Feature Stories - June 2005

Industry Focus: Telecommunications

The Future is Calling

by Kathleen Foley

Don’t let the high-tech vocabulary fool you – people in the telecommunications industry face many of the same challenges as executives and business owners in other fields: keeping up with growth, competition, finding qualified employees and dealing with government regulations, among others. Telecom leaders gathered at The Stirling Club recently to discuss issues affecting their industry. Steve Schorr of Cox Communications acted as moderator for the roundtable, which was part of Nevada Business Journal’s Industry Outlook series. Following is a condensed version of the discussion, which began with introductions.

The Players

Jason Lazar: I’m one of the co-founders of KeyOn Communications, an owner-operator of wireless broadband networks. We started in Las Vegas and now operate in three other markets across the Southwest. By the end of June we’ll have three more active markets. We provide wireless broadband directly to businesses and homes, and we’re providing voice-over IP as well. We are bundling solutions providing voice and data to homes and businesses.

Lou Emmert:  I’m vice-president and general manager of Sprint of Nevada, which is what I call a "total solutions communications provider." We have a complete portfolio of products, and our customer base is business and residents. We also have a wholesale division that sells in partnership with a lot of the people around the table today. Although on one hand you’re competitors, on the other hand I think of you as partners and customers. This is an exciting marketplace to operate in, but it’s a constant challenge to keep up with the 5,000 to 6,000 people who are moving in every month, and all the businesses that are moving in. Sprint has spent over $130 million a year in capital investments in Southern Nevada in the 12 years I’ve been here. Another challenge is competition, so we’re constantly looking at our processes, procedures and marketing to make sure we meet the marketplace and continue to be a successful company. Rob Roy: I’m CEO and founder of Switch Communications and the Nevada NAP. We are now building the largest data core along the West Coast, also one of the largest voice-over IP cores in the United States. We do disaster avoidance for Citicorp, QUALCOMM and Yahoo. I chair the Nevada Development Authority’s new technology committee, focused on pulling technology-related businesses into Nevada. Like Lou, we’re partners with everybody, and even though we compete in some things, cooperation is really the wave of the future, and joining together to provide solutions for large projects like Wynn Las Vegas.

Jason Neiberger: Skybridge Wireless has been in Las Vegas for three years. We provide fixed high-speed wireless Internet access and network engineering for wireless systems, licensed and unlicensed. We service primarily commercial entities here in Las Vegas. We developed a high-speed backbone using 23-gig licensed frequencies, and using unlicensed frequencies for the last mile. Like everyone else, we’re trying to develop a system to roll out voice-over IP. The biggest hurdle we’re trying to overcome is finding bundled services and being able to offer them at a reasonable price to the customer. Partnering with groups that already have those in place is probably the most cost-effective solution.

Cheryl Hickman:  Hickman Telcom is a small, family-owned business that specializes in three areas: cabling for voice, data and fiber; PBX phone systems for small businesses; and a division that custom-builds computers and sets up and configures computer networks. As a small company, our biggest challenge is keeping up with technology, along with competing with the other 62 businesses like ours listed in the phone book. We have a good reputation, and most of our business is from referrals, so that’s the only way a small company can stay alive. 

Jonathan Weinberg:  I’m the general manager for Cricket Communications, based in Reno. Cricket has offices in 39 markets across the United States. We are a smaller wireless provider, offering customers unlimited anytime minutes within our calling area over a high-quality, all-digital CDMA network.

Rhonda Rae: Idacomm Communications is part of a holding company called Idacorp, which is a $2.8 billion company based in Boise, Idaho. Like all of you, we will be faced with many challenges over the next 18 months with the new technology we’re trying to release, deploy, install, service and support. Certainly voice-over IP is in everyone’s thoughts. It takes a different kind of mindset and different talents to support voice-over IP, so we’re all in that growth curve. I’m sure a lot of companies going into voice-over IP will be surprised at what it really takes to deploy it. It’s not like just delivering broadband and putting in a T-1 line.

Joe Brondon:  I’m general manager for XO Communications, which serves over 70 markets. We are a facilities-based, competitive local exchange carrier (CLEC). We have our own backbone network that connects all those 70 locations together, which well suits us for voice-over IP applications. In Southern Nevada, we have a little over 800 miles of fiber, and we’ve got 350 buildings on our network. In terms of challenges, one of the things I see is fear. The industry is going through another upheaval in terms of consolidation – organizations buying each other and customers trying to understand what that means to them. The other challenge we have is with voice-over IP. When you deal with small or medium business customers, voice-over IP is a big buzz word. Everybody wants it and they think they need to have it, but when you start digging deeper and doing a needs assessment, you may find out that voice-over IP isn’t a natural fit for that company today. One of the challenges we have collectively is to help customers understand exactly what their needs are and make sure that voice-over IP is a fit. The other challenge I find in this market is talent. As Rhonda mentioned, it takes a totally different talent set to not only engineer voice-over IP or IP-centric services, but also to sell it, position it and support it. The talent pool is a little thin from that perspective.

Ronald Buzbee:  NEC Unified Solutions is a national company that manufactures equipment and provides voice and data services, chiefly for hospitality clients. Ninety percent of our business is in the Las Vegas and Reno area. One challenge I see is trying to keep costs down and margins up while facing competition, which is driving pricing down. Another one is finding qualified people to work for us who can really row the boat when we need them to.

 Leo Brennan:  Cox Communications has been operating in Nevada for a number of years. We’re the fourth largest cable operator in the country, and we’re the first operator to provide video, voice and data bundled over one network. Our key challenge now is getting our voice-over IP and telephone products out into the marketplace, which we’re working on now. Also keeping up with technology, which is changing so rapidly.

Doug Gaylor:  Inter-Tel is a nationwide manufacturer of telecommunications equipment. Our administrative headquarters is in Reno, and we recently did an acquisition to bring us into the Las Vegas market. We sell direct to about 60 different markets across the United States. I think our biggest challenge is education – both teaching customers how technology can enhance their business, and more importantly, educating our sales team. Sales drives our business, as it does everybody’s here, and teaching sales people how to sell in today’s environment is so important. We have to educate our sales reps about selling return-on-investment and understanding business acumen, knowing what our products and solutions are going to do to benefit our clients’ businesses.

Sandi Dickens:  I’m the owner of Tiger Communications, a low-voltage contractor in Las Vegas. I’ve been in the business about 18 years, and I decided to branch out and start my own company about two years ago, and it’s doing well. My biggest challenge was opening my own company.

Connie Brennan (publisher, Nevada Business Journal): Steve, I’m going to give you the opportunity to talk a little bit about your company, since you’re wearing two hats here today.

Steve Schorr:  Well, I will try to wear just one hat today, as a moderator. But I would like to say that Cox Communications is not just a telecommunications provider, but is also an integral part of the community. We’re very proud that in 2004 we provided more than $1.6 million in donations to local charitable organizations supporting children, families and education.

The Challenge of Growth

Schorr: Growth, as a number of you said, is a true challenge, not only in Southern Nevada, but in the entire state. How are you facing the challenges of growth?

Emmert: I mentioned earlier that Sprint spends $130 million in an average year on capital improvements, so that’s certainly one way we’re dealing with it. The way development occurs in Southern Nevada causes problems. Home development is not contiguous; you may have a development far out where we have no facilities, so we have to build out there, whereas if you had consistent, contiguous growth it would make it a little easier. The other problem here is "churn," which is much higher here than in the rest of the country. By churn, I mean a lot of people move into town and order their phone service, then two months later they move into another apartment because it offers a free month’s rent, and Sprint has to provide facilities to the new apartment. When people move a lot like this, it costs us money to keep up with their moves, which don’t result in an additional phone line. We’re constantly evaluating our processes and our procedures, trying to meet the challenges of growth, plus putting lots of capital into the community. Staffing can be a problem, too, because of that churn, anticipating the workload that’s coming and exactly where that workload’s going to be.

 Leo Brennan:  I’ve only been here two months, and the amount of growth is just phenomenal. We’ve added over 30,000 homes a year for the last four years, with no signs of slowing down, and we’re investing over $100 million a year in capital just to keep up with growth. There’s also growth from the standpoint of the additional services we’re providing – DVR, HDTV, telephone, high-speed data – just getting the resources and the people to launch additional services is difficult.

 Brondon:  Yes, but what a great challenge! There are probably people sitting around a similar table in a different part of the country trying to figure out how to maintain their profitability with a declining population. We have a wonderful opportunity here. Is it a challenge? Of course, but every day when we roll out of bed we have opportunities to serve a different type of customer, to serve an additional customer, to serve an expanding customer base. That’s what the excitement is about. Entrepreneurs are being successful because they are finding different ways to reach that customer, whether it’s technology or service. I find when people are coming into Southern Nevada, they’re pushing us for new technologies. We’ve got sophisticated businesses coming into the Valley, primarily from the Southern California area, and they’re saying, "We want this technology. We want this application." It’s a challenge to find people who will be able to deploy that new technology, but where else would you rather want to be? 

 Roy:  The growth of this community has allowed people to feel better about coming here for technical schooling. In the past nobody from California would think of going to school in little Las Vegas to get a degree in engineering. Something that, unfortunately, has not been publicized enough is that CCSN just brought the largest Cisco school in California here to Nevada. One thing I deal with when QUALCOMM or Yahoo or Anheuser-Busch is looking at coming to Nevada is the question, "How is your work force?" It’s getting much better, and even they know the school is here and it’s going to get better. We have to get over the past, when Las Vegas was not the community to come to and hire engineers. I think it is very quickly becoming someplace where that will happen, and that will help everybody sitting here, but it will also help bring technology-based businesses into Nevada. So, one good part of growth is it’s helping us get through that ceiling and move on to the next education level here.

Early Adopters

Schorr:  This is a very unique state. We probably lead the nation in what are called "early adopters," individuals who like the latest technology and all the latest gadgets. I’m sure if we would go into Lou’s closet at Sprint we’d see that every type of cell phone that was ever invented came right through this marketplace. Has that type of customer – the early adopter – forced companies to bring new technologies to this community and expend dollars in order to get new customers? Brondon:  The short answer is, yes. When you talk about early adopters from a business perspective, there’s a thirst for more bandwidth. There’s a thirst for applications that are faster, more reliable, with the ability to be modified on demand. It’s made us rethink our models and reconsider not only the way technology is deployed, but how we support it.

Buzbee:  I see it from two points of view. Our market, primarily, is hospitality. In the hospitality market we have the data groups, the IT groups, who are definitely early adopters. They want anything and everything we can give them; anything they read about in any publication, they want to try it out. But on the PBX side of the house, they don’t even want to hear IP yet. We’re really struggling trying to get them to look at IP and see what it can do for them. It’s just amazing to me that hotel management doesn’t yet want to use IP to its full potential. 

 Hickman:  We’ve had to go into the voice-over IP market just to be able to provide those types of services to people who have heard about it and think it’s going to work for them. But then we have to educate them – will it be good for them or not – and it just depends on what their business application is.

Rae:  For an ILEC like Sprint, their issues are totally different, because they’re looking at both a business and residential marketplace. For us smaller companies that just service the business market, our advantage is that we can target a market so we don’t have to be everything to everyone. We can identify a need and a critical group and go after serving that need. Certainly Las Vegas is one of the biggest users of cellular technology, and I think we’ll be one of the biggest users of voice-over IP because we are early adopters here. Businesses are asking for it, and the things we can push down an open pipe are incredible.

Leo Brennan:  The early-adopter phase just keeps getting shorter and shorter. Technology goes quickly beyond early adopters and into the mass market.

Lazar:  The early adopter phenomenon impacts my company differently than you might expect. It’s technology that allows a company the size of mine to go out and compete with some of our larger players. Early adopter customers are already comfortable with data being delivered and they don’t really care how it’s delivered. They’re not concerned with whether it’s delivered over a phone line or a cable line or whatever – only that it gets in and it works. So the comfort level of the delivery mechanism has allowed us to penetrate new markets.

Weinberg:  The delivery piece is interesting. My business is a consumer-based business, and as you grow, and as more of these products come out and the early adopter phase shrinks, the other thing that comes is the expectation that these products and services are available, and at a very affordable or a low price. So you have to invest in the equipment to be able to meet the needs of the public, because otherwise someone else will do that for them at a less expensive price. As people come in from places outside this area who expect to be able to get these kinds of services for a very affordable price, it’s one of those challenges we face every day.

The Role of Competition

Schorr:  When the Telecommunications Act of 1996 became law, there was an expectation on the part of the general public, because of what Congress said, that competition was going to drive prices down, and the benefit to the public was going to be immense. That didn’t happen, and we know that. A lot of new companies came forth, but the public didn’t see any great pricing crunch. The question now is: Have we eventually reached the point where competition is going to bring prices to a level playing field and where consumers benefit, or are we still waiting for that?

 Emmert:  This is a very competitive marketplace. In the front of the Las Vegas phone book there are three pages of competitors that provide residential and business services like we do. Over 400 companies are certified by the Public Utilities Commission in Nevada to provide some form of communication services. Since the 1996 Act, we now have about 67 percent of the business market instead of 100 percent, and on the residential side we have about 91 percent. Being in Las Vegas has definitely been an advantage, because we continue to grow while losing market share, because the total market is growing so much. So I definitely think that the Telecommunications Act has promoted competition. It’s brought us to the place today where I think the marketplace should determine the pricing of the product for the consumer.

Gaylor:  I see competition driving prices down considerably for telecommunications equipment and PBX manufacturers. I find it very tough out there and competitive. And it’s changed our selling styles to having to sell return-on-investment. We don’t sell cost; instead, we sell products and our solutions.

 Leo Brennan:  The Telecom Act did promote competition, but we haven’t seen anything yet. Wireless continues to develop at phenomenal rates. You’ve got power companies testing broadband on power lines and there is a convergence now in voice, video and data on an IP platform. So we’re going to see markets more competitive than we’ve ever seen for the next three to five years. It will be amazing.

 Brondon:  When we look at the planning of a product, whether it’s new technology or bundling technology, we have to be very cognizant of the price point on that initial launch, because if we don’t have the exact right price point on that initial launch, there’s plenty of competition out there that will come in at a price that’s more competitive. We can’t launch a product at the wrong price point, and six months later make an adjustment and hope to recapture some of that market we lost.

 Schorr: For Cheryl and for Sandy – two small companies – how do competition and pricing affect you? 

Hickman:  I agree with Doug. We have to present value, because we don’t sell by cost. We’re not the cheapest company in town, by any means. Competitors will come into the market and lowball everything, so we have to have a different attitude than just price. We let people know we’re stable and that we do what we say we’ll do, and we emphasize our reputation. There’s also the Internet as a competitor. Smart shoppers can buy equipment on the Internet at the price I pay for it myself as a small purchaser. One thing we do is come in as consultants and let them know what they need. We’ve had to change the way we submit bids due to the fact that customers will go to the Internet and shop before looking at bids. 

 Roy:  Yes, but let’s see if they can run the system without you.

Dickens:  We have addressed that by selling service totally. We’re going to be here today. We’re going to be here tomorrow, and I’ve been here forever. So, servicing the customer is the most important thing. I’m not always the cheapest either, and I won’t install anybody’s telephone system they bought on the Internet. So that might discourage them a little bit.

Rae:  We have to be competitive in pricing, and usually that ranges within 10 to 15 percent of price, but then you have total cost of ownership, and that’s another picture. When you start looking at total cost of ownership of a product, that involves a great deal of service. I may get a cheap price, and get a product that could be actually very good, but when I have a problem, what if I make that phone call and get no service? How good was the deal I made? The minute I lose that broadband connection, total cost of ownership really starts to come into play. Service is and will always be the driving force for any product. If you can’t service it, I don’t care how cheap you are, your company will go away. 

Brondon:  Just like any other marketplace, there’s a certain portion of this market that will shop on price, and you’re just not going to reach them. There are other providers out there that will reach that marketplace in terms of price point. Price is an important factor. So is service, but there’s a balance there.

Leo Brennan:  The bottom line is that over time, as all of these networks develop and as the technology develops, there are going to be a plethora of opportunities for people to get voice, video and data. The key is going to come down to how well you service the customer and what’s the reliability of your product. Another thing is going to be value-added services. How mobile is the product? How portable? If we get to the point where we’re all competing on price, look at the airline industry, for example. Nobody wins in that war.

High-Tech or High-Touch?

Schorr:  Is the future of our industry technology, or is it the way we take care of customers? Which one will impact where this industry is going to go?

Rae:  I find it interesting that you could try to separate those, because you can’t. They have to be together. Technology is of no use if you can’t make it work.

Leo Brennan:  The bottom line is that when everybody has access to the same technology, it’s the customer interface – dealing with the customer, the service quality –that is going to be the differentiator.

 Buzbee:  Technology allows us to get the customer, but service allows us to keep that customer. That’s what we really need. We need that ongoing service revenue and all the profit we get from that service. They go hand-in-hand.

 Roy:  As the technology gets more advanced, individuals and small businesses will be less able to effectively run and control that technology by themselves. Service will become more valuable down the road because you will need qualified technicians to come in and show you why your call forwarding attendant is not transferring calls to your home phone, or whatever the problem is. So actually, the technology is going to breed a greater need for customer service. There was a time when I felt pretty comfortable running my desktop computer. But applications now are so unbelievably advanced, I need a specialist who works on them full-time in order to take advantage of what that application delivers to our company. ROI doesn’t matter if you use only 2 percent of an application. So I need to hire somebody just to come in and train us and to understand how to best utilize this application to make it help our company be more successful.

Hickman:  I agree totally that it’s both technology and service. We brought on voice-over IP because people were asking for it, but we have to have the service behind it to make it work for them. 

Dickens:  "Back in the day" – probably about 15 years ago – everything we did was about servicing customers: visiting them, taking them places, taking them out to eat. I don’t know if you’ve noticed, but it’s coming back to that, although not to such a degree – truly just building a relationship with those customers. Having them trust you and know you’re going to be there for them and servicing them is truly the No. 1 thing. 

Brondon:  Service, from a certain perspective, will sell through technology. Examples are existing customers, where you have somebody come in and offer them a new technology-based application. If you’re servicing that customer well, they’re going to pick up the phone and call you. They’ll say, "Joe, I just had a vendor come in, and he’s pushing this whiz-bang technology. Tell me what you know about that." Or, "Are you guys looking at something similar to that?" Your personal relationship with that customer may allow you to advise them that the new technology may not give them the return they’re looking for. On the other hand, if that new technology will give them a great return, then you have to take a serious look at offering it yourself.

 Buzbee:  Customer retention is the name of our game. Everybody’s selling the same technology, and the differentiator is the customer service.

Schorr:  I think we’re on the verge of making some amazing advancements because of the people who are around this table, and the beneficiaries are going to be the consumers. I am very proud to be part of this industry, and I thank you all for your wonderful insights today.

Definitions for the Tech-Impaired

(Adapted from Webopedia.com)

ILEC: Incumbent local exchange carrier, a telephone company that was providing local service when the Telecommunications Act of 1996 was enacted.

 CLEC: Competitive local exchange carrier, a telephone company that competes with an ILEC. After the passage of the Telecommunications Act, there was an explosion in the number of CLECs. Telecommunications Act of 1996: The Act allows CLECs to use ILEC infrastructure in two ways:

1) Access to facilities or equipment, principally the local loop, which connects the ILEC switches to its customers. Using the local loop, CLECs can connect their switches with the ILEC’s switches, thus giving them access to ILEC customers.

2) The Act states that any telecommunications services ILECs offer at retail must be offered to CLECs at a wholesale discount. This saves the CLEC from having to invest in switches, fiber optic transmission facilities or collocation arrangements.

CDMA network: Short for Code-Division Multiple Access, a digital cellular technology that does not assign a specific frequency to each user. Instead, every channel uses the full available spectrum. Individual conversations are encoded with a pseudo-random digital sequence. CDMA allows more subscribers to connect at any given time.

T-1 line: A dedicated phone connection supporting data rates of 1.544M bits per second. A T-1 line consists of 24 individual channels, each of which supports 64K bits per second. Each channel can be configured to carry voice or data traffic.

VoIP (Voice-over IP): Short for Voice over Internet Protocol, a category of hardware and software that enables people to use the Internet for telephone calls by sending voice data in packets using IP rather than using the traditional telephone system, which is based on copper wires carrying analog voice data. One advantage of VoIP is that telephone calls over the Internet do not incur a surcharge beyond what the user is paying for Internet access.

Kathleen Foley
Kathleen Foley is a freelance writer based in Southern Nevada.