Phone companies survive by not calling themselves phone companies

| FROM THE PRINT EDITION |
 
 

Back in the days of one local telephone company, one type of service and maybe one style of phone, what happened to companies like Pacific Northwest Bell or General Telephone & Electronics was big news.

But when the successors to these legacy landline telephone companies in Washington state were sold in the space of a year recently, the biggest concern on the minds of many was what would be the name of the stadium where the Seattle Seahawks and Sounders FC played.

That such significant news about once significant companies got so little attention is reflective of what’s been happening in what we used to quaintly think of as the telephone business. These days, everyone’s a telephone company, if by “telephone company” you mean connecting the voices of two people not within shouting distance of one another. Mobile phone and device service providers are phone companies. Cable-TV companies that offer voice service over their networks are phone companies. Skype, a recent Microsoft acquisition that uses the internet to connect people, is a phone company.

But as defined by regulation and the idea that conversations are carried over copper wire, those aren’t telephone companies—which is a problem for old-style telcos that are seeing their traditional customer and service base eroded by the alternatives. In 2000, Qwest Communications had a total of 3 million residential and business lines in Washington. Less than a decade later, that number had dropped to 1.3 million lines.

So what are CenturyLink Inc., the Louisiana company that bought Qwest last year, and Frontier Communications, the Connecticut company that acquired Verizon Communications’ local phone business in 2010, doing to make themselves, and the services they offer, relevant?

One thing they’re not doing is calling themselves phone companies.

“Our mission at CenturyLink is to be the premier provider of broadband services,” says Brian Stading, CenturyLink’s executive vice president for Washington, Oregon and Idaho. Frontier, adds Maggie Wilderotter, chair and CEO, is being transformed from a telephone company operating largely in small-town and rural markets to a “communication services company” that offers voice, video and data services.

CenturyLink and Frontier will still sell you landline telephone service if that’s what you want, and for all the talk of no one having a wired telephone anymore there are still plenty of people who not only have one but also prefer it. “My wife will not talk to me cell phone to cell phone if she’s at home,” says Stading. The quality of connections and the availability of wired service for emergencies or in power outages make the landline a valuable product to many, he adds.

“For a lot of our customers in the rural parts of the states where we do business, including here, the landline is still a lifeline for many people,” Wilderotter agrees. “They’re in remote areas, they’re in areas prone to storms with power outages and the landline works. In a lot of those areas the wireless is very spotty.”

Still, Stading and Wilderotter recognize that traditional service is not the future of their companies. Customers may not be shedding landlines as fast as they had been, but the trend away from them is still in the wrong direction to make that sector a long-term, viable business. Instead, says Wilderotter, “What we try to do is bundle products so the customer sees the value in that landline service in addition to these other products we have.”

Both companies are getting aggressive about adding an array of services to compete with mobile phone services, cable-TV companies and others getting into the communications business. Consider, for example, what Frontier offers. Want a mobile phone? It has a partnership with Verizon to offer you one. How about video? Frontier has its own fiber-optic service (FiOS) and it partners with both Dish Network and DirecTV for satellite TV service. It runs an online video library called TumTiki.com in partnership with video services like Hulu, offering 850,000 titles. It also provides tech support to consumer and business customers who deal with all sorts of issues, from hooking up a home network to warding off hackers. In select markets, it’s even rolling out a house-call tech service that Wilderotter says is modeled on Best Buy’s Geek Squad.

CenturyLink is moving in the same direction through partnerships with other firms that offer services the company itself doesn’t furnish. “We’ll partner with the premier names in the industry to provide the full suite of services,” Stading says, “but our core strategy is really to be the premier broadband provider.”

The strategy, of course, is to get communications services buyers to do all their shopping in one place. “We have found from our customers that they care about convenience, they care about things that save them time, they care about bundling products to get a better deal,” Wilderotter says. “The fact that you can offer one-stop shopping with a single bill and a discount based on multiple products fits that bill. And then they only have to call one person in order to pay for those services or order those services or change those services.”

She also says customers don’t mind ordering these services, especially the advanced-technology features not historically associated with the traditional phone company, from a firm like Frontier. “Customers don’t care about networks. They really don’t. They care about what that network delivers to them. A great example is our relationship with Dish and DirecTV. We do very well bundling that product with our other products and the customers love the product. That’s a positive experience, and they associate that positive product with Frontier, whether it’s on my network or not.”

Frontier figures it’s good business for the company as well. “We find the more customers have products and services with us, the less likely they are to ever leave. So it’s a very good loyalty approach to the business,” Wilderotter notes.

Expect even more items to be added to the menus from which customers can order and more partnerships with companies that can provide those entrees. Frontier and CenturyLink are both looking at offering cloud computing and data storage. Frontier has had discussions with Microsoft about its cloud services.

This development means even more of the odd industry configuration in which the transformed telcos partner with companies they also compete with. It’s the new reality for the industry, Wilderotter says. “We live in a world of partner-competitors,” she explains. “It is the world of technology. It is the world of communications. It’s about how you put together those products and services for the customer that really matters. … We’ll look across the landscape [for services and partners]. We’ll pick a piece here and a piece there that fits the profile that’s important to our customers.”

The challenge for Frontier and CenturyLink is that its competitors aren’t standing still, either. They’re adding services and features, investing in infrastructure and inking the same affiliations the telcos are.

For example, cable-TV giant Comcast, which already offers broadband internet and local phone service, is rolling out applications to allow customers to watch TV and record programs on mobile phones or tablets, says Steve Kipp, vice president of communications for the company’s Washington region. This year, it plans to introduce Skype via TV sets and a security service that lets customers monitor their homes or change the thermostat setting with a mobile phone.

Comcast also has an affiliation with Microsoft to put its on-demand content on the Xbox, and it has announced an agreement with Verizon Wireless to sell each other’s products. The reason for linking with companies that might be viewed as competitors is simple, Kipp says. “We want to follow the thread of our customers. If they are consuming video content over a mobile device like the iPad or iPhone or on a traditional gaming console like an Xbox, we want to be there.”

Kipp adds Comcast is also going after business accounts by providing its Metro Ethernet services to medium and large businesses and expanding its fiber-optic network in commercial areas such as Pioneer Square.

Frontier and CenturyLink are putting money into broadband infrastructure, too. CenturyLink committed to spending $80 million during the next five years in Washington as part of an agreement to get state regulators to approve its acquisition of Qwest. Frontier says it has spent $8.1 million in the state to date, and by 2013 will spend an additional $39 million. (Frontier is already a major provider of Wi-Fi networks, a technology it increasingly incorporates into its overall communications systems.)

Stading says the added capacity will be needed because what businesses and consumers want from communications services keeps changing and expanding. Broadband, he notes, used to be a way to get on the internet and read email. With the growth of video streaming, social networking and online gaming, he says, “Now it really is the entertainment hub for many homes.”

To accomplish what they want in terms of market share and service offerings, Frontier and CenturyLink hope for dramatic change in another traditional aspect of the telephone business: regulation.

In the days of Ma Bell, regulators set up a system of cross-subsidies—urban to rural, business to residential, long distance to local—to make possible the idea of universal service and affordable, basic phone connections for just about everyone. But that system appears a bit archaic—at least it does to still-regulated companies like CenturyLink and Frontier—when they’re competing with firms not operating under the purview of state utility regulators, especially on price setting.

“We think there should be no government intervention at all,” Wilderotter says, noting that 15 states in which Frontier operates have dropped price regulation. Washington is not among them.

Stading doesn’t go quite that far, but adds, “To say we should have more [regulation] than the banking industry is out of balance. … The way regulation is structured needs to be completely reviewed. There needs to be an equitable playing field in providing services. That is overdue.”

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