The Many Faces of Managed Services

Published May 17, 2004

Managed, or hosted, services have rapidly become the new tool of the competitive local service provider. In advance of providing voice over Internet Protocol, which itself becomes a platform for advanced and integrated communications, a number of new competitors are forging ahead to increase revenue per customer and decrease churn.

The definition of managed services varies, however. For example, CIMCO Communications, a privately owned integrated communications provider based in the Chicago suburb of Oakbrook Terrace, offers managed data offerings including virtual private networks, managed firewalls services and full management of on-premises data equipment.

"We either provide their service or we manage their complete data network for them," says Margi Shaw, vice president of business development for CIMCO, a company founded in 1984 that has kept a relatively low profile. Under the WiseEye brand name, CIMCO offers highly customized managed data packages aimed at medium to large businesses.

Focal Communications, another CLEC veteran focused on mid-sized to large businesses, defines managed services as "meaning we move the demarc up to the LAN port on a router," says Eric Points, product manager of managed services. By managing the customer equipment, however, Focal enables its customers to expand their networks without expanding their capex and distributing high-cost IT support.

NewEdge Networks, which focuses exclusively on data, considers managing the on-premises equipment as just one of the services it provides to allow its customers to rapidly cover multiple locations on a national basis.

"We'll install the router, manage the routers, IP feeds, etc." says NewEdge Presdient and CEO Dan Moffat. "Networks are critical for every business. If you go from a frame network to an IP VPN, for example, it's more complicated. The business has to worry about addressing for your device, at the same time if you are building a network across multiple carriers, and thinking about all the different offerings and how fast they change. We can handle all that complexity for our customers."

Even Covad Communications, a company primarily known as a DSL service provider and wholesaler, actually got into managed services by necessity, says Steve Lail, vice president of Voice Development.

"It's not our lead play but we do it out of necessity," says Lail. "We had partners that wanted broadband capabilities but also wanted us to supplement those capabilities with options. We provided managed services because we needed to support our primary service which was broadband."

Covad limits its managed services to the broadband equipment to which it connects and doesn't try to manage either voice or data systems on premises.

"The reality is that you can't do end to end testing unless you have visibility through CPE," says Lail. "Whether we own it or the end user owns it, we take care of it."

The value proposition

Customer response is the key to successful managed services, says CIMCO's Shaw. The customer is more dependent on a managed service so it creates a much tighter relationship between a service provider and the customer. Local service competitors are focusing on providing high quality services that meet or exceed customer expectations.

"If we can capture even a single slice of their business, we tend to capture 90% of all the services available on that account within a year," says Shaw. "It's the way we touch the customer and it's the customer experience."

New Edge, which won the Frost & Sullivan's Telecommunications Provider Company of the Year award for 2004, also prides itself on customer care as the important component of managed services, says Moffat.

It's more important for CLECs to build and sustain a good reputation because using a smaller competitor is a riskier proposition for business users, particulary larger companies.

CIMCO tries to put a customer's fears to rest by providing a very detailed outline of what is contained in its offer, says Shaw.

"Most customers are really sensitive to the experience of on-boarding with a new vendor," she says. "If they get comfortable with that, then even the price issue isn't as important."

What's next

Voice over IP represents a new generation of managed services for some but not all CLECs. From the New Edge perspective, VoIP is just another application, says Moffat.

For companies such as Covad and McLeod Communications, there is a new set of advanced services ahead such as integrated messaging, personal call agents and follow-me srvices that offer major new revenue opportunities. For a look at what VoIP holds for CLECs, check out our May 10 feature.