W H I T E P A P E R H o w T e l e c o m m u n i c a t i o n s V endors Can Use Customer Support Services to Increase Revenue and Reduce Churn

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1 W H I T E P A P E R H o w T e l e c o m m u n i c a t i o n s V endors Can Use Customer Support Services to Increase Revenue and Reduce Churn Sponsored by: PlumChoice Matt Healey October 2008 Matt Davis IDC OPINION Global Headquarters: 5 Speen Street Framingham, MA USA P F Service providers delivering communications and entertainment services to consumers and small businesses face a critical challenge in today's competitive landscape. They face the dual challenge of keeping customers satisfied and exploring new ways to deliver new services that can provide additional value. The key difficulty is managing the user learning curve when using new applications, a critical component to ensure that the applications are viewed as enhancements and not headaches. IDC has conducted several studies examining the potential adoption of and willingness to pay for next-generation applications. This research has focused on both consumers and the small office/home office market. The results of these studies show the following:! Customer support services is one area customers are willing to pay for. For the past several years, IDC has surveyed broadband customers. These surveys have consistently indicated that customers are willing to pay for managed support services. In today's highly competitive environment, where prices for connectivity are coming under pressure, services that have the potential of increasing average customer revenue need to be investigated and implemented quickly.! Failing to provide satisfactory customer service can result in increased customer churn. A recent IDC survey shows that almost 30% of customers that switched Internet service providers (ISPs) did so because of poor customer support or services. By improving these services, ISPs can reduce that churn and expand the revenue from each customer.! Broadband subscriber satisfaction is tied closely to superior customer support. The results of a recent IDC survey combined with broadband penetration numbers indicate that over 1 million consumer Internet users churn to another provider based mainly on inadequate customer support.! Small businesses indicated that reliability is critical. Almost 45% of small businesses said they would stay with their current provider because they felt the services were reliable. Further, 38% indicated that inferior services was the main reason for business churn. IDC believes that by offering customer support, service providers can improve service reliability and thus help reduce churn.

2 SITUATION OVERVIEW Future applications demanding a higher level of customer support will be tied to the PC, the broadband router, and ultimately the set-top box. In the consumer space, IDC's survey results show consumers highly value the prospect of a service provider providing enhanced support for Internet and other communications services. In a 2008 survey analyzing consumer interest in and willingness to pay for advanced services, IDC questioned U.S. consumers on over 30 applications and new services. Table 1 takes a sample of some of the better-known applications such as Internet video, remote DVR programming, or caller ID on the TV and ranks them against a managed customer support service on a scale of 1 to 100. In two consecutive surveys, managed customer support finished second only to remote control of utilities. TABLE 1 Consumers' Willingness to Pay for Additional Services Additional Service Controlling lighting, heating, air conditioning, and other utilitylike functions remotely from an external PC or wireless phone A monthly service that helps you install and maintain your internal communications network, including any combination of Internet, television, audio, and landline phone Downloading video stored on your TV's digital video recorder (like Tivo) onto a portable device such as an ipod, wireless phone, or PDA The ability to have caller ID displayed on a portion of the TV screen when the phone rings Accessing video content normally only available on the Internet on your TV Average Ranking Programming your PVR/DVR using your cell phone 31 Source: IDC, 2008 Current Market Status The requirement for churn reduction has never been more imperative for U.S. service providers. The days of new subscriber growth in broadband have been replaced by market share trench warfare for all types of subscribers. Broadband is at the center of the competitive storm due to its importance as the anchor of the bundle as a tool to reduce voice and video churn. Video net adds for cable operators have stagnated, 2 # IDC

3 and these operators are looking to other services for growth. Voice net adds have been alarming for telcos as they continued to lose local voice subscribers in 1Q08, with each provider posting a net loss. As a group, telcos lost 1.5 million voice subscribers slightly more than in 4Q07 with losses accelerating for almost every telco. Cable continued to beat the telcos at their original game gaining 1.1 million voice subscribers (9% growth). In January 2008, IDC conducted its annual U.S. Service Provider Competition Survey, which probes consumers' reasons for moving from one provider to another for voice, video, wireless, high-speed Internet, and bundles that include combinations of those services. When respondents were asked if they were planning to switch broadband providers in the next 12 months, 16% said that they were planning to move and about 10% actually end up churning. When asked why, a full 10% indicated it was because "I feel my service provider consistently lacks quality customer service." Pricing considerations are always among the highest reasons for churn, but insufficient customer service trumped other churn instigators such as promotional offers, similarly priced yet superior service, or additional value-added features. With approximately 63 million active broadband consumers in the United States at the midway point of 2008, this adds up to over 1 million broadband subscribers intending to churn primarily due to poor consumer customer support. In the small business space, superior customer service is often identified as a key differentiator when service providers debate competitive positioning. However, IDC's Business Multiplay Service Provider Competition Survey found that of the 88% of businesses that were not planning to switch ISPs, just 2% indicated that superior customer service was the primary motivation for loyalty. Furthermore, of the small businesses that were planning to switch, just 2% indicated poor customer service was the primary reason for leaving their existing provider. Where SMB support programs will likely pay greater dividends is in keeping services running smoothly. Almost 45% of small businesses indicated that they were staying with their existing ISP because their service was reliable or the best in class, and at 38%, inferior service was the primary reason businesses churned to competitive ISPs. Service Provider Analysis Service providers recognize both the challenges and rewards of superior customer support. Several ISPs have taken significant steps toward deploying both remote and onsite customer support initiatives. Among the companies that have recognized and developed enhanced customer care programs, AT&T stands out by launching support programs in both the consumer and small business markets. In September 2008, AT&T announced its Tech Support 360 service to provide small businesses with online computer support, installation support, and PC performance tune-ups. The service is designed to support setup, configuration, and troubleshooting for PCs, laptops, local area networks, and peripherals connected to the network. In August, AT&T launched its consumer home integration service branded ConnecTech, which offers the same type of remote diagnostics for PCs and peripherals that Tech Support 360 offers small businesses. The consumer service 2008 IDC #

4 goes a step further with in-person calls made by field technicians to install, replace, or repair PCs, televisions, or any other device connected to the network, a central part of the service. AT&T indicated that only about 4% of the trouble tickets for businesses supported require a truck roll but that it is exploring leveraging the consumer truck roll capability. Currently, the Tech Support 360 program focuses on remote diagnostics and support but will facilitate an onsite technician visit using the online technician, who has knowledge of the unresolved issues, as the point. The service is essentially a virtual IT director, offering 24-hour-a-day live remote tech support. Technicians are experienced, IT certified, based in the United States, and trained to help customers with hardware, software, data networking, and peripheral devices (e.g., PC, Mac, DSL, and networking including WiFi, printers, and other devices). AT&T is contracting with outside suppliers for tech support; however, the service is AT&T branded and the technicians receive AT&T training. The Tech Support 360 service will offer small businesses both a monthly subscription service and an à la carte option for support services. Core services include remote PC support, peripheral support, WiFi support, application training, and online backup. The subscription option has three service levels: $19 per month, $24 per month, and $28 per month per each computer supported. The entry-level package does not include applications training, WiFi support, or online file backup; the midtier package includes everything except online backup; and the highest-end service includes all of the core features. AT&T indicated that the entry-level package is the most popular, but that the secondtier service is almost as widely adopted. AT&T believes that a large opportunity currently unmet exists in today's marketplace. Specifically, according to a survey the company administered, 75% of small business customers have experienced a technical issue in the past 12 weeks that they couldn't resolve by themselves. According to AT&T, most customers initially try the service on one PC and then add other PCs as the value of the service is demonstrated. AT&T allows customers to add/drop PCs online via the portal or via phone. AT&T believes the sweet spot is customers with 1 10 access lines. AT&T may ultimately use Tech Support 360 as a supplemental service to keep its existing broadband and data services working smoothly instead of selling it as a separate standalone this would potentially minimize costly churn through increased satisfaction with services it keeps running smoothly. Verizon has also developed the Verizon Premium Technical Support program to support PCs through a relationship with firedog. The program is aimed at the most common problems consumers face virus issues, equipment hookup, software installation, and general troubleshooting of PC-related problems. The company requires a 10-month commitment and charges $14.99 per month for the service. Verizon has a separate service for onsite care called Verizon Premium Onsite Support. This service sends a technician to a residence to perform a variety of tasks, including setting up a wireless LAN, configuring and installing PC software, or installing hard drives and other integrated functions such as additional memory or DVDs. 4 # IDC

5 Customer Support Approaches The operational complexity of adding even a small number of these applications is a daunting task for both service providers and consumers. Any hope of moving from innovator and early adopter into the mass market for consumption of these nextgeneration applications must be coupled with a specific, large-scale plan, with service providers taking responsibility for installation, troubleshooting, upgrading, and ongoing support for all software and hardware products that form the digital home technological ecosystem. There are two alternatives to home integration: The first is to roll out services only when they become bulletproof for the majority of users targeted for them, making them so simple and dependable that customer service is contained to a reasonable level. This approach risks allowing an alternative provider to supply the service first and, if that provider does it well, become the de facto standard (e.g., Apple with music downloads). The second alternative is to develop extremely advanced remote troubleshooting and configuration tools. This would require a centralized management platform, likely accessed via a PC, to control all the communications and entertainment applications for all services and peripherals connected to the wide and local area networks. This would require a significant leap in standardized interfaces for TVs, telephones, set-top boxes, residential gateways, and any other piece of hardware or software that is part of the overall networked ecosystem. The combination of enhancing remote support tools and supplementing it with a greater home integration capability is the direction most service providers are moving toward. The concept of evolving into a home integrator is a big step for U.S. service providers and runs counter to the tradition among telcos to push for self-installation and remote management of any equipment on the other side of the NID. Currently, consumers struggle with networking a printer or setting up a wireless LAN. It is too much to hope that the majority of non-tech-savvy consumers will be able to install and manage a PCto-TV video or multimedia transfer, integrated VoIP, wireless and IPTV communications, or remote programming or monitoring of utilities without significant support. As a result, facilities-based network providers should stringently measure the potential costs and benefits associated with the deployment of new services and immediately begin to lay plans on turning what is likely to be a significant drain on customer support resources, initiated by frustrated customers that cannot get these new services to work, into a monthly service that can potentially become more of a revenue creator than a cost center. Combining remote and hands-on support will create levels of support that address these challenges in the most cost-efficient manner, but in all cases, customers should feel they can easily access the appropriate level of help when they need it. However, despite these challenges, IDC believes that this is a step that telcos and cable MSOs will need to provide to both reduce customer churn and increase revenue. According to a recent IDC survey, over the past 12 months, 10% of customers switched ISPs. This level of churn causes a direct and measurable impact on a service provider's bottom line. In addition to the loss of direct revenue are the customer acquisition costs associated with replacing those customers. In the same 2008 IDC #

6 IDC survey, IDC asked if poor customer service played a role in the customers' decision to switch providers. Almost 30% of respondents said that poor service was the main reason, or an important reason they decide to switch, and almost 15% of respondents indicated that poor customer service played a role in the decision to switch. See Figure 2 for additional details. FIGURE 1 Reasons for Switching ISPs Q. Did poor services contribute to your decision to switch? Yes, poor service quality and/or unsatisfactory customer support was the most important reason for switching (15.8%) Yes, it played an important role in my decision to switch (13.7%) n = 95 Source: IDC, 2008 Yes, it was a factor but not the primary reason for switching (14.7%) No (55.8%) PLUMCHOICE OFFERINGS To help address these concerns, PlumChoice offers customer support services that can be white labeled by the service provider. It is one of the leading providers of technical support services using the new breed of "clientless" remote support tools. Using these tools, PlumChoice can provide support and training for approximately 370 applications, technologies, and devices using its SAFElink Platform. SAFElink Platform To deliver these services, PlumChoice has developed the SAFElink service platform. This platform enables the company to deliver support services to any device that either has an IP address or can be connected to a PC via a USB connection. For the service providers, the SAFElink Platform is a comprehensive service delivery platform that combines expert technical assistance with world-class tools and every contact method known for support all combined with tools deployed to the desktop or accessed via the Web. Figure 2 shows an overview of what end users see after the SAFElink Platform has been deployed. By deploying the customer agent part of the platform, end 6 # IDC

7 users can easily connect to a service provider and receive support, monitor the status of their security software, capture system configuration information, perform backups, and receive proactive alerts when something isn't working correctly. SAFElink Desktop is not tied to any particular antivirus tool, but integrates with most major providers. The SAFElink Platform is the key to providing leading service capability in terms of quality and effectiveness according to PlumChoice. The company believes that the most successful service providers will use SAFElink to provide such services. FIGURE 2 Overview of the SAFElink Platform Source: PlumChoice, IDC #

8 The SAFElink Platform enables two main methods for customers to receive support:! Web. The Web is the most traditional way to access PlumChoice remote services capabilities. Through the Web site, customers can contact PlumChoice and schedule a remote support session or request on-demand services. Under a white label arrangement, customers can connect to a service provider's Web site and access all the services that PlumChoice offers. This has the advantage of enabling customers to receive the services without leaving the service provider's Web site.! Desktop. The SAFElink Desktop allows PlumChoice to provide a variety of services in addition to reactive technical services. This feature enables PlumChoice to provide customers with active monitoring of PCs covered by subscription services and remote backup. It can be integrated with other subscription services such as security or remote backup. Finally, the SAFElink Desktop allows one-button access to PlumChoice support professionals. This feature can also be utilized under a white label arrangement. Under these terms, the agent that is deployed on the customer PC can be branded by the service provider. CHALLENGES/OPPORTUNITIES IDC believes that PlumChoice is currently entering the market at a very good time. However, the company does face a key challenge. The market for consumer technical support has traditionally been grossly underserved. Consumers have generally had to suffer through low-quality services that often leave both the customer and the technician frustrated. Because of this history, PlumChoice will have to reverse customer perception of support services to succeed. The only way to accomplish this goal is by providing customers with the level of service they have expected for several years and to do so in the years to come. Doing this will require PlumChoice not only to execute on its commitments but also to integrate with service providers' systems to ensure that customers' expectations are achieved. Finally, this challenge is exacerbated by the type of customers that are most likely to be early adopters of this service that is, higher income individuals whose service expectations are very high. These consumers do not want to, or cannot, understand the technical details that cause the problem; they "just want the device to work." PlumChoice will need to provide these demanding customers with the level of service they expect. If the company is able to do this, it stands to capture a growing share of this market. Copyright Notice External Publication of IDC Information and Data Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2008 IDC. Reproduction without written permission is completely forbidden. 8 # IDC