An under-exploited market: fixed-line telcos aren't taking full advantage of the SME market opportunity - Serving the Corporate Market

In western Europe, 99 per cent of all businesses are small-to-medium enterprises (SMEs). The companies who makeup the SME market differ in size from just one employee to anything up to 500 and the sector covers a vast range of contrasting businesses. Nevertheless, every company within the sector does share a common interest and that is to obtain products and services that will reduce capital expenditure, and increase market share and overall profitability.

Because of this, Gartner -- the telecoms and IT consultancy -- has forecasted that the SME telecoms market will double in size by [Euro]15 bn in 2001 to [Euro]33 bn in 2007. Consequently, it is no exaggeration to say that fixed-line telcos should be fighting tooth-and-nail for as much of the SME market opportunity as they can get.

Although SMEs are starting to embrace service offerings from telcos, there appears to be a strong case to support the view that carriers aren't making as much out of the small business opportunity as they should be.

"I don't think that enough telco attention has been paid to the SME market," says Don Skipwith, executive vice president and general manager of the broadband division for Symmetricom, a provider of transmission, synchronisation, access systems and integrated circuits. "This is very silly as there's a lot of money in that sector which could lead to significant telco revenue generation."

Sebastian Take-Nichols, director of wireline strategies for Convergys, a provider of outsourced and integrated customer management services, argues that offering the correct service offerings to SMEs would make all the difference to telcos' future prospects. "It probably won't be until the current wave of telecoms consolidation is complete hen operators finally wake-up and completely focus on SME needs and concerns, he says.

Meanwhile, John Horne, an adviser of business clients participating in the UK Online for Business programme, adds that telcos rarely show SMEs how new technology can in practice enable them to cut operating costs and improve their bottom line. "For example, broadband is being supplied by telcas to SMEs," he says. "But they're not being shown how they can use it to maximum effect." The business programme is a government and industry-led initiative encouraging small companies to see the benefits of e-commerce throughout the UK.

At the same time, not everyone is as critical of how telcos have so far tackled the SME market. Alban Thurston, P enterprise analyst for Ovum, a telecoms and IT consultancy, believes that telcos haven't done too badly as the sector is a tricky sell. "The SME market is full of technophobes and sceptics," he claims. "But I would criticise telcos aver their handling of leased-line service provision [especially incumbents] which has been fairly lamentable. Overall, the service is still very expensive and takes too long to deploy."

Targeting specific SME sectors

There appears to be a convincing argument that fixed-line telcos need to identify particular SME needs and concerns, and then market specific services that are of most use to individual small business sectors.

"Telcos have been really bad in this area," says Symmetricom's Skipwith. "After all, SME needs aren't uniform and differ greatly according to the respective sector in which they operate. Telcos have focussed too much on large corporates and have treated SMEs like high-end residential customers who all have the same needs."

Anders Tillander, general manager for Telia SME Netsales, agrees that the majority of fixed-line telcos haven't been intelligent in the way that they've treated the market. "SMEs require higher grades of services and are a lot more diverse than the residential sector," he says, "I believe that with the exception of ADSL, it is very silly to treat all SMEs as the same."

He is also keen to claim that Telia hasn't behaved in this way and has recognised the benefits of dividing the SME market into individual segments.

But UK Online for Business's Home says that operators are slowly starting to acknowledge that SME solutions need to be sector driven. He cites the agricultural industry -- with many applications being built around the recent BSE and foot-and-mouth disasters in Europe -- as good cases in point, but adds that 'the rollout of such services have only just started to begin'. "Plus, SMEs tend to ask their respective trade associations for advice far more than their CT [information and communication technology] supplier," he adds.

Meanwhile, Convergys's Take-Nichols points out that addressing the entire needs of every SME sector will require considerable configuration and personalisation, which will probably mean that third-parties will be employed by telcos to determine the individual requirements of some SME groups (such as the legal profession).

Again, Ovum's Thurstan comes to the defence of telco's by arguing that SMEs have always been the Holy Grail of carrier marketing and the level to which small business have particular networking needs has been over-emphasised.

"Fundamentally, I believe that telcos need to adopt very broad but clever strategies which centre around empowerment for every SME," he says. "We've already seen this in the US where Verizon and SBC host softswitch-based IP services. This means that SMEs have the freedom to configure [within the softswitch platform] their own call and dial plans that they require. And any employee [who has authority] can also do it via their web browser."

Further SME cosiderations

It appears that targeting specific SME sectors is the principal issue for fixed-line telcos to consider but there are other factors that need to be addressed as well.

To begin with, they need to ensure that they have strong vendor and local reseller alliances. This way, rolled-out services should run smoothly and end-users will be reassured that there's someone nearby if any technical problems occur.

At the moment, SMEs also feel that they're not being adequately serviced by telcos. Operators being more responsive and easier to buy from - along with opening up new and more VAS - should resolve this. It may even be advisable if they maarket broadband - irrespective of whether it's fibre or dSL - as the same service to SMEs.

The fact that ADSL is a best-effort technology and not ssuitable for SLAs means that telcos could well be advised to push symmetrical DSL (SHDSL) a lot more than they previously have.

Finally, according to Avi Katz, senior DSL product line manager for RAD Data Communications, a manufacturer of data access equipment for carriers and corporate networks, alternate voice-over DSL (VDSL) carriers should try and undercut incumbents with the cost of their voice, internet and LAN offerings.

The mobile operator threat

Despite the undeniable business opportunities open to fixed-line telcos via the SME market, their level of future revenue could be threatened by mobile operators who will soon hove far more bandwidth at their disposal.

"The rollout of 3G will provide mobile operators with a broadband speed of 2Mbps," says Symmetricom's Skipwith. But he adds that the speed (at least to begin with) will be shared between users and so the available rate will be down to around 100Kbps. "Plus, a reliable 3G-broadband service to SMEs would require a lot of infrastructure and is economically unfeasible at the moment," he says.

Convergys's Take-Nichols adds that 3G bandwidth is always likely to be more expensive and not as widely available due to its infrastructure costs. "In contrast, it is relatively simple and cheap for fixed-line operators to increase bandwidth by using different variants of DSL," he says.

Meanwhile, Ovum's Thurston believes that the cost of 3G bandwidth isn't the only issue as it will have to prove itself in a consumer environment before SMEs start looking at it in a serious way. "But there is now potential for mobile operators via W-LAN technology," he says.

At the same time, Telia (which has mobile interests) considers its W-LAN offering to be a complement to its ADSL service. "Our Homerun hotspot service is regularly used by our ADLS clients," says Telia Netsales Tillander.

But overall, Telenor Business Solutions' Cartridge considers that the general pattern within the SME market will be voice migrating towards mobile, while datacom -- due to wireless cost considerations -- will largely remain in the fixed-line space for some time to come.

RELATED ARTICLE: Telco SME service offerings

Up to now, fixed-line telcos have sold to the small-to-medium enterprise (SME) market using 'cost-efficient' channels (such as telemarketing) for large volume basic services. But high-end offerings tend to be sold via direct person-to-person salesmanship.

The services that are presently on offer to SMEs include standard security and firewall solutions and IP VPNs, which have steadily lowered in price and have consequently become more attractive to small businesses over the past twelve months.

In 2001, BT Ignite launched its Btnet equip IP VPN offering for SMEs and hopes that targeting the market will result in it obtaining much bigger margins from IP VPN service provision.

Managed IP voice is another service targeted at SMEs and takes away the need for an organisation to spend as much as [euro]350,000 on a private branch exchange (BPX) as the telco manages all the voice calls directly.

Today, Telia has a hosted IP BPX service and Deutsche Telekom offers an IP VPN (incorporating hosted IF telephony). BT Ignite's Multimedia VoIP product is also available, and targeted towards SMEs and corporates.

An additional service available to SMEs is line extension. This means that a company, which has its main servers and facilities at its headquarters, can have an additional high-speed El connection put through to one of its branch offices.

In terms of volume of contracts, ADSL is the service that is the most popular with SMEs who want to upgrade their ISDN services to high-speed broadband (and may wish to use videoconferencing). But the SMEs who require specific SLAs (and can afford it) do have the option of opting for dedicated E1 leased-lines. For the ones that can't, there's symmetrical DSL (G.shdsl), which is a lower-priced service than a traditional El but with slightly less aggressive SLAs.

Matthew Secker, features editor (msecker@horizonhouse.co.uk)

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