Rural Telcos Admit Major Changes Are Needed

LAS VEGAS -- TelcoVision 2013 -- Rural telcos need to make significant changes in the way they do just about everything to survive in today's competitive market, a keynote panel here advised on Thursday.

Hiring and compensation packages, corporate culture, technology deployments, better benchmarking, and even management structure all need to come under the microscope and be adjusted. Kevin McGuire, formerly with the NTCA - The Rural Broadband Association , which is co-sponsoring TelcoVision with UBM TechWeb , and currently CTO with Enhanced Telecommunications Inc. , outlined potentially painful decisions that rural telcos face, including the need to examine their employment rolls to bring in new skills and gently nudge non-productive employees out. That's all part of a corporate culture change that is needed to become more sales- and marketing-oriented and able to meet customer needs.

"You have to be willing to make major changes," McGuire said. "We have always focused on the network. But now we need to look at that differently."

Instead of being order-takers, telcos need to develop sales organizations that can build relationships with key customers and then develop solutions for those customers. As part of that process, a small telco also has to create new incentives for its employees and reward innovation and hard work. McGuire said one thing his company did was to institute FlexTime for its field workers, to incentivize them to stay on a job for as long as it required, knowing they wouldn't be expected to show up as early the next day.

McGuire admitted, however, that hiring the right people with a new skill set is hard -- his company has had jobs open for weeks trying to find the people they need. And even harder for many will be the process of developing metrics to measure the performance of existing employees. The key is to decide who lacks the right skills or the right work ethic and either retrain them or "help them out the door," McGuire said.

Building greater scale and efficiency into their networks is also a key requirement for rural telcos, said Vince Tyson, COO of Plateau Communications, a New Mexico telco, and that may mean sacrificing independence to work more closely with others, including other service providers and companies that previously might have been seen as competitors.

"It may be time to take the capital 'I' out of Independent," Tyson said. The key thing is to drive more scale and greater efficiency in new networks and even in programs such as marketing, he said.

Rural telcos have worked together in state-wide groups and other associations in the past, but Tyson said the loss of federal funds for rural telcos, who have traditionally had higher costs to serve less-dense areas, will require new efficiencies based on greater scale to lower those costs. Cloud-based services, shared among multiple companies, could be one answer.

Tyson and Fraser Pajak, CEO of the QuEST Forum, also challenged the rural telco execs in the crowd to start establishing benchmarks and measuring their performance against industry-wide standards.

The service mix that rural telcos deliver also must change, said Tyson and Dee Herman, principal at Herman and Whiteaker LLC. Tyson believes telcos need to drive more IT solutions for their customers, and Herman suggested looking for niche services in markets that today are unserved.

— Carol Wilson, Editor-at-Large, Light Reading

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Sarah Thomas 10/24/2013 | 12:45:41 PM
rural culture So, why is the culture at rural telcos so off? Is it just part of the country way to be more laid back and non-sales-oriented? That's also why they seem to be generally liked in their home towns -- they are the anti-big carrier (uh, the uncarrier?). I guess it's not necessarily good business to be the most well-liked though.
Carol Wilson 10/24/2013 | 1:06:59 PM
Re: rural culture Sarah, a couple of issues here. First, the rural telcos got used to a certain level of federal funding from Universal Service and intercarrier compensation that has gone away or is drying up. They have been active in building out their networks in recent years and actually pioneered some things, like IPTV, for instance, well ahead of the bigger operators. But they haven't been as accustomed to marketing themselves and to being pro-active in developing new services, beyond more bandwidth.

That is changing but the point of yesterday's panel is that it has to change faster. They have to work harder to make the IP transition successful in their communities. It's hard for every telecom operator today to find folks with the new skill sets they need in the IP world but it's even harder for those in rural communities. And scale isn't something that comes easily when you are serving several thousand square miles and only hundreds of customers. So they have to work harder at that also.
Sarah Thomas 10/24/2013 | 1:13:53 PM
Re: rural culture Thanks for the feedback, Carol. That makes sense about the USF money and scale dynamics. It sounded like McGuire was talking mostly about culture, but that is inextricably tied to their market dynamics.
Carol Wilson 10/24/2013 | 8:39:59 PM
Re: rural culture I think McGuire's point is that rural telcos have to be willing to look at every aspect of their business, and not just look to new network technology, to help them turn things around. 
Cableco44 10/25/2013 | 8:04:23 AM
Re: rural culture The changes are required and I believe the responsiveness of the rural operators (not just telcos) must deliver to their customers is their best option for their consumers and profits.  The reality is the operator is not required to be sustainable, survivable or operational in the future.  It has to be their desire.  The consumer will always be there and they will either use the loop to get to services they need or they will use the loop and services the rural operator determines it wants to provide.  Obviously, our company, like Mr. McGuire and a few others have to find a way for the the rural operator to invest in their community adoption of telecommunication services which by no means is solely technology solution.  There is funding the network (which CACM/CAF) will not solve and servicing the consumer as Mr. McGuire points out.
Carol Wilson 10/25/2013 | 10:53:49 AM
Re: rural culture Good point, these trends affect cable companies as well. The president of the American Cable Association was on a panel yesterday and seemed to concur on most fronts with the two telcos on the panel.
TaraSeals 10/25/2013 | 11:19:53 AM
Re: rural culture I think this is really interesting because the market dynamics are also being affected for the first time by encroaching access choice in what have traditionally been underserved areas. ILECs and RLECs have always enjoyed that "part of the community" status-- they live locally and pay property taxes, hire local workers, send their kids to local schools and the CEO spends money down on Main Street and at the local grocery store. OK, that may be overstating it a bit but the point is that there's always been the sense that the local telco is woven into the very fabric of these markets from a cultural perspective. ANd therefore, there's a lot of LOYALTY to fall back on.

But I think loyalty eventually gives way to competition and choice. A shift within the organization to become more strategic rather than simply not fixing what doesn't seem to be broken is obviously a requirement now that USF reform has gone through, but other changes are afoot that I think will spur those internal changes to happen sooner rather than later. Take, for instance, the fact that the wireless ISP segment is now going to market in increasingly aggressive ways, promising equal or better broadband speeds (and in many cases voice and sometimes the triple play) for a lower cost. Unlike their telco counterparts, WISPs don't have to incur big capex by trenching fiber so they do have the ability to be more nimble with favorable economics for serving less densely populated areas.

IDC estimates that fixed wireless access is growing at 21.8 percent CAGR through 2017, making it one of the fastest-growing broadband access technologies and a viable alternative to cable, DSL, fiber and satellite. This growth represents a projected $5.9B service revenue opportunity for service providers in 2014.

I talked to David Hsieh at Ubiquiti (a WISP vendor) recently and here's what he told me: "Fixed wireless one of the fastest-growing broadband technologies, growing at 8 percent, or two and a half times the rate that broadband is growing generally. It's a huge opportunity. It's a cost-efficient approach with a fast time to ROI, and given the choice between digging a trench and sticking antenna on the side of the house, with comparable performance—well which would you choose as an operator?"

He also said that other players--like cablecos, notably--are pursuing Connect America funds to build out to these areas. And are lobbying heavily in D.C. to push out smaller operators when it comes to securing public-private partnership funding, on the argument that they have more advanced technology and better operational profiles (read: efficiency) than either local telcos or WISP upstart.

There are also new entrants coming online: DISH this week announced trials for LTE-based fixed wireless for undreserved markets. 

So there's a lot happening!
vishal87 10/25/2013 | 4:03:13 PM
Re: rural culture Hi Carol and Sarah,

Excellent points both! A few items caught my attention, which I wanted to share thoughts on.

First, Sarah, I can assure you (from direct personl experience of tracking this industry segment for the past couple years and from directly working with some operators) that most rural telcos are not "laid-back" country folk by any means :-). They are anything but! A good many of them (as Carol observed) are ahead on the technology curve, but it's also pretty evident that technology is but one part of their puzzle.

Yes, being liked by their community is a benefit, which they rightfully use as an edge over the big guys, by being available for their community, beyond just providing them communications services. (The big guys aren't going to roll-up their sleeves and go helping neighbors out in rural Montana somewhere, when "rural carrier" staff will 'cause they live in the same communities they serve. Check out this from the South Dakota Networks (ok, they're a little more than just a rural carrier, but they do serve very large rural parts pretty exclusively) website, http://www.sdncommunications.com/about-us/history-ownership/, of how they kept communications going during a flood across the Vermillion River, back in 1993!, and of their other community initiatives http://www.sdncommunications.com/about-us/community-service/; and this is just one example of several hundred rural operators that exist in the US alone, even today!)

Carol, the question many of these rural (I call them "emerging") carriers have is that to answer "what technology is right for us?", they have to look at strategy, business, systems, network architectures, sales/marketing, customer base (current and desired) and the like in cohesion.

It is here that they typically tend to have problems (which we've helped several of our progressive carrier customer's address). In fact, we have an entire presentation that outlines some of these issues, and what it takes to address them, which is found here http://bit.ly/OkBcj0, while more info. on our initiatives is found here http://bit.ly/M5Lc94.

This is a problem of changing the mindset of executive and engineering management at these operators, and making them aware of formalized processes and systems, and of the need to look comprehensively at the information their sales, billing and engineering organizations (whether formalized or not) already have. Such, systems are a must for growth and progress, and to remain competitive.

Another issue is one of density of users. With very low user densities, running profitable operations will continue to be a challenge, and the idea will be for these operators to move into new services - broadband wireline and wireless (fixed perhaps), and to, via a process of education, show their customers the value they can derive from broadband services (a lot is possible today with a good broadband connection, siiting even in rural Wyoming or North Dakota!).

The problem of low user-density, however, will continue to be there, and one that different rural operators will contend with and address in their own ways. Perhaps by consolidation, partnerships, pooling resources and the like -- an interesting area of work for sure!

BTW, Carol, a great post and topic, which I've reflected on to the Carrier Ethernet Group on Linked In that I manage, and invite you to also have a discourse there, as this Group includes a number of members from around the world, many of whom share problems similar to those faced by rural operators in the US. http://lnkd.in/bpxAQR


vishal87 10/25/2013 | 4:35:10 PM
Re: rural culture Tara,

Thanks for sharing these perspectives - very helpful!

The point you mention about lobbying by larger players for use of Connect America funds is worthy of note. I think it's interesting to see how these funds get disbursed, and whether the rural operators will get any significant share of them.

It is true that some expansions in rural areas by local operators will require deep capital expenses, which are initially best funded through either reasonable debt or grants of some sort, with payback being a long time horizon, which governments can afford. But, if access to such funds is difficult (for whatever reason), capital would also become a gating issue for rural operators, which is an issue they'll have to contend with.

jat5381 10/26/2013 | 10:11:41 AM
Metrics Mr. Mcguire says:  "...And even harder for many will be the process of developing metrics to measure the performance of existing employees."

It is my belief that the more business and industry in the US focuses on metrics first instead of a quality process, the more those same business and industries will constantly have to "reinvent" themselves and talk about having to "make major changes".

Demming's lesson's of quality have been lost (or ignored) by now two generations of business and industry leaders in the US.  And that is a shame.

Mr. Mcguire says:  "...a corporate culture change that is needed to become more sales- and marketing-oriented and able to meet customer needs."

Blaahh.  If you don't have a product or service that people want and performs as advertised, no amount of marketing will cover up this failure.

The harsh reality of today's political environment may increase the chance that rural telcos will not survive or be unable to grow.  But focusing on metrics and marketing at the expense of a quality process will most certainly hasten the demise in my opinion.
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