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:
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 or email my executive assistant Maria Konnaris at firstname.lastname@example.org—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 email@example.com.
Wishing you continued success,
Check out Michael Weening, president and chief operating officer at Calix, on the latest episode of 20 Minutes with Jennifer Fritzsche of Greenhill Investment Bank’s communications infrastructure division.
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:
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 firstname.lastname@example.org or connect with me on LinkedIn.