By
Jeff Barnell, UrbanMedia
Although
it has been said countless times, the truth is undeniable; The Internet
Revolution has permanently and irrevocably changed the way business is
conducted. Rapidly evolving business applications continue to push the
boundaries of distance and communication, making the most remote sales office a
mere telephone call, e-mail or videoconference away. Bandwidth-heavy
technologies and high-speed data services offer new and immediate links to
markets and business resources in the most cost-effective manner possible.
And
while large-scale enterprises continue to invest in telecom solutions and
infrastructures to benefit from these advancements, small to mid-sized
enterprise (SME) tenants of suburban MTUs are often at a disadvantage trying to
keep pace with their better-capitalized competition. As a result, a growing
number of tenants are looking to MTU owners to help them achieve the access
needed to keep pace. Many of the best informed are already placing high-speed
broadband access near the top of their criteria when evaluating potential
rental space. The services must be immediately available and at excellent
rates.
This seismic shift offers a
world of opportunities for MTU owners and new building-centric service
providers to partner and build future-proof telecom architectures and business
solution packages that differentiate properties, enhance tenant satisfaction
and increase building capitalization.
Motivation for Access
Three
trends have converged to make high-speed access a growing reality for the MTU
market. First, is the realization of the huge untapped market outside the
central business district (CBD). Second, sales potential has increased due to
the increasing dependence of SMEs on broadband access, digital voice services,
and e-business applications. And finally, new network architectures make the
market outside the CBD economically reachable. With this awareness, demand, and
technology in place, service providers will push into under served markets
growing subscription rates and revenue.
Looking for fresh and
emerging markets, a new breed of building-centric service providers (BCSPs),
have noted the strong growth in the MTU real estate market beyond the urban
limits of traditional CBDs. According to Oncor International, eight suburban
markets each have over three million square feet of space under construction.
These markets alone account for 45% of all new North American office construction
today.
However, more space does not necessarily translate into dense or big
space. Among the existing 7.6
billion square feet of U.S. commercial multi-tenant office space, 5.4 billion
is occupied by companies with fewer than 100 employees, or over 27 million
workers. Further, the average building is significantly smaller, about 50,000
SF, and is often located in a widely spaced campus setting. So while RBOCs and
other traditional telecom providers continue to compete in larger, densely packed, closely spaced
buildings in CBDs, BCSPs view the MTU market as largely ignored and teeming
with untapped potential.
This
potential appears to be substantiated as REITs and property owners increasingly
feel tenant pressure to offer high-speed access. Whether an Internet start-up
or travel agent, tenant companies are increasingly more tech-savvy and are
requiring more broadband support to run their business. Kent Barner, senior
vice president at Prentiss Properties Trust, has witnessed this trend and believes
it will only become more prevalent.
“A couple years ago
prospective tenants began asking us if we had fiber when they were considering
our properties,” says Barner.
“We kept hearing ‘fiber’ over and over again as if it
were a standard part of their check list.” He adds, “Whether they
know why they need it or not, prospective tenants understand that fiber is
where things are headed.”
Such tenant interest is
reflected in the numbers as well. According to Prudential Securities, SMEs are
already investing in telecom solutions to keep pace with larger, more
technology-laden companies, yet they rarely receive any capitalization or
pricing advantages.
Consequently, SMEs and MTU owners are individually and
collectively motivated to achieve high-speed access and utilize e-business
applications. The realities of
actually getting wired, however,
can be another story.
From the Tenant’s
Perspective
When an SME tenant prepares
to move into a new space, they face numerous obstacles—the first often
involves attempting to contract with a traditional RBOC. RBOCs view SMEs as
having limited to no profit potential due to their limited size. As a result,
the SME is ignored or forced to wait as long as two months for local service
installation.
Even more challenging are
the capital expenditures SMEs must undertake to build their IT infrastructure.
They know their business demands fiber-based broadband access, digital voice services,
applications, content and some form of local area network (LAN) —all to
simply keep pace with business. Yet equipment and installation expenses can
exceed $200,000 in up-front costs with annual service contracts and staffing
expenditures estimated at over $90,000. Tenants must then evaluate how fast
their investment will become obsolete as technological advances occur, access
speed is increased and bandwidth is stretched.
MTU Challenges
By
contrast, building owners are facing challenges helping tenants achieve voice
and data access. Keeping tenants satisfied, occupancy high and property
maintained is challenge enough.
Yet if owners don’t participate in telecommunication requirements
of all their tenants, the result can be multiple service providers competing
for the same customers, clogging risers, damaging property, and inconveniencing
property management and tenants.
Moreover,
MTU building owners and managers don’t have the desire to become telecom
experts. They are not qualified to
resolve tenants’ telecommunications issues when lines or equipment fail. Again, Barner elaborates,
“Having
an on-site technician there to help if we have a question about a telecom need
is key. We’re a medium sized
enterprise…imagine what it’s like for an eight person enterprise. That high level of service is a Godsend
for a small company. Having
on-site or dedicated service support is absolutely a value—one which many
providers will likely have to offer to be competitive.”
For these reasons, service
providers and MTU owners have an opportunity to build valuable partnerships by
providing tenants with custom-designed, reliable and integrated telecom and
e-commerce solutions. The first
step is building the future proof architecture that will deliver high-powered
Internet access and services as well as provide building owners with a
competitive advantage by offering a value-added amenity to tenants.
Tapping Into the Future
To
successfully meet the unique needs of building owners and tenants, a provider
must first build the necessary architecture—a fiber network. A
future-proof optical network that delivers truly carrier-class, broadband
online access and voice solutions, as well as 24x7 service offers significant
value to MTU management. In
addition, optical networks scale to fulfill the growing and unmet need for
gigabit speeds.
Unlike utilizing legacy copper systems, “lighting” the property with a fiber network, means a future-proofed building. The capacity of an in-building fiber network is almost limitless. As the demand for speed increases, the building cabling is prepared. Specialized, in-building equipment allows one building to serve as a hub for nearby properties—reducing back haul costs, lowering build-out costs and allowing the fiber connection to be extended all the way to the tenant’s LAN. Service providers can extend the speed of the wide area network right up to the tenant, thus eliminating the traditional low-speed edge connection.
Linking the buildings to a regional network center (RNC)—again with fiber—builds in both scalability and flexibility. The RNC performs voice and data switching, bandwidth management and provisioning functions through its fiber connections to the building and the carrier networks. In the end, this all-fiber network delivers voice, data, video conferencing, remotely hosted applications or other bandwidth intensive products economically, flexibly and reliably across the entire region.
Service Offerings
Once
the high-bandwidth system is in place, providers, in conjunction with MTU
owners, can develop a portfolio of value-added services brought directly to the
desktop. And in conjunction with the service provider partner, building owners
can offer Internet access as a free building amenity. Subscribers can choose from a range of comprehensive
e-business solutions including content, e-commerce applications, advanced voice,
data, and web hosting services.
Providers can also partner with other vendors to provide additional
value-added options such as on-line purchasing, news and information; as well
as payroll, accounting and human resource services.
Industry studies indicate
that demand remains high for
commodity-based aspects of the web-hosting package, such as floor space and raw
bandwidth. However, rapid
increases in available bandwidth, improvements in caching, faster switching technologies
and the evolution of private peering—combined with a dramatic increase in
available data center space—will have an impact on the economics of
providers offering connectivity and little else. (i.e., bandwidth only
companies will suffer.)
Packaging Advantages
In the case of the tenant, packaged services bring a
great deal of value. First, “cafeteria-style” packaging
allows tenants the flexibility to subscribe to services only as the need arises
or budgets allow. As a
business’s needs grow, so can the breadth of its selections—new
applications, more licenses, and more features. Tenants generally must trade features against cost and
scalability against flexibility. Packaged services help tenants maximize their
productivity and profitability.
Moreover, managed services bridge the competitive gap
between small and large businesses.
On a pay as you go basis, SMEs can often afford the applications
normally seen only in larger corporations with dedicated IT organizations. This
is especially important during times of economic downturns, when being
efficient and staying competitive are key to a business’ survival. Again, packaging offers tenants the
flexibility to outsource as much or as little as needed—no more, no less.
From a cost standpoint, managed services like web
hosting and e-mail also eliminate the need to pay for and maintain large
infrastructures. Outsourcing also means tenants no longer need dedicated space
for servers, and other hardware. From the landlord’s perspective, overall
power consumption and the related costs are reduced.
Service packages also encourage tenant loyalty. As tenants select and consume the on-line services and utilize the on-site support, they become a business partner with the building. More reliant on their building’s amenities, tenants find moving a less appealing and more difficult option. The property owner is, in many ways, helping the tenant do better business—not just providing space.
For the service provider, the
benefits of multi-service packages deliver more than the obvious revenues.
Importantly, these services strengthen the relationship between subscriber and
provider. The tenant relies on the
provider to deliver custom-designed solutions and on-site support. If delivered
effectively, the desire to switch providers becomes less attractive, almost
counter productive.
Things to Consider
For REITs and other
property owners interested in high-speed access and service bundling, there are
several key considerations to keep in mind:
The services should
differentiate your property
Look for a provider that
offers a unique bundle of services. Determine if you can offer as part of your
partnership with the provider, one or more of these services as a free building
amenity. Providing free broadband Internet access to every worker in the
building is a good example. On-site support is prized by both the tenant and
property manager.
One solution does not
fit all needs
Look for providers that
understand the diverse needs of tenants. Tenants have extremely broad needs
requiring an even broader set of services. Tenants want and appreciate a
flexible approach to services — companies should only buy as many
applications and content, as they need.
Again, service providers should have a wide range of e-commerce
services, which anticipate a range of needs and add full value.
Look for Fast and
Efficient Access
Most important to the
tenant, the provider’s services must be immediately available and feature
turnkey solutions. Minimizing building disruption, the provider should commit
to pre-cabling the property in anticipation of the first subscriber contract.
On-site sales and support personnel should be available to assist the tenant.
Demand 48-72 hour turn around on tenant installations.
Demand Future-Proof
Architecture
Businesses will continue to
expand their use of e-business tools and applications. Understand how the provider’s
infrastructure will deliver Telco-grade quality while providing the features,
scalability, and economy you and your tenants require. Remember future services
and the building’s evolving needs will require ever increasing bandwidth,
so look to providers building tomorrow’s fiber network today.
Limit Search to
Providers Willing to Collaborate with MTU Owners/Managers
Due to the broad range of
tenant industries and needs, providers must partner with MTU owners and
managers to develop the custom-designed solutions that offer true value and
drive subscription rates.
With these key components in
place, MTU properties teamed together with building-centric service providers
can enjoy fantastic success and revenue potential.
About the Author:
Jeff Barnell is Vice President of Marketing with UrbanMedia. UrbanMedia is a broadband telecom service provider that delivers value-added business services bundled with high-speed Internet access to small and medium-sized businesses across the U.S. The author may be reached with questions or comments via email at JBarnell@urbanmedia.com