Good Night Gorilla, a most popular children's book may be a fitting tale for describing the state of private broadband services in the residential multi-dwelling unit (MDU) marketplace. Well, maybe this suits the pessimist. But for the true optimist, Good Morning Guerilla a tale yet to be written may be a more fitting account of the real opportunities for both multi-dwelling unit (MDU) property owners and service providers.
It is a minor point, but the correct term is "guerilla" not "gorilla" when used in referencing warfare. After all, the competition in today's telecommunications and technology world is very much a war. In this war, the private broadband operator, the non-franchise cable or non-local exchange carrier company, is forced to become a "guerilla."
By definition, a guerilla is a member of a small, irregular, indigenous unit operating in small bands in occupied territory to harass and undermine the enemy (small companies collectively operating as private operators, principally within regions attacking the franchise cable industry). The guerilla's primary tactic is usually conducted on a very focused attack (the MDU marketplace), undermining the enemy with smaller but ultimately more powerful weapons.
The world's first lesson on the effectiveness of guerilla warfare tactics was in Vietnam. No matter how hard US troops fought, the guerilla warfare used by the North Vietnamese stopped them in their tracks. This new warfare utilized mines, booby traps, ambush methods and superior tactical planning.
The telecommunication industry's first lesson on the effectiveness of this new warrior, the guerilla (the private cable operator) was in the early 1980's. This new breed of video competitor did not require public money, public easements or federal government approval to operate. Strategically, they approached apartment complexes with a video product where the franchise cable companies were largely ignoring their potential. They used smaller, less expensive technologies and were striking at the core of what has becoming a very important market for franchise cable (It is estimated that 20-23% of a franchise providers revenues are derived from MDU residents).
Fast Forward Twenty Years
In time, the large infantry-like divisions of franchise cable began to awaken. This forced private operators to change their strategies if they desired continued growth in the MDU market. Like the skilled guerillas many of them have become, they responded to this new challenge with prudence. However, others of their industry responded with haste and to their detriment.
Those who acted in haste misunderstand the principles of their earlier success. These were to be small and guerilla warfare like in their approach to competing with franchise cable. Instead the began seeking excessive amounts of capital and growing to burdensome levels of staff. They recruited legions of sales and marketing forces, expending resources at a rate that would leave them without any reserves to fight the long battle ahead. They deviated from the concept of guerilla warfare and grew to be large, slow moving battalions of sales and marketing forces that have become crushed in a war they were ill prepared to fight. Their plan was to compete in an open field rather than the smaller recesses where earlier success was found.
During the most brutal time in their history, the 1990's, many of these telecom warriors have left the industry with barely whisper of success but a thunderstorm of failure. However, to the good fortune of MDU property owners a number of these battle-hardened providers remain. Those who remain are offering both digital video and high speed Internet services. They understand the past and how it has forced them to change their business models, products, approach to customer service and the new demands of today's residents. Reviewing any one of the "PCO Perspective" articles in past issues of Private & Wireless Broadband will point to the many clues that can be followed to make this transition.
Standing Your Ground
Those providers who have remained steadfast in their guerilla approach to the market, focusing on one or two regions, are seeing stable growth and success. They are serving MDU properties, helping property owners who are battling their own market competition. They are working together, looking for an edge to gain on the competition. The two primary areas this edge is being gained is in the bundled provision digital video and high speed Internet services. The "Back To School" segments previously published by Private & Wireless Broadband discuss ways in which these services are or can be successfully deployed on an MDU property. However, in the area of high speed Internet access a few things have changed.
If They Can't, You Can
The Bell telephone companies are woefully behind in their deployment of digital subscriber line (DSL) service, nationwide. This is also true for cable modem service from the franchise cable operators. And with announcements of large layoffs and budget cuts by such giants as AT&T Broadband, the speed of their deployment cannot be expected to pick up for quite some time. Then there are the specialized MDU Internet Service Providers (ISPs) who have been offering private operators strategic alliances for the delivery of high speed Internet access, as well as services directly to the property without the need of a private operator.
In the January issue of Private & Wireless Broadband (Searching For An Oracle), it was posited that at least one of these companies (Darwin, BroadbandNow, Reflex, CAIS or Velocity) would be morphing into slower, smaller or non-existent creatures by the second quarter of this year. First to meet this expectations was Darwin with their announcement of a Chapter 11 Bankruptcy, BroadbandNow's announcement of a 30% reduction in workforce, CAIS's announcement of departing the MDU industry, completely. Velocity, albeit far from exiting the industry, is taking a temporary hiatus from doing new projects. Each of these instances leaves many MDU property owners and private system operators standing at the altar. They were counting on these companies to provide the magic bullet.
Birds Of A Feather
For the first time since franchise cable elected to treat MDU properties as an unwanted stepchild through the 70's and much of the 80's, both private operators and property owners now have a common meeting ground. High speed Internet access. The operator is effected by the failures of those who promised successful strategic alliances. The property owner is failed by the promises of these same companies, as well as the local telephone and cable companies. Fortunately there is high ground.
Navigating A Mine Field
MDU property owners are struggling to get high speed Internet access to their residents, many of whom are becoming increasingly vocal about such service. The local telephone and cable companies are failing in bringing this service, as have many of the previously mentioned ISPs. At the same time, private operators are struggling to find ways for providing this service, since making an alliance is now considered a risky venture. But together, many property owners and operators are making high speed Internet service a reality for residents. Working together as partners, not always requiring a financial contribution by the owner, these two entities are becoming the ultimate guerilla warfare experts.
Like finding an oasis in a desert, the true guerilla-like private operator is finding a market niche' that has been waiting for some time. They have found a critical connection between themselves and property owners. And once again, property owners are beginning to reevaluate the benefits of private system operators as they are evolving into a new breed of operator, the Private Broadband Operator (PBO).
Choosing Weapons
Whether tackling a weekend project around the house, attacking a position in the jungle or providing high speed Internet access to MDU properties-choose your weapons wisely. Depending on the abilities of the property owner to access the inside cable wiring or telephone wiring, the PBO is typically looking at providing either DSL or cable modem service. Most successful PBOs, such as Atlanta based MediaWorks elect to use cable modem technology, as like most PBOs they have already secured access and an easement (or license) to the coaxial cable plant. Cable modem technology is manufactured by companies such as Coresma (www.coresma.com), Motorola (www.motorola.com) and 3com (www.3com.com). To get a good basic understanding of the technology visit www.webopedia.com and type in the term "cable modem." If the decision is to use a wireless solution, many in the MDU industry have developed an affinity for the Tut Systems product as it is designed specifically for the MDU environment. However, it is much more costly than cable modem technology. Tut also manufactures platform technology for the delivery of cable modem service, and are also the leading suppliers of this equipment.
Connecting A-Z
Unfortunately, no length of article can explain the best and worst ways to bring high speed Internet service to an MDU property. It is clear that such service is in high demand. When placed in concert with a strong digital video product, PBOs are once again regaining the favor of MDU owners. But both operators and property owners are encouraged to study these technologies, to understand the logistics and costs of their deployment and be prepared to be more active rather than passive in the delivery of this service. Both parties must work together to make the delivery of high speed Internet access a success.
The ISPs who rely solely on revenue from Internet access are experiencing great difficulty in keeping their investors happy (i.e., Darwin, Reflex, etc.). As such, it is a lesson for both the PBO and MDU owner that the bundling of data and video together provide the market economics necessary to keep the operator strong over the long term. Such a relationship affords the owner comfort of his residents acquiring the services they both want and need. But the PBO must enter into this relationship understand that the expectations of property owners on performance are much greater of the PBO than its franchise competitor or local exchange competitor.
Good Night Or Good Morning.
The sun is beginning to burn away the morning dew and the battlefield is being cleared of those who fell through the night. What remains now are guerilla warfare experts, both PBOs and MDU in their respective markets. They are looking to cripple their competition by being smarter, swifter and more exacting in their attacks. Both the weapons and market demand are at their disposal. The only question is, are they going to seize the moment like a gorilla or a guerilla? Gorillas are becoming extinct, while Guerillas never die. Good luck.