A Marriage of Convenience: Wireless and Wireline
Innovation and thinking in "real time" are essential for communications companies to compete in the market, says Embarq CEO.
ANN ARBOR, Mich.—How many phone numbers do you have? Do you have different providers for your cell phone, home phone, internet service and satellite TV? Wouldn't it be more convenient to get all these services from one company – all on one bill?
Dan Hesse, chairman and CEO of Embarq Corp., wants to do just that. At a recent Dean's Seminar, Hesse outlined his company's innovative vision of consolidated communications to a group of MBA students at the Stephen M. Ross School of Business.
Embarq is the largest independent local communications carrier and fourth largest local exchange carrier in the United States. Embarq, which went public in May 2006, provides local and long distance voice, wireless, high-speed Internet, data and networking, and entertainment services to approximately 15 million customers and approximately 7 million "access lines" in 18 states.
Voice, otherwise known as landline or wireline, is Embarq's most profitable business. However, these days Embarq focuses on data and Internet services because demand is "growing like a weed," said Hesse. "Our challenge is to get that business large enough to more than offset the decline in voice."
"Our industry is changing so fast, you have to be able to do what I call thinking in real time," said Hesse. "It's all about speed and being first to market."
Embarq was spun off from Sprint in May 2006 after its merger with Nextel. Due to steep entry costs in the telecom market, Embarq purchases wireless minutes from Sprint while buying its own phones and developing software, features and rate plans. "As a company, we have a real attitude," he said. "We built a great brand from scratch, and it is paying big dividends in terms of customer satisfaction and brand recognition."
Hesse spent 23 years at AT&T, holding the positions of president and CEO of AT&T Wireless, general manager of the AT&T Online Services Group and president and CEO of AT&T Network Systems. So what attracted him to run what is basically a local wireline company? "I see an enormous opportunity to innovate, particularly in the convergence of wireless and wireline," he said.
Eighty percent of the market has both wireless and wireline phone service. Having two services means two voice mail systems, two sets of contacts, and a constant switching back and forth between two numbers.
Embarq is developing ways for consumers to have one number. For example, when residential customers are at home, their wireless calls will be routed to their wireline. When they leave home, calls to the wireline number will be routed back to the wireless. Using the SmartConnect service, business customers can seamlessly transfer their wireless number to a wireline when in the office, which allows them to take advantage of the security and quality of the wireline while saving expensive wireless minutes.
During the Q&A session, Hesse was asked how they retain customers when switching costs from one company to another are low. Embarq's strategy is to provide a bundle of services with competitive pricing and customer satisfaction. "We give you a better deal the more products that you have. The more products the customer has, the less likely they are to leave."
Other challenges facing the industry include the need to reform existing regulations on voice communications and fight "net neutrality." Major players such as Microsoft and Yahoo! are lobbying for greater regulation of the Internet, which would make it more difficult for smaller players to enter the market and compete.
Above all, Hesse stressed the need for innovation and sees this as the CEO's top priority. "The leader's job is to keep changing the business. If the top guy isn't doing it, who is?"
Hesse's closing advice to students was to choose a job or company they find interesting. While studying for his MBA at Cornell University, advisers encouraged him to find work in investment banking or consulting because that's where the money was. He wanted to do something personally meaningful and add value to a company. Hesse has been on the cutting edge of the telecom industry ever since.
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