Revenues Beyond the Triple Play

1. Revenues Beyond the Triple Play The What, Why, and How

2. Why New Products are Necessary • Voice has continued to decline as a revenue producer. • Landlines keep dropping • Long distance has moved to cellphones. • Cable TV service is starting the same path of decline. • Households are using more OTT programming. • Customers dropping or cutting back on cable. • They have largely abandoned VOD and Pay per View as a source for movies.

3. Why New Products are Necessary (cont.) • Cable TV service is starting the same path of decline. • Most companies don’t make a ‘profit’ from cable. • But cable still contributes significantly to cover operating expenses. • There are many attempts to offer better OTT alternatives such as Aereo, Verizon Wireless and ESPN / Disney, Apple, Direct TV using wireless, etc. • As cable and voice continue to decline, something has to replace the contribution they made to margin.

4. What do We Do About It? A service provider has two basic choices going into the future: 1. Become an ISP (Dumb Pipe Provider) • Offer the fastest data speeds possible • Raise data prices over time to replace the margins. • Simplify the business and cut staff, systems and frills. • Hope nobody comes along in your market with a faster pipe.

5. What do We Do About It? 2. Become a Full-service Provider • There is no one or two new products that can replace voice and cable in terms of customer penetration or contribution to margins. • This might mean a dozen new products, each with a 5% - 10% penetration. • Products will not be static and will change over time. • Products will come and go much faster than today and so you will need to be in a perpetual new product development mode.

6. What Does a Full-Service Provider Look Like? • Must be nimble. Must be able to successfully introduce new products quickly. • Must be sales and marketing driven. Sales efforts must be very effective. You can no longer be an order taker and cannot rely on the bundle to makes sales for you. • Must have a staff that is very customer focused. • Will have to be in customers’ premises more often.

7. What Does a Full-Service Provider Look Like? • Must be ruthless in assess the performance of each product line. Must abandon ones that don’t work and constantly introduce new ones. • Must be adaptable and willing to evolve the business to sell what customers want. • Must be willing to sell products that reside on other providers’ platforms. You can no longer afford the capital / software costs to do everything yourself.

8. Are there New Products Available Today? Yes! We will discuss the following today: • IP Centrex (Hosted IP-PBX, VoIP) • Security • Home Automation, the Internet of Things • OTT Video • Wireless MVNO • Crossing the Threshold • Other • What’s Next?

9. IP Centrex – Product Definition Bringing innovative and Integrated IP-Based Communications Services to Customers: • Voice over IP to intelligent Stations (phones, computers, tablets, smart devices) • HD Voice • Conferencing (Voice and Video) • Click-to-Dial • Mobile device integration • Unified Communications (Voice, email, SMS/Text, conferencing, collaboration) through many devices and applications. • Nomadic service • Contact integration and sharing • Many More

10. IP Centrex - Vendors Many CLECs offer this service directly to their own customers, but many non-traditional CLECs are using a wholesaler. • Wholesalers • Will want a vendor with a broad service offering. • Want some degree of “control” over your own customers. • Want good or exceptional billing integration. • Want services to work over multiple many CPE types. • Want a good E911 solution. • Want it to work over your broadband network but also broadband in neighboring towns. • Level3, White Label Communications, ANPI, IBBS, inetworks

11. IP Centrex - Vendors Equipment vendors for Direct Service: • You will want a softswitch vendor with many of the same attributes on the previous slide, but applied directly to your own network and service-support systems. • Metaswitch & Broadsoft for do-it-yourself service. • Cisco & Avaya for using an outsourced DID interconnection provider • Share a switch with somebody who already has one.

12. IP Centrex - The Economics • Replaces Traditional Business Phones / PBX / Key Systems. • Requires new phones that can be sold, but typically leased at a margin. • Makes the customer sticky. • Turns voice back into a non-commodity. • Allows you to sell outside your own network.

13. IP Centrex – Issues to Consider • Do you want to provide these services over a managed network, over the Internet or both? • You have more control of QOS on your own network. • Inside wiring or local LAN capacity can be an issue. • Customers need training. • Battery and/or power backup. • Will you offer 911 for phones that roam? • Sell or lease hardware?

14. Security – Product Description • Bringing modern security products to homes and businesses. • More than traditional intrusion detection and monitoring. • HD digital security video cameras for the home. • Video recording and storage. • Motion detectors and other ‘business’ features for homes. • Smoke, fire, flood, CO2, radon and other safety monitors. • Traditionally monitored and/or tied into people’s cell phones. • One monthly fee to cover equipment. Another to cover base service. Another optional fee for law enforcement monitoring and reporting.

15. Security - Vendors • Will want to use a hub device that can also be used for other products such as home automation and energy management. • Will want to contract with a monitoring service provider to monitor and report to police and/or homeowners. • There are some great wholesale monitoring companies. • Will want a platform that provides maximum flexibility and customization for customers.

16. Security - Vendors • Wholesalers with good integrated Hardware and Software solutions are Comporium, Telguard, ClearViewand AlertMe.local. • Monitoring companies – COPS, Comporium & many others UL Listed companies.

17. Security – The Economics The basic price generally covers the core hub and a pre-defined number of monitors. • Can sell and/or lease the equipment. The core processors cost between $200 and $400 with lots of add-on hardware available. • Wholesale monitoring available for $8 - $12 per month. • Sell additional monitoring devices at 20% - 50% mark-up. Sell flat fee or add to the monthly fee including a financing fee.

18. Security – The Economics • Require a contract long enough to get back all costs. Typical term would be two years. • Can buy monitoring service wholesale and sell at a 30% to 50% margin. • Generally charge some, but not all of the equipment in the installation fee and build the rest into the monthly fee. • Typical monthly fees of $29 - $39 for service, $15 - $25 for monitoring. Might be more with equipment lease.

19. Security – Issues to Consider • If offering monitoring, what kind of guarantee can you provide over a digital connection? • Consider cell phone or texting notification. • Security services and monitoring are often regulated and some local municipalities add additional security and monitoring regulations – be familiar with these regulations.

20. Home Automation – Product Description • Give homeowners control of devices, typically through the smart phone app or a browser. • Can include numerous systems such as thermostat / energy management, irrigation and pools, automated blinds, sound / entertainment systems, door lock and physical security, lighting and device management. • This is the first generation platform for the rapidly mushrooming Internet of Things (IoT).

21. Home Automation – Product Description • Sell in tiers – one price for control system and energy management, next tier to cover more, bigger tiers for connecting to more things. • Install fees become an important part of the business line because you will always be called back to add more. • Often bundled with Home Security because you can use the same base unit. Often bundled as well with Energy Management as a separate product.

22. Home Automation - Vendors • You will want a vendor who is set up to wholesale to local telecom operators. • Want a Vendor / Supplier who has integrated the required equipment and has variable service options. • Vendor should have multiple control system options and many integrated / controlled application devices.

23. Home Automation - Vendors • Vendor should offer tiers of service levels to wholesalers • Tiers for controller systems. • Tiers and pricing for volumes of devices controlled. • Want a Vendor who will white-label the offering and allow customers to contact you as tier 1 and 2 support for equipment and services. • Vendors = Comporium, Telguard and Alarm.com for integrated solutions. iControl and AlertMe if you want to integrate hardware yourself. Revolv and SmartThings are off-the-shelf automation-only controllers/hubs.

24. Home Automation – The Economics • A typical model for monthly fees: $59 for basic security, $20 additive for energy management, $20 for home automation for a defined number of devices. Bills climb from there as you automate more things. • This could become a predominant future product. Can grow to include medical monitoring, crop monitoring, flock and herd monitoring, smart appliance integrationand a thousand things we haven’t thought of yet. • Monthly fee can be priced like security with separate fee for core equipment, or permanent price set that assumes you will occasionally upgrade the core device.

25. Home Automation – Issues to Consider • You want a carrier class hub that you can address and troubleshoot / configure remotely. • Get used to the idea that your technicians will be in the customer home more. That creates stickiness, but it also may require a different level of expected performance from technicians. You don’t want an installer, you want a problem solver. • There are no integrated standards in the industry yet and so there will be challenges in connecting some customer devices.

26. Home Automation – Issues to Consider • You will be competing with lower cost DIY systems and your market will be people who don’t want to do this themselves. • You will likely want service terms to pay off equipment if customer does not pay for equipment up-front. • Consider a vendor who will sell the equipment being used for automation and allow you to participate in promotions offered by wholesaler.

27. OTT Video – Product Definition • Most recent survey said that 21% of cable customers are thinking about abandoning the big cable bundles. They won’t all do what they say, but the industry has a huge problem when this many people don’t like our basic product. • We are defining OTT service as bringing Internet-based channels to people’s sets bundled with traditional channels. • This is differentiated from “TV Everywhere” which brings traditional TV to multiple screens and devices.

28. OTT Video – Product Definition • An OTT product allows you to monetize a cable product that includes network channels, popular OTT channels and local channels as a product. • Can provide many available OTT live channels from independent or free access content providers. • Can provide access for VOD services like NetFlix, AmazonPrime, HuluPlus and many other sources of web content. • Can also give a ‘channel’ to local government, schools, churches and non-profits in some OTT platforms • Sell for a price, say $20 - $25 per month that might include as much margin as you get from your larger cable packages.

29. OTT Video - Vendors • Want a vendor with roll-out ready product • Want a vendor who can support both live and VOD content service • Want a vendor who has a supported product with future “legs” • Want a vendor who supports insertion of local content like community programming, school programming, church programming and business programming. • The ability to advertise before and after these local programs is a nice add-on.

30. OTT Video - Vendors • Want a vendor with a flexible program guide. • Want a vendor with flexible “middleware” solution. Customer presentation and content management is important • Want a vendor that will operate on broad-range of CPE – including DVRs. • AIOTV – Software company that assists with integration. • SkitterTV – Hardware manufacturer who is also a CATV operator who bundles OTT channels with traditional programming and headend hardware. OTT partner, not just vendor.

31. OTT Video – The Economics • Can create a product that will keep cord cutters on your network while letting them drop the traditional larger packages. • Depending on your contracts you can still sell them things like movie channels, Pay-Per-View sports, subscription sports like Major League Baseball. • Lets customers keep network channels, which for now have no OTT alternative while dropping everything else. May keep them paying you for years while otherwise they would be gone.

32. OTT Video – The Economics • Monthly fee somewhere above Basic tier. Maybe charge $5 -$10 over Basic to add OTT channels. • Margins can be better than current IPTV margins. • Note from a regulatory perspective that if the product includes the network channels that this is still a cable product.

33. OTT Video – Issues to Consider • You must have no contractual restrictions against it. However, if you already sell a Basic cable package of network channels and must-carry channels, this is the same channels plus some ‘channelized’ OTT feeds. • There may be issues integrating this into an existing settop box. There are people delivering this over cheap boxes such as a channel on Roku or a separate box like an android-based streaming device. • There are platforms that let you insert ‘channelized’ feeds to create a local station for a high school or church.

34. OTT Video – Issues to Consider • If you offer cable channels, they will want you to provide some sort of “conditional access” to ensure that you don’t sell their programming over the open internet. • OTT currently is still an “on-net” service if you offer any substantive live programming. OTT with cable programming or local programming is not a “take your video service everywhere you go” type service yet.

35. Wireless MVNO – Product Definition • Sell white-labeled cellular service to your customers using the networks of the four major carriers. • Offer bring-your-own handsets to bring great prices to customers. • Can also offer decently priced drop-shipped phones, but we recommend not building phones into plans. • Up to you, but you don’t need to require contracts for customers. • Can bundle the wireless service with other product offerings.

36. Wireless MVNO - Vendors • Genesis Wireless – wholesaler of all four major carriers on a pre-paid basis. • Several sources of drop-shipped phones. • Sprint still will discuss deals where you also can build and own local cell sites. • Can make direct deals with the wireless vendors. However, they are very selective with their partners and may also require significant deposits.

37. Wireless MVNO – The Economics • You can buy and resell basic cellular packages with a good margin, around 20% - 30%. • Low cost of entry. • Can use a broker and get access to multiple carriers. • Most affordable option is to sell pre-paid service where customers bring their own handsets. • There still might be some deposits required for Verizon and AT&T based upon sales volumes.

38. Wireless MVNO – The Economics • Can sell unlimited voice and text with 2 GB of data for $45 per month. This is good for households with less than 2 wireless phones. • This works great if your customers have your data and use WiFi at home and office because it off-loads data to your own service and reduces your costs of wireless data service. • Can tailor service offerings to your subscriber base instead of the one-size-fits-all that the large wireless carriers sell.

39. Wireless MVNO – Issues to Consider • This is an arbitrage business and the terms of resale can change. • Selling pre-paid is a new way of thinking about cash. Customers get no grace period and must be paid before the new cycle starts. This probably means you will want a deposit from them. • Will not have access to unlimited or large data plans. But can sell data plans that will satisfy most customers – especially if customers have your data service at home. • Margins are small enough that you might not want to accept credit card payments, except at a premium cost to customers. Bank debits are the best way to bill the product.

40. Wireless MVNO – Issues to Consider • Significant savings for customers and they get to ride the major carrier’s networks. • Can launch quickly. • You can include phones in your plans, but that puts a huge amount of pressure on the economics. But you can buy drop-ship phones for customers as a convenience. • White label and take advantage of your brand name.

41. Crossing the Threshold - Description • Commoditize your technicians times, particularly with business customers to become their full-service telecom / IT provider. • Charge rates that compensate for most of a technician’s annual cost, making them mostly free to you. • Support a full suite of business products that include things like: • IP Centrex phones • Managed LAN service for Voice • Desktop Virtualization • Telepresence • Standard software as a Service • Data Security • Physical Security • Data Back-upand recovery

42. Crossing the Threshold - Vendor • It’s You! • This concept makes you and your company the local technical “go-to” guys to get things done for your business customers. • Like Geek Squad, only much better and you selling services as well as equipment, installation, managed services & professional services • Makes you more of a partner than a vendor. • Puts you deeper into your customer’s day-to-day operations • Expanding into the IT side of “professional services” and exploiting your locality.

43. Crossing the Threshold - Economics • You may want a different type of technician to do this than the normal ‘installer’. Might not need the same expensive trucks and other tools. • Technicians in the home and business should be your best salespeople. They should be compensated accordingly. • Rates must obviously cover costs, but not necessarily make a profit. The goal is to have the technical force mostly pay for themselves with labor charges, with profits coming from the services they sell. • Consultative selling is the key

44. Crossing the Threshold – Issues to Consider • Technicians will need to be cross-trained on services as well as hardware, wiring and some software. • Your back office technical staff can also be out-sourced to customers. • Need to have services that keep the customer wedded to your products – including your people. • Most “services” being sold under this concept are traditional IT services. • Your company should be the first “test” customer for the services that you will sell.

45. Other New Products • Cloud Services – Resold software, data storage and backup • Energy Management • HD Voice • Advance Telecom Features • SIP Trunks • Unified Communications • Collaboration software • Whole home DVR • TV Everywhere

46. What’s Next? • The Internet of Things (IoT). • Medical Monitoring • Crop Monitoring • Flock and Herd Monitoring • More and more home automation. • Virtual PCs. • Mini Cell Sites. • Group buying of these many services. • Things we haven’t even thought of yet?

47. New Product Development Cycle • Very labor intensive and costly to develop and implement a new product. • In order to do it efficiently you must develop and implement a new product development process. • Your goal should be to find ways to skip or condense the steps in order to roll out products efficiently. • Technical and sales staff will be your eyes and ears in the market. • You could look to vendor, partners or consortium to assist with product development.

48. New Product Development A typical Cycle / Process: • Define solution that product addresses • Define the product, customer benefits • Quantify the potential market • Determine technical requirements - hardware, software • Provisioning – how will it be implemented? • Interoperability – how does it work with existing systems?

49. New Product Development A typical Cycle / Process (cont.): • How to price it? • How will it be billed? • What are the costs / margins? • How to sell and market It? • Customer training and documentation • Alpha and beta testing and timeline to market

50. Contact CCG Consulting Doug Dawson, President (202) 255-7689 blackbean2@ccgcomm.com CCG’s Daily Blog: http://potsandpansbyccg.com/ Derrel Duplechin, VP of Engineering (337) 654-7490 dduplechin@ccgcomm.com