Sep 26, 2022

The Future of Broadband is NOT Speed, Because Speed Alone Is a Race to the Bottom

The broadband industry is drunk on speed—an idea perpetuated by broadband providers (and dumb-box hardware providers) who believe, “If we provide a faster speed, we will grow share.” I say speed will not grow share (unless you are overbuilding DSL). Here’s the reality. The decision to invest in XGS is a long-term CAPEX decision that will allow a broadband provider to put that asset into maintenance mode for 10-15 years. Speed will not shift share and, if that is the only strategy, it will lead to price wars. At Calix, we are committed to helping our customers deliver the most capable networks in the world that deliver the fastest speed. But speed is an ante to get into the game. Speed alone is not enough. Amazing subscriber experience and unique services for your subscribers is how broadband service providers (BSPs) win today and tomorrow.

By consulting with thousands of BSPs, our team has established that, when it comes to a market and tiers, the 20/60/20 rule applies. That rule states:

If given a choice of speed-based broadband plans (coax and fiber networks) from 100 MB to 1gig, the average market will trifurcate into ~20 percent at 100 MB, ~60 percent across middle tiers and ~20 percent at the 1gig service level.

1. Consumers do not understand speed; they understand experience. When I hear people say, “We are launching a 2G, 5GB, or 10GB service to beat X,” or, “Fiber will win because it is symmetric,” I shudder. That’s network language and the network only strategy will simply not work.

Speed works in the early stages of a market. Think of the early days of computers: We all knew what “386,” “486,” and “Pentium” meant. It has been more than a decade since I knew the speed of my computer’s processor. I only care about the apps I use to manage my work and my life. Even when coaxial first overbuilt DSL, most consumers did not understand “speed.” What they understood is that downloading a movie went from two hours to 10 minutes or that they wanted a remote control that could search content with their voice while integrating Netflix, had a cool mobile app for viewing PVR content, and that a broadband package came with it (Xfinity).

Our view, validated by hundreds of BSPs, is that—when a fiber provider overbuilds a coaxial-based provider—they get 30 to 40 percent share easily. A minority of consumers shifts for speed. The majority move due to a poor service experience … and price.

2. After experience, consumers go to price. Those of us from the mobile market, know how this plays out. When the incumbent coaxial and a new fiber provider go head-to-head on speed, a price war breaks out. The example to the right becomes the norm—unlimited usage, free hardware, and (insert shudder) … the 5-year price guarantee. The example is in a multi-fiber market in Canadian dollars, which is US $45 all in.

What is even more market destroying? A single broadband plan (1gig). Because this breaks a cardinal rule of marketing: No one values free. If the consumer only needs a 200 MB speed plan, then they are getting a LOT of extra speed that they don’t value.

3. Consumers understand price when speed is the only metric. I personally prove this out all the time when buying an undifferentiated product. I can afford to buy a dress shirt for full price. Do I? Never. Ever. In my mind it is a commodity and I love a deal. But when I bought my new Apple computer, did I think about price or processor speed? Not once. Apple experience trumped price—a well-integrated cross-platform experience (Mac, watch, phone, tablet, TV) with great support and experience (such as Apple One for news, music, fitness, TV+).

When a fiber provider attacks a coaxial provider on speed, that market goes through four stages:

Stage 1: There is an initial shift in share due to price and experience, and a small shift due to speed (per the above).

Stage 2: The market reaches an equilibrium as the incumbent improves service, and fights back with aggressive, price-based retention offers.

Stage 3: The incumbent coaxial provider squeezes more out of their existing network—buying time while they overbuild with fiber as fast as they can.ΩThere is an initial shift in share due to price and experience, and a small shift due to speed (per the above).

Stage 4: The Armageddon stage. The market now has two or even three, fiber-based network providers. If they are all speed-based, the product becomes commoditized—and the race to the price bottom begins. If you do not believe me, just look at the mobile market and the never-ending price war.

In a commodity or undifferentiated market, there is only one outcome—price wars. This is a race to the bottom.

Avoiding the Speed/Price Trap. The BSP Model Must be “Managed Services Everywhere”

Calix has spent the past 11 years (and over $1 billion) investing to make a new business model possible. It has two components:

Executing new levels of operating, support, and marketing efficiency. Calix Cloud and platforms enabled AcenTek to deploy a green Intelligent Access EDGE™ network that reduced power consumption by 76 percent and drove significant OPEX gains through virtualization and automation. Chariton Valley cut network alarms by 98 percent and reduced turn-up time by 80 percent with Calix Cloud. Verizon’s sole-sourced to Calix Intelligent Access EDGE as they prioritized 80 percent OPEX savings annually over everything else. FTC cut support talk time by 55 percent with Calix Support Cloud (Support Cloud) and reduced truck rolls to record lows.

What is not talked about enough is marketing and sales efficiency—as most broadband sales/marketing does not use behavioral data, and remains speed/price based using untargeted and inefficient channels like mail drops. To market efficiently, you need an insights engine that enables you to understand subscribers on a deep level. That is Calix Marketing Cloud (Marketing Cloud) and if you want an example of success, look at Nex-Tech. They leveraged Marketing Cloud to drive a 375 percent boost in Facebook engagement and 66 percent lower campaign costs. Marketing and sales need to radically shift.

Operational efficiency delivers reliability and a consistent experience for the end subscriber while giving businesses the margin flexibility to compete (and cash-flow to invest) while delivering a return to investors/members. To achieve these types of operating efficiency, BSPs need platforms they can leverage to simplify their business and their business operations. That is what we are delivering with Calix Intelligent Access EDGE and Revenue EDGE™—platforms for business simplification. This includes systems that leverage standards-based software and cloud solutions that deliver the insights BSP teams need to operate with speed and efficiency.

You must achieve efficiency across all areas of the business—marketing, sales, and operations. Calix Cloud (and Calix Customer Success Services, which is brimming with best practices) makes that a reality.

Delivering managed services to differentiate from speed/price competitors. Building on a strong base of operational efficiency allows the BSP to focus on differentiating their experience through managed services. Five years ago, this was the exclusive domain of big telco/cable (such as Xfinity) as they had the size to build unique experiences and the leverage to get partners interested. The small/medium service provider was left behind.

No more—thanks to the democratizing power of Calix platforms, including Calix Cloud.

Calix became the market leader when we launched the sixth (Bark, to fight cyberbullying and teen suicide) and seventh (Servify Care) managed services—putting the big providers on notice that the entire market has now officially shifted, as our pace of innovation cannot be matched. At the same time Calix enabled our customers to be the first to market with hardened Wi-Fi 6E (GigaPro u6he, enabling outdoor 6 GHz) that will enable the eighth (SmartTown Wi-fi) and ninth (SmartBiz) managed services. The 10th managed service, Arlo Security System—to enable BSPs to offer simple, managed whole-home physical security—is in development for the first half of 2023. Managed services 11 and 12 are in the design phases for the second half of 2023.

That is what this issue of the Leadership Beacon and ConneXions 2022 is about—being your partner as you embrace the change ahead.

I would also encourage you to participate in the executive track at Calix ConneXions from October 15-18, 2022. We have leaders like George Blankenship, who will share experiences from his time transforming Apple and Tesla. Author Daniel Pink will share his insights regarding the creativity, customer engagement and business outcomes. Actor and comedian Gerry Dee will share our new set of videos that you can leverage to supercharge your brand and win. We will also host hundreds of workshops often led by customers. If you have questions on the executive track, please ask your account team—it is going to be incredible.

If you have any feedback or if there is any way I can assist you, please email me at michael.weening@calix.com.

Wishing you continued success,

Michael

By Michael Weening

President and Chief Executive Officer (CEO)

Michael is the president and chief executive officer (CEO) and is on the Board of Directors at Calix. He brings over 20 years of experience leading growth, strategy, and transformation. Michael served as the company’s president and chief operating officer. Over his career, he has held executive positions in North America, Europe, and Asia in leadership roles at Salesforce, Bell Mobility, and Microsoft. Michael received his B.A. in Business Administration from Brock University, supported by ongoing executive education at Queens, Wharton, and USC.

Success Story

5 Things All Broadband Leaders Must Do To Achieve a Net Promoter Score of 90+

Martha Galley, Executive Vice President Office of Sustainability, Calix

At Calix, our number one goal is to help you succeed. We’re here to help you transform your business, position your communities to thrive, and become leaders in your market, no matter your size or location. But the ultimate barometer of success? Subscriber happiness. Make this your top priority and long-term growth, profitability, and loyalty will follow. Bain & Company research shows B2B loyalty leaders typically grow four to eight percentage points above their market’s annual growth.

And yet broadband service providers (BSPs) have among the lowest Net Promoter Scores (NPS) of almost all industries—lower even than airlines and health insurance companies. BSPs’ recent average NPS ranges from 16 to 33 (on a scale of -100 to +100), with some studies showing scores as low as -5. If your subscribers are detractors, it’s a tough climb back to the top.

Deliver an Exceptional Subscriber Experience and Watch Your NPS Hit 70, 80, Even 90

As an industry, we have work to do—and it all starts with experience. We’re proud that many of our long-standing BSP partners have seen their NPS skyrocket, having adopted a comprehensive subscriber experience strategy. For instance, ALLO Communications, Horry Telephone Cooperative (HTC), and Ontario & Trumansburg Telephone Companies (OTTC) all enjoy NPS in the 70s, or more. How are they beating underperforming legacy operators? Simple. They have made providing a superior subscriber experience their top priority.

Here are five things BSP leaders must do to boost NPS:

Lead with managed services. Differentiate your brand with exciting services that create stickiness with your subscribers and make you hard to displace. With the comprehensive Calix Revenue EDGE™ platform, we provide an ecosystem of value-added managed services that will literally change your subscribers’ lives. And we continue to add to the portfolio—last month we launched our sixth and seventh managed services, Bark social media monitoring and Servify Care™ device protection plans.
Align your company behind a subscriber-first mindset. Improving NPS requires a company-wide commitment from the top down. As leaders you need to be champions—adapting to become a smart-thinking customer success organization where every employee becomes a subscriber-oriented brand ambassador. You’ll hear much more about this from New York Times bestselling author Daniel Pink at ConneXions 2022.
Embrace the power of the cloud. Calix Cloud (Calix Marketing Cloud, Calix Support Cloud, and Calix Operations Cloud) is the key to transforming the subscriber experience—and your business. Your marketing team can use analytics in Marketing Cloud to engage subscribers and determine what managed services subscribers will love. Proactivity is built into Operations Cloud, detecting poor performance even before your subscriber even suspects a problem. And Support Cloud provides actionable insights proven to reduce time-wasting truck rolls—a direct influencer of customer satisfaction. This end-to-end level of intelligence and automation, spanning from the subscriber Wi-Fi network to the access network, is a powerful set of tools to drive subscriber satisfaction.
Build your brand. Does your brand give you a competitive edge? Leverage the power of the Calix Market Activation program with its plug-and-play marketing resources (look out for more amazing Gerry Dee content coming out at ConneXions) that speak your subscribers’ language. The language of parents, work-from-homers, gamers, and streamers, to name a few. Take advantage of Calix Premier Customer Success Services to help advance and refine your NPS programs. Only when you deploy, manage, and operate exciting managed services—in a way that speaks to subscribers—does NPS go up.
Live your values. As a BSP, you sit at the heart of your community. Your local knowledge, trust, and intimacy is a powerful combination that cannot be replicated by the consumer giants. Use this to your advantage to ensure your subscribers are protected by offering services that deliver peace of mind. Whether that’s safeguarding your subscribers with ProtectIQ® for home network security, providing home and business monitoring with Arlo Secure, or keeping their kids safe from online threats with Bark, you are living your brand values. Your community will thank you and it will reflect in your NPS.

Cumberland Connect Delivers Peace of Mind for Subscribers and Reaps NPS of +92

Cumberland Connect, an electrical co-operative based in Tennessee, shows this approach works. Last year, they introduced their “Peace of Mind” package, which includes ProtectIQ for home network security and ExperienceIQ® for advanced parental controls. Delivered via their branded CCFiber SmartIQ app, adoption more than doubled in just four months. Not only did they generate new revenue streams and grow ARPU, but they also increased their NPS to +92. Adding more value-added services creates more profit, which then goes back into the community, which in turn drives satisfaction; it’s a virtuous circle.

When you leverage the power of the Calix platforms and managed services, BSPs flourish and NPS follows. Lead your organization to drive growth, positively impact your community, and stay competitive. It boils down to being customer-first, data-driven, and technology-led. Take this on board and you will earn unbeatable subscriber loyalty and stand out from the faceless trillion-dollar goliaths.

As always, Calix and our entire community are here to help you achieve your customer support goals. If you have questions or feedback about how we can help you meet and exceed your objectives, email me at martha.galley@calix.com or connect with me on LinkedIn.