maintain higher acoustic quality phone connections. (kmb2 use the requirements pdf and explain
the last sentence (including what is DECT) and then talk about what else is
needed + talk about specializing –for example- in OmniPCX Office or other,
and explain what other products make up other. Talk about the prices. Get into “list of lab & demo packs
document”—that I can’t find – this document mentioned on web.)
Alcatel has is a
joint marketing and promotional co-op fund.
The fund is financed by licensing fees that come from training,
certification testing, lab fees, and support fees to the business
partners. The co-op pays for joint sales
and marketing activities. Commercials,
convention advertisement, magazine ads, web site partner locaters, and lead
generation campaigns, are marketing channels paid for by the co-op. According to Alcatel’s hype, “They’ll
[pre-sales tools, sales & marketing programs, and the co-op] assist you in
developing new market segments, qualifying leads, and most importantly, reduce
your cost of winning business.” (Alcatel-Ref)
Pre-sales tools, or ACTIS software, are used to configure and propose
solutions. (kmb2 ask partners or Alcatel
what the pre-sales tools, sales & marketing programs are and if they work—I
think the sales and markt pgms are the conferences, advertisements, and online
search)
Channel
communication is Alcatel’s invitation for its partners to events and
conferences where relationships with partners and between partners are
strengthened. Sharing ideas on how to
use the Business Partner Logo, other ways to attract customers, and building a
support desk are discussed. Each partner
will grow their own help desk to support customers, based on Alcatel’s
leadership.
Certification
There are three
levels of partnership: certified, expert, and premium. These are contracts with partners ensuring
that they offer their customers technical support 5x8, 24-hour or 2-hour
callback for severe problems, on-site service, spare parts, issue escalation
resolution, and call centers. With the
help of Alcatel, certified, expert, and premium partners provide the same basic
service. The differences between these
categories are how many and types of certified individuals are required per
amount of product sold. For instance, to
be a certified partner, you need one Alcatel Certified Switch Professional and
one Alcatel Certified Switch Expert for every 3 million Euro of business with
Alcatel products. For the premium
category an additional expert is required.
Business Requirements
The business
requirements for partnership are that each partner submits a profile, business
plan, and marketing plan concentrating on which level of partnership they want
to provide. The Alcatel Channel Manager
is dedicated to helping write these proposals.
(kmb2 ask Alcatel about how much help an ACM provides). While there is no online registration similar
to the applications business partner program, an Alcatel Channel Manager will
assist in the process.
Partner Choice
Other companies
such as iamba, Motorola/Quantum Bridge, Microsoft, and Lucent offer partnership
programs. After solution developers test
and meet standards, Microsoft has a program where they license their name and
procedures to contracted businesses. Lucent
has a more specific focus on telecommunications and offers all the key attributes
of a prospective partner host including training and certification classes,
Lucent technical support, and a variety of products to resell. Motorola also offers the structured
partnership with a description of the program and online registration, while
iamba offers a less structured approach; they have no description of their
program and do callbacks to interested companies. Salira Optical Networks also does little in
the way of advertising.
Despite the
importance of standards, training & certification classes, technical
support, and products, the key attribute of a host in a partner relationship is
reputation. Alcatel was considered the
front-runner in Verizon’s list of vendors to contract with for fiber optics in
2004. September 8th Telephony
magazine titled the contract bids “the mother of all RFPs” (Gubbins,
1). Alcatel’s lead in such
a large bid an indication of QofS.
Nineteen of the candidates researched for this study, like Alcatel, were
considered because of media attention and their reputation for excellence. .
(Hardy, 1).
All the partners
considered were given a Percentage of IP Technology Offered rating based on the
ability to provide unified messaging, hosting, content delivery, VoIP, and
VPNs. As shown in the 2005 Expected
Worldwide IP Services Revenues figure, IP can be broken into five categories of
IP Services. Unified messaging which
allows an employee to have single point of entry to her fax, voice mail, and
email. Hosting is providing the hardware
for services usually for an external business or consumer. AOL hosts email for example. Content delivery is the act of caching
information for high volume customers.
While Voice over IP (VoIP) is transforming our local/long distance
telephone calls to a data network, virtual private networks (VPNs) are
transforming private frame relay networks into cheaper Internet based networks.
(Moore, 256, 479-484)
Structured
partners hosts Nortel, Sprint, AT&T, & Qwest were noted as being the
only companies that are carriers and own their own network. Many support carriers or consumer who utilize
carriers in some way.
Competitor
Matrix – Structured Partner Programs a
________________________________________________________________________
a Courtesy of respective web sites and calls to CSRs
b Annual Reports
c VZ & the media view some of these companies as
major vendors (Hardy, 15,41-42)
d Of these categories: “VPNs, VoIP, Content Delivery,
Hosting, & Unified Messaging”, what % of these services does the company
offer?
e Good partner program
f Probably yes
Cox cable, Time Warner Cable, and Comcast Cable do not offer
a structured program. (respective web sites)
(Sidebar) An Alcatel Partnership will profit
because..
|
|
Proposition
|
Empirical
evidence
|
Partnership programs demonstrate
successes.
|
Small KnowledgeLake company partnered with Datacap and was
able to contract with a large insurance company.
Licensed franchises, such as fast
food, have a reputation. This
reputation assures at least some customers.
(Vilchis, 67-68)
|
This particular choice of partner program is good.
|
FTTP articles (rhetoric)
substantiate. Articles claimed that
Alcatel was first choice in 2003 FTTP bidding.
|
The
lost FTTP Verizon account with its low bidding actually makes partnership more
viable. While everyone is gathered
around the AFC fiber optic camp, fewer vendors will crowd the Alcatel DSL
market. This means less competition for
a startup type partner who is interested in medium sized ensured returns. Despite not winning Verizon’s FTTP RFP,
contracts such as installing 27,000 telephone lines for Clark County School
District in Las Vegas Nevada are still coming in (Alcatel-Ref3). The choice to go with Alcatel is furthered by
the fact that AFC does not have an equivalent structured partnering program.
The Triple Play
(Supercomm2003) The East Asia market broadband penetration
levels have reached the saturation level and in deep contrast with the US
market where dial-up networking still serves half the population. It is an apparent that the future for telecom’s
are tied not only into voice, but also into data and ultimately video to the
under served market. Incumbent Local
Exchange Carrier’s (ILECs) data component is tied into its copper wire
infrastructure to provide Digital Subscriber Lines (DSL) broadband
service. This means until carriers build
fiber networks in 2005-2010, the vast untapped market relies heavily on the
copper wire infrastructure built by the ILECs.
Government
mandates ILEC sell cheap wholesale redistribution of voice and data over copper
lines that will break the ILECs hold on the local voice business. In order for these former Bell companies to
stay competitive, they must realign their business to accommodate data and
video. By providing voice, data and
video over a new platform built with fiber optics, government regulations do
not apply and free market pricing reigns.
Lower
costs to maintain multi channel data systems compared with older copper is a
long-term benefit. In Japan 2.7 million
customers have switched from their main carrier to an IP based phone system
because it is cheaper. Not only cheaper,
but fiber to the premises (FTTP) or fiber to the home (FTTH) will give true
video on demand with movie selection capabilities that will allow ILECs to
compete against the cable giants.
Verizon
(Rosenbush) Verizon is taking the lead with capital
expenditures of $20 to $40 billion for fiber-optic builds and upgrades promised
to every customer in their home territory over the next 10-15 years. According to Business Week, “[It is] a
project that might reasonably be compared with the construction of the Roman
aqueducts.” SBC, Bell South, and Qwest
will be sitting in the wings ready to follow suite if this ambitious plan makes
economic sense.
Already
Verizon has dropped prices 10-20% below cable companies for broadband Internet
in anticipation of fierce competition.
Cable companies have been stealing away local service customers from
Verizon’s cash cow and the cable companies are offering the triple play, voice,
data, and video, which is elusive to an ILEC without fiber-optics.
Ivan
Seidenburg, CEO of Verizon, is convinced that telecommunications will shortly
evolve into a completely broadband architecture, where voice, video, and data
all share the same line. Doctor’s will
be able to examine patients in rural areas with high definition video and
missed classroom lectures will become a thing of the past due to on demand
access. “The cable industry focuses on
entertainment and games. The [non-cable]
broadband industry will focus on education, health care, financial services,
and essential government services”, says Seidenburg.
Unbundling
(Supercomm2003) Unbundling of Network Element (UNE) is the
piecing apart of an Incumbent Local Exchange Carrier’s (ILECs) network
regulated by congress in the 1996 Telecommunications Act. ILECs have a monopoly and a network structure
in place that new entrant Competitive Local Exchange Carriers (CLECs) cannot
easily duplicate. In order to facilitate
new entrants congress made ILECs sell unbundled elements at wholesale prices to
CLEC resellers.
Total
Element Long Run Incremental Cost (TELRIC) determines the wholesale price for
unbundled network. TELRIC pricing hurts
the incumbent’s monopoly with its 50-60% discount rate, which does not factor
into the cost for switching centers and additional operations. With only half of the revenues received on
the sale of unbundled networks, there is no incentive to build out new networks
for either company. Under this policy,
the ILECs do not want to build knowing they will receive less profit and the
CLECs do not want to build knowing they can buy wholesale.
Legal Aspects
The
goal of the Telecom Act is to increase facilities based competition and
decrease monopoly. The telecom act
declares that unbundling is necessary if a competitor is impaired from entry
and if the result of regulation will be a financial gain to investors. Although many attributes of unbundling are
included in the act, the exact implementation of unbundling is ambiguous. The Federal Communications Commission’s (FCC)
first reaction was to declare that unbundling be mandated as long as it is
technically possible to do so. The
Supreme Court and the D.C. district court made the FCC better define “impairment”
to include situations where new entrants have economical barriers due to ILEC
first mover advantage, economies of scale, and sunk costs for an investor.
Nearly
eight years following the Telecommunications Act, the Triennial Review came out
to clarify new broadband issues that the politicians did not consider in
1996. US telecommunications market
deficiency compared with European countries led to further deregulation to
spurn growth. Of primary interest to
ILECs are the new rulings for broadband and voice.
In
accordance with earlier rulings packet switched data is completely exempt from
UNE. Voice data carried over copper will
still need to be unbundled for existing facilities only. Any new builds, such as to new housing
developments or office buildings, are completely exempt. Hybrid, or fiber to the curb with copper
wiring inside the facility, will require a copper voice unbundling when the
building is an existing facility.
“ILECs do not have to offer
access to greenfield (new developments) fiber loops or to the packet-switching
features of their hybrid fiber/copper loops.”
Any excuses that ILECs once had about delaying investment in their new
broadband facilities is now gone (ConvergeDigest2).
Verizon and other ILECs are
fortunate to see the government stepping out of the way in the new broadband
market. Verizon has already stepped up
its DSL and planned fiber optics rollouts.
This is great news in an attempt to catch up to cable companies who
already own two-thirds of the residential broadband market. The only negative is that the UNE and TELRIC
pricing remains, but this may be phasing out.
TELRIC pricing is a forecasted forward-looking number that considers
depreciation and cost of capital with risk of competition in pricing network
elements. As competition indeed
increases, UNE, TELRIC, and regulation will decrease. (Supercomm2003)
IP Services
History
(Hunt) In 1969, the US military Defense Advanced
Research Projects Agency (DARPA) was commissioned to create a packet switched
system to study communication. The US
scientists came up with a huge success called ARPANET, which became a heavily
used for government and unclassified communications. A separate MILNET was formed for classified
use only. In 1983, the term Internet
came into existence and referred to the aggregate of these networks.
The
military success was due to its enhancement of Transmission Communication
Protocol/Internet Protocol (TCP/IP) as an open standard. A transmission communication protocol (TCP)
is a set of software components that check for errors in the transmission of
data passing between remote machines.
More importantly, Internet protocol (IP) is the software that allows
data to pass between machines in a standardized way of assigning each packet of
data a unique destination address. IP
also defines the structure of the packets and handles the reassembly of data
after it has been received.
Because
of the open standard, the IP protocols define intranet communication between
PCs in a LAN, between servers in a WAN, between printers, between routers, and
just about any device that communicates with another. The modern Internet is embedded with the IP
protocol because it is not tied to a specific architecture, utilizes unique IP
addresses, has a published API, and continues to grow using the request for comment
(RFC) mechanism to collaborate with the community on new design. (Hunt, 12)
Products
IP
services eases the integration of voice, data, and video, by allowing all three
to run on a single circuit lowering cost for circuits and costs for switches and
components. Companies can now buy
components that have multiple uses.
“[the Cisco 7940 and 7960 phones] offer larger display fields and, most
importantly, an embedded, thin-client browser, enabling the user to access and
download information from databases via a pre-programmed menu screen.” (Sulkin,
22) Products that will take advantage of
integration include voice over (VoIP), virtual private networks (VPN) and
unified messaging, content delivery, and hosting.
(Lucent)
IP Issues
(Moore) In the real old days,
every circuit was a direct connection between telephones, but as the number of
telephones grew, direct connection was no longer feasible. Circuit switching became the standard way to
establish virtual circuits through a shared central office (CO).
(Moore, 127) As technology continued to evolve, circuit switching
is now making way for packet switching where circuits can be broken down into
finer grained data components for greater switch capacity.
(Moore,
132)
A regular telephone call on
the plain old telephone system (POTS) works with circuit switching, while the
newer IP telephone system sends data to a packet switch. In both cases, a circuit is established. Legacy circuit switching makes it easy for
the controller to log the circuits/calls for billing or tracing purposes, but
the new shared packet switching convolutes controlling or logging.
A 10-minute phone call
established between two parties that used to use 10 minutes circuit time, now
uses only approximately 6 minutes because any silences in the conversation are
bandwidth that is reused by other connections.
It is hard to tell where one call starts and another ends.
While IP technology’s has
cost savings it also produces a number of problems.
●Whether or not to regulate
in the same way that POTs is regulated and forced to unbundle
●E-911 calls over IP cannot
be traced as easily as a regular phone lines.
●Emergency operators cannot
automatically determine the location of critical calls for police or fire
dispatch.
●The FBI can no longer
wiretap and exercise their right to trace criminal activity.
●Carriers no longer have the
flexibility to bill on a usage basis.
When October 2003 Telephony
magazine asked, (Telephony2, 1) “How
should voice-over-IP services be regulated?” the majority 40% responded that
they felt that VoIP is new class of service and should be treated with
different rules. The rest felt that VoIP
is the same as the regular phone system or the same as the regular data
commerce (36% and 24% respectively).
In December 2003, Republican
FCC chairman Michael Powell agreed with the majority of the pollster by issuing
FCC intent to keep government hands off VoIP.
“I believe that IP-based services such as VoIP should evolve in a
regulation-free zone,” announced Powell.
(FCC, 1)
Other dissenting remarks
from the prospective of the RBOC came from Democrat Commissioner Jonathon
Adelstein, “…we can’t afford to just sit back and watch. It’s time for us to take the lead in getting
the regulatory structure right from the start.” (FCC, 1)
Powell is presently creating
a working group to deal with regulation and carriers ability to monitor VoIP. (FCC,
1)
Should VoIP be
regulated? Lawmakers see the need for
intervention to keep a level playing field so new commerce develops despite
monopolies or incumbent advantages. Over
the last few years, intervention and regulation have been a part of ILECs. Becoming a player in the local telephone
business required regulation and enforced unbundling since the ILECs controlled
the network and it would be unprofitable for a new business to start a new
network from scratch. The ILECs argue
that VoIP is new technology created after 1996 and the Act spoke about opening
competition for monopolies, not new products.
Terrence L. Barnich,
President, New Paradigm Resources disagrees with regulation. “If left unchanged [the idea of regulation],
these decisions [possibility that states will rule in favor of regulation] will
ruin upstart carriers, retard the development of VoIP, erode consumer benefit,
and derail the development of meaningful inter-modal telecom competition.” (Barich). The belief here is that the consumers will be
served better having competitive local exchange carriers (CLECs) utilizing
their own packet switches on their own networks instead of wholesaling with the
RBOCs. Other regulation, such as forcing
the high cost of research and development for monitoring VoIP for E-911 and
tracing would put an unreasonable high cost on the carriers. A high enough cost, that some believe the
Universal Service fund contributions will be lower.
Universal Service section of
the 1996 Telecom Act states that it is necessary to promote quality of service
(QoS) for telecom products at an appropriate price to everyone rich or
poor. All telecom companies voluntarily
pay into a federal Universal Service fund for telecom installations at schools,
health care providers, and libraries.
Despite strong opinion
against regulation of VoIP, the Triennial review and future laws continue to
open the doors for competition even if the laws have to continue to break
monopolies. Even new green field fiber
optic technology that normally is exempt from regulation will not be exempt in
situations where a rural customer is being served by only a single local
loop. In other words, by means of the
Universal Service provisions, QoS and healthy competition derived from ethical
behavior, carriers will be forced to share their fiber optic lines in cases where
there are no other existing lines
Cable IP Services
In 2002, the FCC ruled that the cable-modem is an
information service and therefore not subject to the same regulations as
DSL. (Conrad) While DSL carriers must share their network,
the cable companies have been protected from competition; the result being that
companies such as Cox Communications who already enjoy a 3 to 1 lead over their
DSL counterpart, get to keep all the profits.
With this ruling, 2002 was a victorious year for the
cable companies. The ruling would allow
cable suppliers to worry less about competition, since there would be no
competition without regulated unbundling of cable. "It [non-regulation of cable ISP] would
encourage the burgeoning cable industry to develop new technologies--without
worrying about the related cost and red tape of government oversight."
said commissioner Kathleen Abernathy (Conrad).
Center for Digital Democracy's Jeff Chester offers an
opposing position in line with the RBOCs, "The FCC Chairman Michael
Powell...has struck a deadly blow to the future health of the Internet and has
given a great victory to the cable industry lobby. Cable will be able to become an even more
powerful media gatekeeper, controlling much of what will be digitally
distributed into U.S. homes” (Conrad).
While 2002 was a victorious year for cable companies,
2003 was not. In October (Brooks) a federal appeals court in
California overruled the FCC decision and ruled for regulation of the cable
companies Internet services. Now both
RBOCs DSL and the Cable's broadband are subject to regulation and controlled
pricing for wholesale carriers. The
appeals court feels that cable companies have set up their business to
disqualify competition. As to whether
this means a transition from simply an AOL being allowed to offer ISP services
to a full blown leasing of the coax will be determined by the FCCs reworking of
this issue.
Japan's Lead
In the last (Kawakami, 1)
two years Japan has seen an increase in VoIP subscribers from 304,000 in 2000
to 1.58 million in 2001. This is in
comparison to 200,000 in the US for 2004 (Davidson). Healthy competition is alive as Nippon
Telegraph and Telephone (NTT); the monopoly in Japan faces competition from
electric companies battling for IP services and fiber optic rollouts. Innovative large-scale fiber optic rollouts
were planned for Japan in March of 2003, while similar US projects were not
slated for completion until the first quarter of 2004.
Following Japan's lead with the same consumer desire
may not be possible. Rather US companies
have taken a different route, offering service level agreements (SLAs) that
encourage quality (Pappalardo, 1) instead of
quantity. Sprint refunds the monthly
service fees for its IP services if they fail to meet their contracted
metrics. Customers can monitor network
traffic to ensure reliability, keeping quality high.
In some cases more QofS responsibility is shifting
toward carriers that offer Network-based virtual based networks (VPNs). Network-based hardware is maintained at the
carriers’ location (Instat)(Allen, 1-2) keeping costly visits to
customer sites at a minimum. "I
think it would improve SBC's capability to serve us because they would be in
control of the equipment", says Eddie Huerta, MIS manager at TIB. (Carlson,
1)
IP networks are becoming more robust and comparable to
frame relay. Frame relay networks are
used by companies that have the capital to build their own networks, which they
know will be reliable. As IP networks
continue to come close to offering frame relay-type reliability, their cost
justifies many companies converting from frame to IP (Nwfusion).
Conceptual Framework
Studying the
telecom industry, interviewing existing broker service companies, and matching
these industries, can lead to the creation of a broker services company.
Induction can draw
conclusions from particular facts in the telecommunications industry. For instance, customer choice is made up of
customer satisfaction and public image.
The complete model as shown in Figure 1 can lead to an understanding of
what is important to telecom industry customers. Understanding what is important to customers
is key in matching broker services to a customer need.
Figure 1 makes the
proposition that customer choice, the obvious determining variable of success,
is not only made up of customer satisfaction, but also public image. For example, if a customer has a publishing
business, its’ author clients are more likely to remain loyal if the
publisher’s public image and reputation are branded and well known, such as
Wiley & Sons. The dark arrows depict
an inheritance relationship. For
instance, starting from the top of the diagram, every company wants to have
internal improvements, which derive from its ability to attract more customers.
Figure 2
illustrates a quantifiable comparison of an organizational state before the
assistance of a broker with the state after the broker assistance,
considering normal growth. Administering
a quality survey to the recipient or provider of service gives
quantification. For example, this thesis
survey asked, “Can you rate your service
received from your provider?” and more specifically, “How have the benefits of
services received outweighed the costs?”
The thesis view of
the telecommunications industry Figure 3 is focused on the telecom industry
customer and is made up of secondary sources and established trends, business
needs for future growth. In order to
establish customer needs, existing partners can be asked about which products
in their catalog have the highest sales.
The thesis view of the telecommunication industry is rounded out by
looking at current usage of brokers and a consideration into how long the
current trend in broker usage will last.
The broker, as perceived
in this thesis, gets its consistency from secondary sources as well as
interviews about competition, strengths, and weaknesses Figure 4. The broker will offer non-proprietary
services that the researcher can validate against local business. For example, while a telephone installation
is valued in any business, specialized technology such as a router or a switch
may not be of value. The thesis will
demonstrate how core competencies match to customer needs, how loosely coupled
services are popular, and how a marketing plan can demonstrate a successful
entrepreneurship.
Loosely coupled
technology is analogous to leasing capital expenditures instead of buying. A broker can keep a small inventory and
innovations are captured at the manufacturer level.
Chapter Three - Research Design/Methods
Categories of Research Design
Perspective
|
Action
|
Formal=Prove a hypothesis
Exploratory=Research an hypothesis
|
Research is primarily a formal study. Hypothesis has already been
determined. There is an exploratory
element in the determination of type of consulting firm to best
facilitate the customer. The
exploratory element exists in how much the customer is willing to assist
(interviews) in this process.
|
Survey
Observational
|
Surveys by email, personal interviews, letters, and
phone conversations will collect data on the customer’s needs, proposed
business selection, customer growth strategy, and proposed business marketing
plan. Interviews, for example, can be
conducted with small business in Phoenix to sample implementations. Observation of Blue Cross relations
with small business.
|
Researcher control of variables
|
Limited ex post facto.
Induction used for customer strategy variables. Business type choice and successful
marketing plan – ex post facto.
|
Purpose of the study:
Causal or descriptive
|
To show how a need can be turned into a successful
business (descriptive).
Particularly, how the customer’s own customer increase strategy can be
validated (causal) and how a prospective business can facilitate a
part of the Verizon strategy (descriptive).
|
Time Dimension
|
New business development strategy is cross-sectional,
while observations are longitudinal.
For example, large companies attitude to innovation, technology and
workflow over time has been observed at Alltel & Blue Cross. (Innovation, technology, and workflow could
be the area of expertise for a small business to develop around).
|
Topical Scope
Statistical-Hypothesis based on
qualified inference
Case – Finely focused on facts
|
Telecom industry analysis – case
Customer specific strategy analysis (my take on what the
telecommunication customer is and should do to increase their customers) – statistical
New business formation – statistical
New business marketing – statistical
|
Research environment
Field
Laboratory
Simulation
|
Telecom customer specific strategy analysis (my take on
what the customer is doing and should do to increase customers) – field
New business formation – field
New business marketing – field
Simulation will be used wherever modeling increases
data collection. For instance, in
profiling a telecom customer, customer x may be similar to customer y.
|
Method
This section presents the
methods used to interview and survey subjects.
It begins with the options in a social science study. It then
lists subjects and designs, materials, procedures, standards for
questionnaire administration, and validity and reliability measurements. (Wagenen, 66-72). The elements are then presented in detail.
Available Methods
According to
Robert Yin from Case Study Research: Design and Methods there are five research
methods: experiments, survey, archival
analysis, history, and case study. Each
method offers advantages and disadvantages in the way data is collected. The researcher selects the method most
prevalent to the research question (Yin).
Surveys and
archival analysis focuses on the “what”.
For instance, “what are the customer perceived problems with an
automobile dealership?” and “what has been the service record for the Toyota
over the past five years?” Surveys and
archival analysis are useful to predict circumstances such as the need to
improve automobile manufacturing quality.
(Yin) (Limon, 19-31).
Case studies,
histories, and experiments focus on the “how” and “why”. According to Yin, “This is because, such
questions mostly deal with operational links, which have to be traced over time
rather than frequencies or incidence.”
(Yin, 6) (Limon, 19-31)
Control is another
factor that differentiates the method type.
Experiments offer control over the stimulus which acts on the subjects
to be observed. For instance, a double
blind administered test gives an unknown stimuli to both groups. This control is crucial and in contrast with
surveys and other types of methods where control is less concerned with
stimulus as it is in maintaining stratifying data. (Yin) (Limon, 19-31)
There is a clear
overlap between design methods. The case
study method is used to answer the “how” research questions and gather trends
in telecommunications with a focal point being the relationship between partner
manufacturers and customers. Surveys
answered the “what” research questions, particularly, “[What is] the best way
for a small business to enter the telecommunications industry?
Elements
Practicing Alcatel
partners, customers, retail businesses, and the Phoenix Chamber of Commerce
were the subjects of the study .
Soliciting fair and confidential participation of these subjects
encouraged reliable results (standards for questionnaire
administration). Surveys were
administered through the mail to partners, customers, and businesses, and a
personal interview was conducted with the Chamber of Commerce (design). Important materials utilized include a
list of partner addresses publicized by Alcatel, partner lists from other
manufacturers, VAR Magazine model research (VAR Survey1) (VAR Survey1), and the QwestDex publication
–tm-. The procedure was to gather
appropriate information to prove or disprove the theory that an Alcatel
partnership would be a lucrative point of entry into the telecommunications
market.
Subjects, Design, & Procedure
Research Approach
Secondary evidence
suggests three major events that have shaped the telecommunications
industry. These events are: A lower
manufacturing rate compared with mid 1990 projections (Bivens) due to lower
business spending, the Telecommunications Act of 1996 and subsequent
modifications which regulated broadband and lowered sales, and the introduction
of fiber optics.
Since fiber optics
was the only event listed which has a positive effect in the industry, it was
sanctioned for a closer look. The study
revealed that 2005 would be a turning point in history for fiber optic
rollouts, beginning with SBC, Bell South, and Verizon leading the way by
putting out a 300 billion dollar bid to manufacture equipment (Hardy). Based on reputation Alcatel was the heavy
favorite to win the contract.
“It [reputation]
is a vital form of capital, as vital as money is a form of actual capital”
(authuenticbusiness). Having ruled out starting
a direct RBOC supplier business and a non-partnership reseller because of too
much competition, the Alcatel partner was analyzed due to its reputation.
What better way to
find out partnership satisfaction than to survey active partners. Customer surveys would approach the research
from the opposite angle. Company
profiles, product profiles, product margins, industry trend beliefs,
competition, start-up satisfaction, general satisfaction, and buying/purchasing
trends were gathered straight from the source.
Static Group Comparison
The static group
comparison is made up of two groups. The
experimental group is made up of practicing Alcatel partners and the control
group is made up of telecommunication retailers who are –not- associated with a
manufacturing partnership. Partner
membership (X) was the business stimulus that had already been applied to the
first group and observation (O1) was the outcome of partnership a satisfaction
survey, which was contrasted with the control group observations (O2). Since the two groups were formed
independently based on whether or not the groups were an Alcatel partner,
variable (X) was considered an independent variable not actually administered,
but having already occurred The measured
dependant variable were aggregate comparisons between the groups on questions
such as “Please mark the scale that represents your satisfaction with your
business?” and for starting the business “Did an Alcatel Channel Managers help
you create a business plan?”
X O1 X
=Alcatel Partner membership
---- O1= Survey results Alcatel Partners
O2 O2=
Survey results Retailers w/no
Partner Affiliation
Practicing Alcatel
partners and retailers who are not Alcatel partners answered survey questions
pertaining to marketing, product, and pricing for a new business, advantages of
the new business being a partnership, and measurement of financial
success. These questions refer to 1 , 3
and 8 (RQ1, RQ3, & RQ8) from the
research question.
A third group was
entered into study to increase the number of results and add more detail to the
findings. Partners of other
manufacturers, such as IBM and Cisco became the third group involved in the
Partnership Satisfaction measurement.
This groups results (O3) was contrasted with the Alcatel
Partners results obtained above (O1).
X O1
----
O3
One-Shot Case Study
Results of
customer satisfaction surveys were tabulated for three group. The three groups given surveys were:
customers of Alcatel Partners, customer
of other manufacturers, and customers of retailers with no partner
affiliation. In contrast with the static
group comparison study given to providers of service, each customer group was
scored autonomously and not compared with other groups. This type of business study was more conducive
for a customer satisfaction survey due to availability of Alcatel sample types.
X O
Customers are
concerned with privacy according to Kenneth Lewis CEO of Bank of America in a
National Privacy Conference speech.
“They [people] want the freedom to do business…without having to worry
about who is going to do what with their personal, confidential information
after the fact” (Lewis, 1). The effect
of customer privacy in the study was that samples of all three customer types
may not be represented and only intra-group comparisons are possible . Who the Alcatel customers are is private
information.
In addition to
partnership and customer satisfaction surveys, A New Business Key Success
Factor survey was sent out to general businesses and the Chamber of Commerce
(RQ7). The most up to date
entrepreneurship information to supplement publications was gathered; staff
from the Chamber of Commerce was interviewed on business prospects, marketing
advice, and government agencies that assist new business.
Procedure
Approximately 70
questions ,which measure the hypothesis, were created and collected. Each question was coded with an RQ1, RQ2, etc
in a one to many relationship with the research question it specifically
answers. The procedure of choosing the
correct questions for the surveys was a
matter of selecting from a finite set (<70 or the number of questions from a
particular group within the 70). The
alternative was to create a survey without having abstracted the creation of
questions beforehand. This would have
made creating the survey more difficult and error prone; it would mean having
unlimited questions to choose from instead of a finite set.
The coding of RQ1,
RQ2, etc was used to tabulate aggregate results for specific research questions
and group comparisons.
Materials
An on-line list of
Alcatel partners was obtained from the manufacturers web site. In a conversation with a partner in
Pennsylvania, it was noted that the on-line list may not be a complete list of
partners. With this in mind, the
abridged list still served as the master list of names and addresses of
subjects to target for survey. The
abridged list served as a valid instrument for all the partner group comparison
and satisfaction surveys in this study. “[given that controls are in place]…all
the evidence points to the fact that in skilled hands quota sampling gives
reasonably satisfactory results” (White2, 2).
“A review of
literature will reveal instruments used in similar studies that may be obtained
by writing researchers or, if copyrighted, purchased through a clearinghouse.”
(Cooper, 352). VAR Magazine polls are
included in chapter 1 to profile partners, and used as models for questions and
presentation of results.
Validity and Reliability of Measurements
Reliability and
validity in a study is shown as evidence that a particular measure actually
measures what it intends to measure. For
example, responses from customers on whether they prefer doing businesses with
certain types of companies was entered on spreadsheet. One may question the content validity of this
measure if they are not given the metadata on how the sample was selected, does
the sample fit the test, when and how often the surveys were sent, and were
there better tests? Cornell University’s
validity handout page says “Validity is something to be argued [through
metadata], not proven”(Cornell).
If many customers
have a strong dislike for a particular manufacturer, the data may be valid or
external circumstances such as a one-time slip of manufacturer’s quality may
invalidate the test.
The purpose of
demonstrating validity and reliability of research methods is so the reader can
quickly draw conclusion as to the accuracy of the information. In a scientific study reliability means that
procedure logs allow reproducibility of experiments, but for a business study
understanding the analytic planning that went into the data collections methods
suffice (Limon, 29).
Validity
Gathering
information from different subjects in a timely manner was enforced by gathering
all information in March 2004 and April 2004; each individual was targeted only
once. Participants were selected
randomly within a quota and tested using fair instrumentation which pulled
questions from a finite set and scored results from anonymous surveys or
bipartisan interview.
My research model
is made up of four related parts. The
new business proposition is profiled through a survey of existing
partners. Is the breakeven point of an
existing partnership what Alcatel claims it to be? Which product categories are sellers? Which ones have high profit margins? Core competencies were foreseen by sorting
product categories by dollar amount and profit margin in descending order.
Customers were
needed to maintain the balance in perception on how satisfactory or
dissatisfactory partnerships with Alcatel were.
To work around customer privacy issues and achieve valid results,
customer surveys were given out to three mutually exclusive groups, as
mentioned above, based on their blocking factor or status.
Chamber of
Commerce and established businesses which are role models for a new business
provide the key success factors. The
attribute which make up a successful business, such as a viable marketing plan,
a financial framework, and core competencies which add product value for
customers are created by establishing a factory modeled after the results from
key success factor survey. The ability
to emulate established businesses is the final part of the research model and
links the success factors to the conceptual framework.
Reliability
To test the
reliability of a study is to test that a study is free from errors and find
similar results from similar tests. In
addition to surveys and interviews mentioned above, random calls to Alcatel
partners gathered testimonials and telecommunication user groups
(alt.business.telecommunications.services) provided general attitudes to
correlate with results. Any major
deviations were reported.
In data gathering,
wherever possible, multiple choice or ordinal scales were accepted in favor of
free form answers to questions. This
made for unambiguous questions and simplified the correlation between subject
tests.
Limitations of Research
Chapter Four – Analysis and Presentation
This chapter presents primary
analysis from one of the largest Alcatel partnerships. It follows the creation of this partnership
through a proprietary study of the company’s diversification plans. Following the company analysis, the survey
results sent to partners and customers are analyzed in terms of the hypothesis
presented in chapter 2.
Data Analysis & Presentation
During the Survey Phase, Chuck Sutherlin Presented
Me with Current Market Research
Chuck Sutherlin is
a retired naval veteran and currently Vice President of the IT Products and
Services Division for the largest Alcatel reseller to the US government. Even the smaller Alcatel partners do business
in excess of $5 million a year, so Sutherlin’s organization (S. Co), whose name
will remain confidential, is quite a large facility which offers primary
insight into the marketing research analysis of an Alcatel partnership
(Oklahoma). Sutherlin was key in
analyzing the North Carolina market for telecommunication sales and with
Sutherlin’s permission, his analysis is summarized in the context of a market
analysis as it relates to the thesis.
According to
Sutherlin, “The Navy with infinite wisdom saw fit to send me to the Naval
Postgraduate School in Monterey California where I earned a Masters degree in
Electronic Warfare System Engineering. I
am very supportive to others working to do the same”.
Prior to Market Research
S. Co. is new to
telecommunications and is deciding on whether to purchase a Research Triangle
Park (RTP) company in the telecommunications rich area of North Carolina. S. Co.’s diversification from router and
switch OEM sales to telecommunications is welcomed by management and IT as a
solid businesses. RTP, with over 100
years of telephony experience, welcomes the friendly takeover, which would give
S. Co. its needed telecommunications sales force. In return, the RTP crew will benefit from a
larger engineering and headquarter staff.
The common
ideology that are bringing these two companies together started when Alcatel
bought the routing and switch manufacturer Xylan Inc. Alcatel converted Xylan business partnership
programs to Alcatel Business Partnership Programs (ABPP). S. Co. was one of those partnerships which
suddenly had a choice to diversify from data networks to telephone and
convergent systems.
RTP is a Nortel
partner and prospective 3Com partner who welcome an Alcatel partnership. Sprint and Bell South, both Nortel
maintenance providers, have pulled out of this area, which includes, Raleigh,
Greensboro, and Durham.. This leaves more business for RTP. Alcatel’s breadth of products is needed.
Market Research
S. Co’s has a
realistic view of the use of market research to guide its decision to purchase
a telephone reseller. They feel that
market research has its biases and sometimes is unable to accurately report a
market size, growth, and number of prospective customers. Perhaps this is the reason S. Co. examines a
myriad of statistics instead of relying on just a few. Unless noted market research took place in
late 2001.
Through years of
delivering on federal government data networking contracts, the S. Co.
executives initially relied on their own statistics to segment the Carolina
region. Although they split the market
between commercial and government, it was the latter they were familiar with
and able to note trends. Post 9/11
security budgets were increasing leading to the data network security
contracts. S.Co believes that this
extends to telephony as well.
RTP, the
prospective telephony expert and take-over bid, could handle this government
space. Alcatel’s Omni PCX would provide
the government with private secure branch exchange (PBX) phones to supplement
the Centrex central office model. S. Co
would be positioned to meet large agencies with Alcatel, Nortel, 3Com, and
smaller agencies with its Northstar Key Systems.
Service and Support
According to
Sutherlin, “A key to our business model is lead with telecom warranty support
and services”. Sutherlin shares a slew
of costly telecommunication market research from the Telecommunications Industry
Association (TIA) and other reputable sources to commend his decision to focus
on maintenance.
TIA contends that
data and voice equipment will expand annually 15.1 percent through 2005, when
it will reach $288 billion of spending.
Furthermore, since 2002, service and support has already reached $192.2
billion, a sizable chunk of the entire spending. TIA President Mathew Flanigan states, “With
the slowdown in the purchase of new equipment, companies are spending more on
professional services to make the best use of their installed base..[in most
environments]”.
Service and
support of data accounted for 80.3 percent while voice 19.7 percent. This will change with the innovations in
Personal Wireless Telephone (PWT), an intra-organizational wireless telephone,
voice processing, and voice data convergence, where data and voice share a
single network.
Voice processing
deals with management of customer service matrices such as hold times and law
firms use processing to create automatic client billing logs. (Seals, 2)
Telecommunications
The following
Telecommunications Data Analysis table from S. Co’s market research develops
some key analysis points. PBX, which is
traditional circuit switched systems will be around for a while. Digital switching has not yet replaced
PBX. Secondly, there is a developing
need for VoIP and data centric applications such VPN which will allow for
telecommuting. Finally, copper wire that
exists is too extensive to “forklift” out and replace. There is still support and maintenance to
provide for this channel.
Telecommunications
Data Analysis
|
|
Statistic
|
Source
|
2002 Spending
on PBX, key systems, and voice processing equipment will total respectively
$4b, $1.6b, and 5.9b
|
TIA
|
Enterprises
will spend $16.5b.migrating to IP-PBX by 2006
|
Allied Business Intelligence
|
VoIP will
account for 75% of world voice services by 2007
|
Frost & Sullivan 3/2002
|
46% of call
center agent seats will be based on IP services
|
Phillips Infotech, via Aspect 6/2001
|
25% of
customer contacts will come through an IP services gateway
|
Gartner Group, via Aspect 6/2001
|
Enterprises
continue to spend, particularly on applications that will make them more
profitable. (IP) PBX and IP (VoIP) for customer care solutions gained.
|
TIA
|
40% of
workforce is taking fewer trips. Web
conferencing increased 61.5%. Video
conferencing grew 24.5%. Voice
conferencing grew 11.7%. In-person
meetings down 16.3%.
|
Wainhouse Research 9/2002
|
Switched
telephone lines, such as second lines will decline in the from $146.9b to
116b in 2006. Second lines are being
replaced by Internet connections and cellular phones.
|
Yankee Group 5/8/2002
|
Traditional
Centrex lines will decline from 16.5m lines to 10.9m in 2008. The IP Centrex lines are expected to grow
from 13,000 to 10m lines by 2008.
|
Frost & Sullivan 8/2002
|
TIA predicts voice
equipment sales will start to increase in 2004-2005 when companies relocate and
replacement of legacy systems is feasible.
TIA President makes this comment, “TIA expects large increases in voice
systems in those years, driven by IP systems sales”.
Government is
actually taking the lead in many areas of IP services. At 2.5 million dollars in value, the National
Oceanic and Atmospheric Administration (NOAA), is an early and large government
contract bid for IP telephones. The NOAA
has always been a first mover in technology since its early presence on the
World Wide Web with graphical climate charts and weather maps. The department of education has 10,000 phones
in its circuit switched network ready for a Cisco IP,ATM, and frame relay
brownfield upgrade. Office of Homeland
Defense is mandating multi-cast paging to all government phones within a short
time period. Multi casting paging allows
quick access to key personnel in an emergency situation with mobile IP
addressing. The 247 Department of
Justice US Attorney’s office has started to work with S. Co. on security
requirements and extended warranties.
North Carolina Economy
While government
spending is hot, commercial business is lagging. Telecom companies are selling smaller key
systems to small businesses, but larger companies are indecisive about
upgrading an older phone system that still works. They are cautious during the slower economic
period. Despite North Carolina’s much
better than the average US economy, its larger companies are not budgeting for
telecommunications as much as government and small business.
Charleston, North
Carolina is doing better financially than other US cities because of its
inexpensive land, positive tax structure, and location draw business to its
area that is located within driving distance from Charlotte RTP, Atlanta, and
Washington D.C. areas. Smaller
businesses in North Carolina are buying IP.
“We expect that by 2005, 60 percent of new phone systems sold will be
either IP-PBX or hybrid IP-PBX. We
recommend [purchase of] IP.” (Yankee
Group)
Indexes
Each major city
has a bank or banks such as Bank One in Phoenix and Bank of Granite in North
Carolina that compiles a propriety index of the economic outlook for their
metro area. Arizona has the Bank One
Arizona Business Condition Index and Charlotte has the Bank of Granite Leading
Index.
The Granite Leading Index takes
into consideration factors from the consumer and employee population.
- Residential Building Permits
(Mecklenburg County)
- Sales of New Cars, Light
Trucks and SUVs (Mecklenburg County)
- Help Wanted Linage from the
Charlotte Observer Classifieds
- Average Weekly Hours in
Manufacturing (Metro Area)
- US Leading Index
(CoC2)
The top four are factors from the consumer/employee
side of business in the Charlotte area.
How many new homes are being built?
How many new products are produced? How many new cars are being sold? How many new jobs are available? The term leading in any index is an
indicating of an anticipative statistic of future trends.
US Leading Index
is the common denominator between each city’s own brand of economics and
understanding the US Leading Index is a basis for understanding economics for
any US city.
US Leading Index is made up of:
|
|
CPI & Inflation
|
Increase/decrease in product price. Cost of living.(BLS)
|
Unemployment Rate
|
|
Retail Sales
|
|
Housing Starts
|
# of houses on which construction has begun
|
Gross Domestic Product (GDP)
|
A countries market
value of all it goods produced.
Consumer, investment, and government spending + exports – imports
(Investorwords )
|
Gold Prices
|
|
Oil Prices
|
|
Gross National Product (GNP)
|
Total market of goods produced by e.g. Americans working
in this country and outside the country(MoneyChimp)
|
Index of Industrial Production
|
|
GDP Deflator
|
GDP bases on variable goods that change with consumer
habit(Encyclopedia)
|
Producer Price Index
|
Increase/decrease in what producers of goods received
|
(Forecasts)
Standard
measurement tools such as surveys are used to compile data for facets of the US
Leading Index. Consumer Price Index for
example gets its in information by sampling a business’s first and last
transactions for a particular product during a period (BLS). Oil prices are compiled from West Texas
Intermediate and gold from the London Exchange. (Forecasts)
While the Granite
Leading Index, derived from the factors above, focuses on consumer/employee
measurements, the Granite Coincident Index measures employers statistics.
- Total Employment (Nonfederal
wage and salary employment, Mecklenburg County)
- Gross Retail Sales
(Mecklenburg County)
(CoC2)
Coincident
measures are taken at different levels of employer forecasting. The US government uses it in their US
Coincident Leading Index measurement of production, employment, income and sales
(BusinessCycle). Granite uses the
measure to answer the question “How many people are working right now and how
much sales are they bringing for their organization in Mecklenburg County?” Figure 4-3 compares the Granite
Coincident Index with the Granite Leading Index. This comparison, used nationally as well,
predicts the economic outlooks six to nine months in advance. “As a general rule, the Leading Index will change
direction six to nine months ahead of the Coincident Index”. (CoC2) The figure is over twenty years of activity
in Charlotte. In 1996, prior to the
economic growth spurt, both indicators were at 100.
Figure 4-3
(CoC2)(LMI)
The top line for
most of the graph, the one with triangles, in figure 4-3 is the Granite Leading
Index, which demonstrates where to expect changes in the coincident index. For instance at the Year 2000 total
employment and retail sales started dropping steeply as noted fall from the
apex on the coincident line. This economic
outlook was actually predicted a few months prior by noticing the Granite
Leading index start its descent, albeit more subtle in mid 1999.
Coincident Index
|
Strength of the local economy
|
Leading Index
|
Forecasting
|
Despite the US
Leading Index being a subset of the Granite Leading Index, comparing to two
gives the analyst an indicator of how the local area is doing compared to the
national average. The Granite Leading
Index is much stronger than the national average.
When the
coincident index is compared with its own six month moving average and the
index stays above its average, the economy is in good shape (CoC2). A moving average in baseball might be “How a
batter has done over the last two weeks”.
Figure 4-4
Figure 4-4
represents the tail end of the graph with the moving average above the
coincident line, which means a slower economy.
Sutherlin uses
these indexes to check the Carolina area for his prospective Alcatel
venture. “The worst of the recession is
behind us and the economic bleeding seems to have stopped as Charlotte’s
leading index was unchanged in November.
Given these results, the six month ahead annualized [average] forecast
for the coincident index now stands at 1.6 percent [percentage growth].”
(Sutherlin)
Census
A quick visit to http://www.charlottechamber.com
gave Sutherlin a quick view of ten years worth of Charlotte, North Carolina
business growth. He feels the data shows
improving conditions ahead. Figure 4-2
is a rendering based on http://www.census.gov
which gives a much clearer picture of establishments, sales, payroll, and
number of employees for every business sector.
A quick change of the city drop-down gives the user quick comparison
ability between cities or states.
U.S.
Census Bureau
|
|||||||
1997
Economic Census: ZIP Code Statistics
|
|||||||
North
Carolina total
|
|||||||
Paid
|
|||||||
NAICS
|
Description
|
Est.
|
Sales
|
Payroll
|
Employees
|
||
31-33
|
Manufacturing
|
11,306
|
161M
|
21M
|
773,548
|
||
51
|
Information
|
2,584
|
11M
|
2M
|
60,047
|
||
61
|
Educational
services
|
963
|
383,040
|
130,000
|
7,300
|
||
U.S.
Census Bureau
|
|||||||
1997
Economic Census: ZIP Code Statistics
|
|||||||
Arizona
total
|
|||||||
Paid
|
|||||||
NAICS
|
Description
|
Est.
|
Sales
|
Payroll
|
Employees
|
||
31-33
|
Manufacturing
|
4,917
|
43M
|
6.7M
|
193,616
|
||
51
|
Information
|
1,731
|
7M
|
1.5M
|
42,238
|
||
61
|
Educational
services
|
622
|
401,000
|
140,141
|
6,300
|
||
Sutherlin listed
the population growth since 1990 for Horry county South Carolina at 36.5%
. To put this into perspective, the US
Census Bureau list Maricopa county at 44.8%.
U.S.
Census Bureau
|
|||||||||
Horry
County, South Carolina
|
|||||||||
People
QuickFacts
|
Horry
County
|
||||||||
Population
2001 estimate
|
202.425
|
||||||||
Population
percent change, April 1, 2000-July 1, 2001
|
2.90%
|
||||||||
Population,
percent change 1990 to 2000
|
36.50%
|
||||||||
U.S.
Census Bureau
|
|||||||||
Maricopa
County, Arizona
|
|||||||||
People
QuickFacts
|
Maricopa
County
|
||||||||
Population
2001 estimate
|
3,194,768
|
||||||||
Population
percent change, April 1, 2000-July 1, 2001
|
4.00%
|
||||||||
Population,
percent change 1990 to 2000
|
44.80%
|
||||||||
Alcatel Testimonial
Sutherlin relies
on Om Malik’s article “Gorilla in the mist” to understand the competition in
telecommunications manufacturing. The
Gorilla refers to Alcatel’s big size and potential for domination.. In his new article, Malik paints a
pessimistic view of Lucent, Nortel, and Cisco and predicts an Alcatel triumph.
(Malik2)
Malik points out
sales for all companies have been declining, yet for Lucent and Nortel they
have been declining at a faster rate than Alcatel. Any type of Alcatel superiority seems
unlikely after Lucent laid off 10,000 of its workers and stock hit a 13-year
low of $6.98 a share. Yet, Alcatel ranks
#1 in overall sales and #2 in telecom sales.
The US market
makes up over half of the world telecommunications market. Alcatel is a leader in the European market,
but is yet to penetrate the US. Lucent
and Nortel’s close relationship with US carriers has kept Alcatel out of the US
market for now. This will change as
Alcatel purchases companies such as Xylan Inc and becomes knowledgeable of US
territories through its partners.
Cisco has also
been purchasing companies and promising large supplies of telecommunications
equipment to complement its routers and switches. Only 15 percent of its sales are telecom
products, hardly enough to stop Alcatel.
According to
Sutherlin, evidence that Nortel is weak in the Carolinas can be seen by Sprint
and Bell South not picking up their Nortel maintenance contracts in the
area. Sutherlin also documents CLECs in
North Carolina, traditionally aligned with Nortel and Avaya, who are turning to
Alcatel partnerships.
S. Co Adds Services; Takes on Agent Status
This section analyzes S. Co.
Vice President Chuck Sutherlin’s business model as it relates to movement away
from commissioned based hardware sales to a solutions based approach. The new approach leaves behind low margin
hardware and consulting services for recurring brokering of full spectrum
solutions to company needs. Sutherlin
provided me with market research on his company as it relates to acquisition of
RTP and the formation of a new solutions based business model.
CRN Publication
correspondent and independent channel partner author Tara Seals wrote an
article titled “The Changing Face of Channel Partners” documenting how the data
and voice channels are selling to the same customers and need to add each
others products to their mix. Sutherlin
uses this article to analyze the evolving channel distribution market unique to
our times. Sutherlin’s company is positioned for the convergence talked about
in the article. S. Co. plans to sell
Alcatel maintenance contracts to former Sprint and Bell South customers and
complement its router and switch OEM business.
RBOCs, IXCs,
manufacturers, service companies , equipment vendors, agents, and referral
agents are partnering in the same channel space. Service companies are defined as the Internet
and application providers. Agents are the initiators of the
VARs/Equipment vendors contracts. Partnerships,
such as between Cisco and AT&T, are bringing these players together. Cisco receives a commission if they can get
their data hardware customer to purchase AT&T services. In another partnership Cisco and Nortel give
VARs a chance for commission on sales of Sprint service.
“We each bring
strengths and competencies to the table and that leads to increased efficiencies,”
says Sprints market development manager Jerry Koontz. “The partner has the opportunity to leverage
the combined competencies of both organizations to sell the total solution to
the customer…”. This level of
partnership is echoed at S. Co., where Sutherlin remarks that by training their
partner RTP on data centric side of telephony and vice-versa, S. Co. will have
the competency to offer IP convergent systems.
Says Sutherlin, “[RTP] will have to technically expand and master data
networking technology and the network market.
[Our division], being data network centric, will mentor [RTP] in
acquisition of this new technology knowledge and experience.”.
Sutherlin remarks
on RTPs ability to compete in the converging telecom market by selling refurbished
Nortel equipment to its customers, passing along huge savings. “[RTP] is very competitive using this model
and hardware margins are typically high, sometimes with margins as high as
40%”. Margins are not typically high for
hardware and Mark Wagner, CEO of AllSwitch LLC, will personally visit auction
houses to buy equipment.
With hardware
margins decreasing, S. Co. is adapting to richer relationship with their
customers and profiting with increase in service and support. Sutherlin’s research includes the following
from Edison Peres, vice president of emerging technologies, “They’re [VARs]
going to have to change the mix of how they [VARs] make their money and have
probably around 40 to 50 percent coming from hardware, at least 35 to 40
percent from softer, professional services-related revenue, in maintenance,
support, and design”.
Sutherlin has a
Master’s in Engineering and has put his
people through Alcatel certification. He
is well trained to provide a larger scope of customer solutions. Sutherlin agrees with Joe Heinzen, vice
president of VAR distributor Comstor Inc, on support of full customer
solutions. “If you start to look at this, the value of the channel partner
hasn’t been so much the technology but has been more being that solutions partner
for a business.”
Sutherlin’s data
and now telephony solutions have seen widespread use at the Department of
Defense, Department of Education, Department of Commerce, and the National
Weather Service. Sutherlin states, “The
S.Co/RTP” team is rapidly evolving toward the Converged Channel Partner
model. We already lead with the service
provider approach and are capable of providing converged voice/data solutions,
small telephony systems solutions, data solutions and security solutions, or
any combination of the above.”
Consolidation
In his analysis,
Sutherlin is an advocate to go ahead and purchase RTP. He makes that argument that the two companies
are a good fit. “Our initial interest in
[RTP] was to establish a strategic partnership with an experienced telephony
company and mentor them on Alcatel’s telephony products while they mentored us
on telephony in general.”
Sutherlin has
identified a niche market in smaller company telephone sales in the RTP region
as well as larger government sales in the S. Co. region.
Research Question 1 and 3 Has Been Supported: Alcatel partners, Non-Alcatel Partners, and
Non-Partners Have Significant Variances.
Research Question
one asks “Is Alcatel the best way for a small business to enter into the
telecommunications industry?”. Question
three raises a similar issue, and to answer these questions, the survey and
hypothesis were mapped. Mapping was done
prior to the survey distribution by linking twenty surveys questions to RQ1 and
RQ3 by their content. The content of these
twenty questions were written specifically to answer RQ1 and RQ3. When the results to these questions, such as
“How much does the manufacturer help with training?”, were coded, they were
then sent through a function to determine an overall Partnership_Satifisfaction_Ratio. Variances of this ratio will prove or
disprove the hypothesis that Alcatel is the best way to enter the market.
Null
Hypothesis
The null
hypothesis (H0) that exists between two groups states that the
groups are equal despite differences in an independent variable. For instance, the focal point of the thesis
is a measurement of variance between Alcatel partners, Non-Alcatel partners,
and Non-partners. Furthermore, the null
hypothesis to be disproved is that all three groups are equally
satisfied with their business. In the
analysis of variance (ANOVA), by disproving the H0, we can accept
the alternate hypothesis (HA) that partnerships and certain types of
partnerships have advantages, as long as the model is limited to a single
dependent variable.
Partnership_Satifisfaction_Ratio
is the sole dependent variable. It has
an integer value range of one to one hundred with one hundred representing a
completely satisfied case.
ANOVA
The null
hypothesis when comparing Alcatel partners with Non-Alcatel partners is H0:
ūA1=ūA2. ū stands
for mean or average and A1 and A2 represent the
alternative hypothesis for each group.
Simply stated, the null hypothesis suggests that the mean of the
Partnership_Satifisfaction_Ratio for the Alcatel Partners (A1) and
Non-Partners (A2) are the same taking into consideration that most
variance tests have some degree of error.
Type I (alpha)
errors are best explained by understanding that taking ten random samples of a
population will produce up to ten different means for each sample. Despite randomness, each sample will hover
around the population mean yet may not exactly duplicate the population
mean. For instance, a major city/rural
area poll of registered Democrats vs. Republicans will produce similar results
to the actual U.S. population, but not exact results. The difference between similar and exact
results caused by the expected extreme values is the alpha error. The alpha error for the thesis tests and the
conventional error is five percent. Any
discrepancy between groups will have to be greater than five percent in order
to overcome possible errors and reject the null hypothesis.
Probability value
(P-value) is determined at run-time. It
is the probability that we could get a more extreme variance in a new sample
than the data that we have. For instance, Figure 4-1 shows a p-value of
0.096535 which means there is a 9% chance that we could get values with more
differences in other samples. Our data
has a low degree of variance and we can accept the null hypothesis on this
basis. The rule of thumb is if the
p-value is greater than alpha, accept the null hypothesis.
Figure 4-1
Anova:
Single Factor
|
||||||
SUMMARY
|
||||||
Groups
|
Count
|
Sum
|
Average
|
|||
Alcatel-Partnership
|
14
|
846
|
60.42857
|
|||
Non-Partnership
|
4
|
173
|
43.25
|
|||
ANOVA
|
||||||
Source of Variation
|
SS
|
df
|
MS
|
F
|
P-value
|
F crit
|
Between
Groups
|
918.0992
|
1
|
918.0992
|
3.117366
|
0.096535
|
4.493998
|
Within
Groups
|
4712.179
|
16
|
294.5112
|
|||
Total
|
5630.278
|
17
|
||||
F Ratio
Using the p-value
is one way to accept/reject the null hypothesis. Using the F ratio is another. The degree of freedom is calculated for use
in the F ratio formula.
The degree of
freedom can best be defined as an argument into the critical value tables. Its value is based on the number of groups
and the number of surveys, known as cases.
Not only will using only two groups per model will make it easy to
identify the cause of any variance, it will sharpen the degree of freedom. The greater the number of cases and smaller
the amount of groups will improve the accuracy of the F-ratio.
Degree of freedom
(df) is calculated between groups by taking the number of groups, which is two
and subtracting one. Within groups, df
is calculated by taking the total number of cases and subtracting the number of
groups.
Between Groups df=k-1
Within Groups df=n-k
Now that we have
the degree of freedom, known as the versatility of the sample, we can come up
with the F ratio. F ratio indicates a
high or low variance between Alcatel partner satisfaction and Non-Partner
satisfaction. It takes into
consideration the variance within the groups and reports a high number for high
variance and a low number for low variance.
F is contrasted with F critical.
Between-groups variance Mean squarebetween
F = ------------------------------- = ------------------------
Within-groups
variance Mean squarewithin
918.0992
----------- = 3.117366 df(1,17)
294.5112
F
critical is the value which represents the border between the accept region and
the region of rejection.
F critical can be
looked up in a Critical Values of the F Distribution table, found in a
statistics book e.g.(Cooper, 755) using the argument degree of freedom
(1,17). F critical can also be pulled
from Figure 4-1.
F critical = 4.493998
The null hypothesis is
further accepted by comparing the F value to the F critical value. Accepting of the hypothesis is on the ground
that the variance (F) is –not- greater than the border line (F critical)
threshold for normal variability.
Sum of Squares to
Mean Squares
The following are
the eighteen cases of the Partnership_Satifisfaction_Ratio reported in Figure
4-1. It is presented here to demonstrate
how the Mean squarebetween
and the Mean
squarewithin were calculated.
Alcatel-Partnership
|
Non-Partnership
|
73
|
44
|
78
|
37
|
74
|
50
|
65
|
42
|
39
|
|
46
|
|
72
|
|
7
|
|
64
|
|
71
|
|
63
|
|
72
|
|
65
|
|
57
|
Sum
of Squaresbetween (918.0992)
Mean squarebetween = ---------------------------
Degrees
of freedombetween (1)
Sum
of Squaresbetween = ∑(ni)(Mi – GM)2
where ni is the sample size of the ith group, Mi is
the mean of the ith group, and GM is the mean of all scores in all groups
(rice). 14*(60.42857-56.61111)2 +
4*(60.42857-56.61111) 2 = 918.0992
Total Sum of Squares (73-56.61111)2 + (78-56.61111)2 +….(42-56.61111)2 = 5790
Sum of Squareswithin Total Sum of Squares - Mean squarebetween =
4712.179
Plotting
the Means
Comparing Alcatel
partners with random partners of other manufacturers will complete analysis of
RQ1 and RQ3.
The following mean
diagram show the two ranges having distinct values. This can be interpreted by the location of
each range within the diagram. 1=Alcatel
Partners and 2=Partners of other manufacturers.
The Alcatel range reaches higher limits.
This diagram demonstrates the same as the previous diagram
in report format.
Anova:
Single Factor
|
||||||
SUMMARY
|
||||||
Groups
|
Count
|
Sum
|
Average
|
|||
Alcatel-Partnership
|
14
|
846
|
60.42857
|
|||
Non-Alcatel
Partnership
|
4
|
194
|
48.5
|
|||
ANOVA
|
||||||
Source of Variation
|
SS
|
df
|
MS
|
F
|
P-value
|
F crit
|
Between
Groups
|
442.6825
|
1
|
442.6825
|
0.897432
|
0.35756
|
4.493998
|
Within
Groups
|
7892.429
|
16
|
493.2768
|
|||
Total
|
8335.111
|
17
|
We can accept our
null hypothesis stating that there is no difference at the partner level since
the P-value is above .05 and the F value is less than the F-critical
value. If we had accepted the alternate
hypothesis we can substantiate this by comparing the averages of each group
within the ANOVA report. 60.42857 is a greater
level of satisfaction compared with 48.5.
Primary analysis of Partner Satisfaction survey
grouped by hypothesis question.
This section contains text
descriptions of the survey questions followed by a graphical representations
including a variance test where appropriate.
For instance the research questions 1 and 3 have answers for
competition, financial satisfaction, future trends, manufacturer and
compliance. How does a partnership’s
perceive their competition compares with an ordinary business. The variance in scores show that partners
seem to have ten percent more competition.
Research Question 1 and 3 answered in terms of how Competition is
perceived by Alcatel partners, Non-Alcatel Partners, and Non-Partners. In terms of competition, No Significant Variance
exists between these groups
The previous
section helped answer the question “is an Alcatel partnership the best way to
start a business”. This section looks
closer at this question by examining the amount, advantages, position, bidding,
and future competition replies that make up the detail of the survey. Data from these five attributes are combined
and cross tabulated with the size of the business.
l
Amount of Customers
l Key Attributes
l
Perceived Position vs. Competition
l
Future Competition Mean within Groups
l
Perceived Position vs. Competition Mean within Groups
l
Cross Tabulation of Small/Medium/Small size organizations and Competition
Rating
While an
organization having a lot of competition may benefit the consumer bringing
better features and lower prices, from the new business perspective, less
competition is preferred. Favorable
results from organizations that have the least amount of competitors, in order
of preference, comes from Non-Partners, Non-Alcatel Partners, and Alcatel-Partners. The businesses that do not partner
(Non-Partners) had the least amount of competition, followed by partners from
IBM, Cisco, Nortel etc. (Non-Alcatel Partners), and finally the Alcatel
Partner. 25% of Non-Partners said they
had a small amount of competition and 75% was medium. 100% of Non-Alcatel Partners had medium and
the Alcatel Partner was mix of medium, large, and small competition at 61%,
25%, and 14% respectively.
Non-Partners gave
a 100% response rate to the free form question “What key attributes do you have
to distinguish from your competition?”.
Grading was done simply by the averaging the number of responses
compared with skips. Answering this
question demonstrates self confidence.
Alcatel Partners and Non-Alcatel Partners had a 75% rating. Quality of Service appeared six times and
other answers include owner available to do service , web based service, value,
technical responsiveness, and cost.
“How do you rate
compared with competition?” may seem like a subjective question, but the answer
can be revealing. Only Alcatel scored
below a perfect three. Alcatel still
felt they outperformed their competition, but not at the perfect level three,
which indicates unanimous agreement.
Managers had to
put on their forecasting hat in order to answer the question “Will the
future have (a)less (b)same (c) more
competition?”. The mean scores were
tabulated within each group. The closer
a score was to three would mean that more competition is predicted. Alcatel-Partnership has the advantage here
with a score of 2.2 compared with 2.3 Non-Partners and 2.5 for Non-Alcatel
Partners. Alcatel partners feel they are
closer to keeping the same amount of competition in the future.
When a service
organization puts a bid in for a request
for proposal (RFP) how many other bids are there? This next question attempts to answer this by
noting the results from the Partner Satisfaction survey show that 75% of
Alcatel-Partners responded by saying they face a lot of bid competition. This puts Alcatel-Partner right in the middle
between Non-Alcatel partners who see a 100% competitive rate and Non-Partners
who are split 50/50.
The final display
has the additional feature of combining all five competition questions and
adding an addition blocking factor of organization size. For example, up to five points were given for
answers to questions on amount, key attributes, position, bidding, and future
competition. Responses, worth up to 25 points,
were averaged and grouped by small, medium, or large organization categories,
within each group. A score of 25 is an
ideal competitive situation.
Alcatel-Partnerships favor small firms with a score of 17, followed 35% behind by medium and then large
firms. Non-Alcatel partnerships favor
only medium firms, and Non-Partnerships have small and then large firms in
ratio similar to the first group.
Generally, small firms have better competitive environments than medium
or larger firms.
Two static group
comparison were done with a Microsoft Excel –tm- Anova variance test plotting
Alcatel-Partners against Non-Partnerships and Non-Partners. The results were conclusive showing no
statistically significant differences between the three groups. The Anova tests for deviations between the
groups, taking into consideration sample size, and possibility for alpha
error. The F-value is a score that is
given to the tester at test time and it is compared with the Fcritical value
which is a threshold that needs to be exceeded to determine whether significant
differences indeed exit. The critical
value was not exceeded.
Research Question 1 and 3 answered in terms of finance, quotas, magazine
polls, training, technical support, & repeat business show generally
favorable responses such as meeting training requirements and lack of quotas
8 out of twelve
Alcatel-Partners are dissatisfied with their financial results. 3 out of 4 Non-Alcatel partners are also
dissatisfied. A striking difference with
Non-Partners (ordinary businesses) is that 3 out of 3 respondents were satisfied
with their finances.
9 of 13
Alcatel-Partners answered favorably to whether or not they feel pressured by
the manufacturer to meet a quota.
Two-thirds of Non-Alcatel partners were also pleased that they did not
feel a pressure to meet quota.
VAR Magazine
reports that large vars ($10 million) met their financial goals while 45% of
small vars did not. The question raised
was if the partner’s own situation parallels this statement. Most responses were in agreement and most of
these were small businesses.
Alcatel met their
training requirements 79 percent of the time and their technical support
requirements 73 percent of the time.
Surveys went out to partners asking them to give an ordinal value to the
importance of training and technical support as well as an ordinal value to the
amount of help the manufacturer provides.
Non-Alcatel partners gave their manufacture a 100.
Research Question 2 and 4 answered in terms of Products, show telephones
and wireless as top sellers. Alcatel
partners sell more telephony than data.
The research
questions dealing with consumer need were answered in the Partner Satisfaction
survey by asking questions about how different telecommunication products are selling. When partners were asked to divide their
business into IP Telephony, IP Networking, and consumer products
Alcatel-Partner’s answered by saying their
networking sales slightly outperform their telephone sales by four
percent. Consumer products, such as
mobile telephones and cable modems, accounted for only 12% of sales, lower than
the newer IP systems. Non-Alcatel
Partners had no consumer sales and their networking products were significantly
higher by 27% over their telephony sales.
Of other significance, Non-Alcatel partner had most of their sales away
from IP and consumer products, which signify sales of more traditional non-IP
PBX systems.
Twenty-eight
classes of products were voted on by a combination of Alcatel-Partners and
Non-Alcatel Partner resellers. The most
popular product is actually a service.
Professional services accounted for 15% of all their business. Telephones, wireless access and transmission,
data networks, enterprise, and voice and multimedia are part of the top 6 with
the respective shares of total business at 13%, 9%, 7%, 7%, 7%. Optical fiber and cable came in at number12
in the list; broadband access came in at 16.
IP telephony is represented by the first, second, and sixth categories
of professional services, telephones, and voice and multimedia.
Research Question 8 answered in terms of Ease of starting a new business
has Alcatel scoring big in ease of partnership creation. No significant
differences between Alcatel partners and Non-Alcatel Partners exist (poss. bug birds more important than this thesis)
These following
six measurements show the degree to which an Alcatel partnership is easier or
more difficult to start than an alternative business. How does Alcatel rate in keeping its promise
to provide business plan assistance? Is
it easy to gain access to inventory?
Five respondents
replied favorably and five replied negatively to whether the Channel Manger
assisted with a business plan for the reseller.
When asked if
starting a partnership is easy, the Alcatel Partners were split 64% deciding it
to be a difficult task, and 36% saying it easy.
This is hopeful compared with the Non-Alcatel Partnerships (Nortel, IBM,
Cisco, etc) who were unanimous in deciding that starting a partnership is
difficult.
Are the expenses
similar to what was stated prior to the partnership? Seven Alcatel-Partner responses were positive
and six were negative. Non-Alcatel
partners had an equal number of yes and no responses.
Was the equipment
needed easily obtained? 10-2 and 4-0
were the responses for Alcatel-Partners and Non-Alcatel Partners
respectively. In other words, a total of
14 respondents said equipment was easy to obtain and only two respondents, who
happen to be Alcatel-Partners, thought equipment was hard to order.
The last two
questions covered in this ease of startup section asked whether manufacturers
are helpful and knowledgeable during the startup of a partnership. For Alcatel -Partnerships, positive answers
outweighed negatives by 86% and Non-Alcatel Partners had the unanimous opinion
that manufactures help their resellers at startup.
Averaging all five
questions to come up with a score shows Alcatel-Partners leading 14 to 9. The score has a maximum of 25 points bases on
5 points per question. For instance,
five points were awarded for each ‘yes’ response to the question “Was the
equipment needed easily obtained?”. A
variance test was inconclusive in finding any major differences between
Alcatel-Partners and Non-Alcatel Partners in regards to ease of startup.
What percentages
of your customers are returning? 80
percent of Non-Alcatel partners, 74% of Alcatel partners, and 73 of
Non-Partners are returning. Furthermore,
90% of Alcatel-Partners have maintenance agreements with their customers
leading the other survey groups.
Research Question 6 and 7 answered in terms of Marketing a new business
show Alcatel partners slightly trailing other manufacturing partners.
73 % of
Alcatel-Partners were satisfied with Alcatel’s co-op advertising campaign. The partners were asked to give a weighted
importance to marketing and then rate the manufacturer on its ability to
provide marketing assistance. As high as
73% is, it does not beat the Non-Alcatel providers who gave their manufacturer
100% marketing satisfaction.
New customers are
recruited through word of mouth or reputation.
This is most apparent for the Alcatel-Partnership which had 9 responses
for reputation compared with 4 for the manufacturer ads. Other groups had similar results. A write in response indicated that field reps
are strong sales agents and make up part of the ‘other’ category.
Research Question 9 deals with Relationships. Alcatel
is slightly trailing other manufacturing partners in employee
satisfaction.
Measuring the
relationships in an organization answers questions as whether an
Alcatel-Partnership has a positive environment.
Answers from the perspective of management. Non-Alcatel providers gave the highest
opinion of their employee satisfaction, while the other two categories shared a
satisfying 3.8 out of 5.
Primary analysis of Key Success Factor survey and
Scottsdale Chamber of Commerce Interview.
Research Question 7b is answered in terms of business advice
The
customer satisfaction survey came back with interesting results. Companies that sent back their survey had a
variety of experience from just starting out to over 15 years. Their opinions on how to select a business,
whether to write a business plan, ease of startup, and general advice was as
varied as their experience. These
companies share their problems and give advice on where to find resolutions.
Most
companies agree that debt is the best way to obtain capital. Tom Gunn from the Scottsdale Chamber of
Commerce says that most funding comes from family members or credit cards.
Once
the capital is in hand the selection of the business should be either a
partnership with an existing firm or taking over of a family business. Researching an industry need is important,
but not as important as choosing to join an existing firm rather than starting
a brand new venture. One respondent felt
coming up with a great idea, such as a patent, would be good way to select a
business.
Once
a business is selected, a business plan could optionally be utilized. Only half the respondents had one. Perhaps they were too busy with filing for a
business license, finding a physical location, and hiring employees.
Half
of the respondents said they had trouble finding a location for their
business. Once the location was picked
out things ran more smoothly.
Seventy-five percent of businesses said they had no trouble obtaining a
license and 66% said they had no trouble finding employees. So now that these businesses have been
established, what advice would they give new combers?
“Know
what you are getting into,” said one
respondent. “Always make a profit on
every item”, and “Plan on working 24/7”.
Some of the other items include “A lot of hours and hard work”, and
“Know how to sell”.
So
now we have taste of what works, how about what problems to expect? One company said they had money problems and
felt the solution was to build their operation more slowly. Name recognition for another company was
problem. Other businesses, the Chamber
of Commerce, schools, and the small business association (SBA) are recommended
sources for help.
The Chamber of
Commerce added these links:
lSCORE
- Service Corps of Retired Executives. Call 602/745-7250
lBusiness
Librarian at the Phoenix Burton Barr Public Library
Chapter Five – Summary, Conclusions, and
Recommendations
This chapter concludes the
analysis of the survey results sent to partners and customers. Following the surveys, this chapter presents
conclusions to a recent diversification of one of the largest Alcatel
partnerships analyzed in chapter 4.
Summary
Conclusions
Recommendations
Part I Marketing Plan
Executive Summary
S. Co. plans to
sell Alcatel’s OmniPCX IP-PBX systems to the federal government and commerical
sectors. The external opportunites
include the fact that government defense spending has risen and small
businesses in the commercial sectors are starting to purchase more of these
systems as well as service contracts.
Competition is steep though, as Mitel and Cisco are better positioned
with lower price and higher quality (BCR).
S.Co. will rely on
its relationships, that are firmly in place, with the federal government for
its OmniPCX sales. S. Co’s strength is
in the quality of its management and employees, who are all co-owners of the
company, to provide the customer with a quality maintenance to support its
installations. They are driven by a
common goal to enhance their current data contracts with converged systems and
the sale of the OmniPCX.
Sales
representatives will be the primary source of customer interface for promotion
of product. As an Alcatel provider, S.
Co. sales reps receive training on the Alcatel product line. S. Co.’s speculated acquisition of RTP, will
bring the telephony experience to supplement the training. Sales reps have already been promised $19.5 M
from mostly government and North and South Carolina areas.
Part II Marketing Plan
Introduction
Industry Overview
We are on the cusp of integration technology, the convergence of data,
voice, and video onto a local network.
Digital private branch exchange (D-PBX) brought second generation
telephony and was welcomed with its simplicity and lower cost of
ownership. Convergence and complexity,
which comprises the third generation IP-PBX , will not be as easy a transition
to make. Installing, training, staffing,
and servicing the new technology will cost $550-$650 per seat compared with
$400 with regular PBX(ip telephony tech eval guide). So what are the benefits? Employees gain access to all communications
services from any location on any device (Alcatel-Ref). Perhaps the biggest advantage from the
reseller point of view is displacement as manufacturers stop supporting older
PBX telephony. (Horrell, 1)
IP-PBX systems
come in many brands such as Alcatel, Ericsson, Mitel, and Polycom (Sulkin2,
42-45). The manufacturers
of these brands are relying less on their direct sales teams and more on
indirect channel sales from dealers called VARs . For example, VARs account for 92% of Cisco
sales worldwide (McClune,1).
For Cisco and
other manufacturers, geographic location of a VAR partner is managed by one
person who keeps the right amount of partners per region. Alcatel’s Linda Ladell is the US logistics
expert who manages Chuck Sutherlin’s S.Co. partnership in South Carolina, North
Carolina, and Washington D.C. Ladell
allows New Jersey based EPS to partner in North Carolina in competition with
S.Co.
S. Co. has
competition from other government bidding manufacturers including CDW-G,
Northrop, and WWT, which offer respective products from Cisco, Naval C4I , and
Sun Microsystems. The Naval C4I is an acronym for Command, Control,
Communications, Computers and Intelligence;
Northrop calls them ship systems
(Mosig)(
Northrop) S.Co has competition from any company
providing C4I systems to the US Navy.
With over 180 Carolina companies serving in the
Telecommunications Telephone Equipment Services namespace, S.Co. should be
weary of its competition (Switchboard).
(kmb)Maybe dip into a little bit of
what you wrote above about each thing.
Business Segment Overview
S. Co. targets US
Army, Coast Guard, Navy, and federal agencies with large procurement
dollars. A $42 Million five year Navy
contract was awarded to S.Co. to do soft and hard upgrades to shore and
off-shore networks (S. Co.). With the reduction in military personnel,
S.Co. is responsible for assembling and installing mission critical support
systems that provide advantages to compensate for lack of soldiers.
To supplement
federal contracts S.Co. is looking at other segments. “With Nortel maintenance providers Bell South
and Sprint withdrawing from the region, and dropping maintenance support for
their regional customers, it seems a relatively straightforward evolution for
[S. Co.] to prosper [in the commercial market with service contracts].” (Sutherlin)
The market is
segmented into low , middle, and high-end IP-PBX systems for organization with
employee counts of 300, less than 5,000, and greater than 5,000. Over half the current sales are for the
low-end system. Altigen, 3Com, and Avaya
are the leaders with combined sales of 14,100 units and Nortel sold 1000. Most of these are for the smaller
segment. (Meircom, 1-30).
Positioning of IP-PBX in the Industry
Alcatel’s IP-PBX
OmniPCX Enterprise is priced higher than average for the middle class market
. OmniPCX sells for $117,292, while the
average starting price for IP PBXs is $84,959. (NetworkComputing) (NetworkComputing2).
S.Co. will position itself having a quality product with its
OmniPCX which is winning favor with the critics. Alcatel won VARMagazine’s Annual Report Card
Award for quality integration of voice and data products in 2003.(VARBusiness). The thesis survey prompted an Alcatel partner
from New York to say “[giving advice…]
We can’t beat the competition on price.
We would get undercut everytime.
We have to provide quality service”.
In order meet the
needs of customers, S.Co has partnered with a Raleigh, North Carolina company
for additional engineers and sales reps.
This is a different situation than their RTP acquistion proposal,
although both prepare S.Co. to fulfill contract needs.
Brief History of S. Co.
S. Co. is a South
Carolina based company providing C4I, networking, and security systems to the
federal government. With 17 years of
experience assembling data networks, S.Co’s proud ownership is ready to add
telecommunication to its repitour. Its
planned partnerships and relationships with other companies are adding to its
core competencies and expanding its market reach to the public sector.
Structure of S.Co.
S. Co. is owned by
its 250 employees, many of which have a history of military service. Offices are located in North Carolina, San
Diego, Virginia, and West Virginia. Two
Forward Integration Facilities (FIFs), on the west and east coast provide
specialized manufacturing. Employees at
these facilities manufacture and assemble server racks from CAD designs.
S. Co. is
structured hierarchically with a president and vice-president’s serving as
executive management guiding the company in its objective of providing first
class Alcatel OmniPCX Enterprise and networking solutions.
Objective of the Marketing Plan
The plan will answer questions
about which consumers to target, what products to target consumers with, and
how to monitor S. Co’s sales performance within the market. The objective of studying marketing trends
and competition is to find customer leads.
Having a plan on how to sell products to the lead customers will keep S.
Co well positioned to sell to the commercial market. It is important that S. Co. maintain
relationships with the federal government as a contingency if the commercial
markets fail to deliver.
Part III SWOT Analysis
External Environment
Economic Issues
Two factors which
give S. Co. sales opportunity despite the economy is the fact that homeland
security brings high government IT spending and the Carolinas outperform
economic averages. Independent
networking consultants at Miercom have found another opportunity for IP-PBX
customers that transcends our economy and goes right to the organizations
competitive nature and strategic planning
“[It’s not about the money] Rather, the organization view IP Telephony
as a strategic technology for the future and are testing the waters to gain
competitive experience with the technology…” (Meircom, 1-30). Company’s competitive nature keeps them
buying product that will give them advantages like remote access to company
directories.
Sutherlin’s market
research shows that between 2001 and 2002, IT is the worst industry with
spending down 22.22%. Telephony is right
in the middle, down only 4.38%. Large
companies are taking a wait and see attitude toward buying new equipment. According to Sutherlin, “[based on the
economy] large enterprises continue to put off large capital expenditures as
long as their current systems are still working.” (Sutherlin)
Social Issues
Investments in S. Co’s community translate
to S. Co. opportunities. Time Warner
Cable, Wells Fargo, and Nordstrom have investested and opened new businesses in
the Carolina area. This brings customers
to S.Co.
There are social issues that
dictate what a telecom customer will pay for.
As an Alcatel
reseller, S. Co. has the opportunity to sell professional services from its
certified staff. This gives S. Co. the
ability to install and maintain communication systems and sell services beyond
what a non-partnership can do. Companies
only want to pay for value when hardware and software have become a
commodities.
Furthermore, some
companies are now relunctant to pay for professional services. The only profit margin with some customers is
to become a commissioned agent of provider bandwidth services. “Customers are very hesitant to get charged for consulting.
The budget's so tight, they just want to know what they can do to save
money…The real model is ultimately to make residual income as an agent; I want
their services because it's a three-year contract and it's residual commission,
and that's worth a lot more than a little bit of hardware.". (Seals).
Political Issues
FCC and Supreme Court rulings have been tied up with
antitrust lawsuits between large carriers such as Verizon, Sprint, and
AT&T. Meanwhile other countries have
taken the lead in broadband technology.
Competitive Issues
Customers
can go with Nortel, Lucent, Avaya, Siemens, or Cisco, from other dealers in the
area. Customers may feel comfortable
with what they have or purchase IP products wholesale and install it
themselves. Competition exists from alternative products that offer video
conferencing, standard networking, and voice processing.
Competition
can come from satellite companies and large carriers such as Verizon. Verizon is the number one dealer for Alcatel
products, selling OmniPCX as well as its own service to organizations like the
Clark County School for $15 million. (Verizon/Alcatel).
Despite
competition, S.Co. has leads worth $19.5 Million, mostly from government
contracts which are competitively open to Northrop, CDW-G, and others
(Sullivan). These leads are for
tentative sales and they are unreliable.
Sutherlin feels that not having a right product match, brand loyalty
with other companies, or indecision could hold up the sales.
S.
Co.’s multi-state prescence is a key advantage over the 180 smaller
telecommunications companies located in its area. These companies primarily service a small
area with less expertise and less prices.
Global Issues
S.
Co. is involved in a pilot project with the Department of Justice to evaluate
the security of telecommunication products.
Government purchases of products with a high level of security have
risen.
The
globalization of the marketplace adds another open market issue in addtion to
security. Will China develop cheaper
telecommunication products for sale in the global market? (Davies,
1) As more countries
compete, cost and price go down, but so do profits for Alcatel and S. Co. Alcatel is a French company welcomed by the
US. How many more competitors, such as
Fujitsu and Sony, will follow suite.
Legal Issues
Government
Wide Acquisition Contracts (GWAC) were designed by US Congress to allow organizations
to procure IT products and services in a timely and efficient manner. Uniform transactions and standard ways of
getting a status on an order makes record keeping simple (StgInc). Most users of these contracts are government agencies who prefer to deal
with companies that support GWAC. S.
Co.’s core competenncy is accommodating the government in its purchase methods
through its strong relationships.
Sullivan knows that relationships established by his group with the
government are the reason that the contracts are in place. The legal issues that bind S. Co. to its
customers have personal substance.
Part IV SWOT Analysis
Internal Environment
Management Strengths
S. Co.’s average
tenure is ten years of solid management experience. Many managers have a high level degrees, have
served in the military, and relate well with customers. S. Co. is proud of the fact that its managers
have been able to reestablish contractual relations with their clients at least
once for every single contract they signed.
Since 1989, company profits have risen by 33% due to repeat business
from satisified clients. (S.
Co. Parent).
Employee/Staff
According to
Alcatel standards, S. Co. has a strong staff meeting many of the manufacturers
requirements. To be an Alcatel reseller
requires being available to fix severe problems within two hours, define
problem severity similarly to Alcatel, and have training capabilities
(Alcatel-Ref4, 1-10). From
hardening, software loading, integration, testing, shipping, and receiving,
S.co is staffed for operations. New
hires are being recruited for various positions including programmer analyst in
San Diego and Communications Network Specialists in West Virginia.
S.Co. has only
several years of telephone experience with the single Alcatel
manufacturer. They will rely on
purchasing another company such as RTP, which has over 100 years of combined
experience in telephony to bring them up to speed (Sutherlin).
Financial Capabilities and Asset Structure
One of the
partners who called in during the thesis survey phase said the cost of starting
an Alcatel partnership is about $300,000 for all the necessary test
equipment. While this is significantly
higher than state in the brochures, S. Co. has no problem meeting its financial
costs.
S. Co. owns five
offices in four states and two FIF production facilities. Assets include Autodesk CAD software, large
amounts of hardware, and machining areas. The company owns intellectual
property and has strong engineering ability to create products from raw
materials, rather than warehousing various combinations of customer system
needs. Just in time capabilities keep
large supplies of raw materials where they belong with the manufacturer. Many of the OEM sales involve taking
component and retro fitting them to customer design. (S. Co.)(S. Co. Parent)
Logistically the
company is visible in a four states. It
is located close to Washington D.C. and the federal government. For S. Co., being close in proximaty and
relations to the government is fundamental.
Jeffrey Schwartz writes on the 2004 state of the market, “federal, state
and local government…expect a healthy demand for IT services, equipment and
software in the coming fiscal year”. (Schwartz).
Kmb the end
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Appendix A
Issues to Research
The following are
partnership issues to research.
Issue to research
|
Method
|
kmb
|
The following are
Entrepreneurship development issues to research.
Issue to research
|
Method
|
How
do you market your small business?
|
Interview
|
How
did you select your small business?
|
Interview
|
Did you anticipate specific clients before your
business started?
|
Interview
|
