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Costs drive SMBs to wireless, bundled services

Small to midsized firms attempting to upgrade communication services find the only vendors who can service them are the large, more expensive providers.

Small to midsized companies say they prefer to buy communications services from a single provider but many find the higher costs and lack of bundled services gives them few options but to go with multiple vendors.

According to new studies from Cambridge, Mass.-based research firm Forrester Research Inc., small business owners who use bundled services are OK with what it's costing them and are pretty content with their communication providers. But add a couple hundred employees and the proposition is much different. The reports found that there's a huge gap between what the midsized customer wants and what vendors are offering. As a result, many cost-sensitive midsized companies use multiple vendors in order to get the best price, regardless of the hassles they say can arise from using multiple communications carriers.

Bundling doesn't help them.
Michele Pelino
analystForrester Research Inc.
In fact, of the 155 executives surveyed by Forrester at medium-sized businesses, two-thirds are using at least two carriers to supply a majority of their voice and data services. More than half cited a price benefit to using the same carrier if they could.

It's not as if they have much of a choice, Forrester analyst Michele Pelino said. Typical needs of a small business include standard, easy-to-package services such as local and long-distance phone services and broadband and wide area network services. In general, services that are bundled cost less than services purchased separately from multiple vendors.

But many medium-sized businesses are looking for services that vendors aren't offering as a package. So while they might prefer to use a single source, the reality is that they have to go to maybe even a third or fourth carrier in order to get the best price.

"Bundling doesn't help them," Pelino said.

Perhaps an even bigger issue, said Irwin Lazar, principal analyst at Nemertes Research Inc., is that many of the smaller communication companies that may have the better pricing don't service companies outside their local area.

"If you've got an office in L.A. and one in Dallas it's harder to find a single provider," he said. Midmarket firms are forced to go with larger providers and then the price points become prohibitive. For many companies it ends up being cheaper for each branch office to go out and find their own communication service provider.

According to Pelino, unless vendors step up to the plate (and hop on this opportunity) the situation for midsized companies isn't likely to get any easier as more of them attempt to update their telephone systems and invest in wireless computing.

According to a recent survey of more than 350 small and medium-sized businesses by the Computing Technology Industry Association Inc. (CompTIA), investment in wireless LANs and the replacement or upgrade of existing phone systems are among their top spending priorities.

Currently, said Steven Ostrowski, a spokesperson for CompTIA, only 17% of those surveyed have done any type of voice and data convergence.

CompTIA found that 46% of the organizations surveyed said they believed they could save money by going wireless and upgrading their phones to include voice and data convergence. Overall, their spending priorities centered on solutions to make employees more productive and mobile.

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While the majority of businesses surveyed said their current communications system are easy to use and can be operated and maintained at a relatively low cost, these systems are not viewed as a competitive advantage.

"The phones they have work, they just don't have a lot of the features that they think they want," Ostrowski said.

The Forrester survey found that fewer than one-fifth of midsized companies purchase Web site hosting, security, audio, video- and Web conferencing, wireless data and email services from their primary or secondary communications carriers.

But Pelino said this will change within the year. "While wireless may not be a key spending priority today, over 20% will spend more on wireless, as well as data and voice convergence initiatives next year."

SMBs are finding that they spend a lot more time on their phone than on their desktop, Lazar said. And while there are a number of smaller vendors offering voice over IP targeted to the small and midmarket, most of them are geared toward the enterprise. But as more SMBs demand these products, vendors will come around, Lazar said.

"Over the next year we'll see that happening."

Let us know what you think about the story; email: Kate Evans-Correia, Senior News Director

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