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Profit-Making Pros and Cons Are Involved in Telecommunications Resale and Tenant Services.

Attendees at TCA's "Resale and Tenant Services" seminar heard the "nasty" word profit repeatedly during a 90-minute polished presentation by Intecom's Lew Malouf.

New opportunities exist for buidling owners and their communications managers, along with tenants, in the arena of telecommunications service provisioning. This session covered how to plan to implement such services and the advantages and disadvantages to the parties involved. It was aimed primarily at managers with responsibilities for multiple offices and major facilities; however, it offered critical pointers for both lessors and lessees.

Malouf began his idea-laden talk with a simple definition of resale and tenant communications services as "the sharing of equipment, facilities and other resources among many distinct and individual businesses in a multi-tenant environment." Those services include switch-based voice communication, long-distance communication, voice mail, data communication, a message center, a secretarial/word-processing pool and centralized answering.

Who should be in the shared-services business? Said Malouf: landlords of large buildings and office parks, contractors/developers, corporations, facilities management and service companies, communications consultants, and even individuals.

Why be in the shared telecommunications business? For profit ("It's the foremost reason to be in business," he reminded), to provide needed services to others, and to distinguish one's property from others ("Other than having the lowest rent, it may be the most-attractive feature one can offer").

The main sources of revenue in this business, said Malouf, are from equipment leasing, tenant and non-tenant toll traffic (across the street and around the nation), and equipment moves, adds and changes. Other sources include secretarial services, an answering/message center, electronic mail, voice mail, telecomferencing ("Everyone can't afford a nice studio of their own"), directory services, facsimile, photocopying, telex, data communications, modem pooling, protocol-conversion capability, timesharing services and local-area networking.

The benefits of such services to subscribers (particularly, persons just opening an office) include one-stop shopping, no capital outlay, the ability to share expensive resources, reduced equipment costs, management control tools (least-cost routing and call accounting), ease of growth, flexibility, reduced wiring costs, on-site maintenance and the ease of moves, adds and changes. Thus, sophisticated large-system features are made available to the smallest users. Summed up Malouf: "They just pay for the pieces that they're using."

The pros of venturing into the resale business opportunity begin with profit. Shared telecommunications services attracts tenants to a building ensures tenant retention, defrays corporate communications costs, and lowers building costs by combining wiring, conduit and space requirements.

The cons for the venturist are that it's capital-intensive, that there are billing/collection problems, that one becomes "the telephone company," that service indecision by tenants can delay move-in, that there are potential regulatory hindrances ("Really an unknown right now"), that there are maintenance/management problems, that requested services may not be offered, that there may be equipment/labor shortages, and that tenants may be deterred by concern for the privacy of their communications. Three Major Approaches

According to Malouf, there are three major approaches to shared communications: in-house, joint venture and turnkey. The in-house approach requires the owner/developer to provide capital, management, and technical knowledge. It offers maximum return on investment, complete management control and a vested interest in the project's success. On the other hand, it means maximum financial exposure and possible interruption to the rental revenue stream--tenants unhappy over communications service problems might choose to withhold rent, Malouf pointed out.

In the joint-venture approach, the owner/developer goes into partnership with a company that can provide operation and maintenance of the communications system. This approach provides shared risk (functionally and financially), additional technical expertise from the partner ("Two heads are usually better than one"), and checks and balances in the than one"), and checks and balances in the management system. However, there can be partnership disagreements ("Are you married?") and one party may have an equipment bias. Moreover, changes to a partnership are difficult once a contrac has been signed.

With the turnkey approach, an owner/developer permits a professional company to provide the equipment, operations and maintenance for a system and to share in the profits. The pluses are that the owner has no capital requirements, has shifted the risk to another, and has gained potential revenue flow. The minuses include lack of management control, possible equipment bias of the other party, and potential quality issues ("You can't tell a contractor's employees how to do a job," Malouf remarked).

What are the required capabilities of a shared communications system? Malouf enumerated these system architectural capabilities: a digital switch ("It must be digital to handle the non-voice services"), big call-processing capacity, large memory capacity, non-blocking switching, full redundancy, incremental expandability, local/remote distributed cabinet capability, universal cable plant, system flexibility and system partitioning to accommodate hundreds of users and trunk groups, and multiple console groups.

Non-blocking switching is needed to provide 100-percent connectivity, sot hat no devices are blocked from call completion, service is not degraded as more devices are added, traffic balancing is not required, and traffic engineering is eliminated. Extensive redundancy is required to assure reliable, uninterrupted service. The switch must be capable of incremental growth--piece by piece--to handle tenant growth.

A shared system should be capable of distributed switching to nearby buildings (such as by a fiber-optic link) to afford cost-effective expansion and to offer all features to every location. It should provide remote switching to distant cities: start-up sites can be served from the central facility and remote switches can become independent operations as needed.

Malouf said that the most-important element in achieving cost savings is in having a single cable plant. Universal two-pair wiring simplifies the cable plant, reduces installation costs and facilitates changes associated with mobility, he added.

Using software that provides system partitioning (up to 1,000 separate groups) allows individual tenant companies to have advanced-system features plus privacy and security equal to that of independent switching systems. System flexibility allows configuration to meet individual tenant needs for trunk groups, attendant consoles and call-detail information, plus call-processing, routing and queuing options.

Other aspects of a shared communications system discussed by Malouf included shared resources, station equipment, key-system simulation, data capability, flexible night answer, the man/machine interface and total communication services. With shared resources, there are economies of scale to be realized for many services. Shared common equipment saves considerable floor space. Modems, trunks and format/protocol conversion may also be shared. Data Capabilities Noted

Data capability can mean simultaneous voice/data transmission, modemless switching, machine keyboard origination, modem pooling, protocol conversions (X.25, 3270 emulation and others), local-area networking, high data speeds (circuit switched or packet switched) and direct digital-newtork interfaces--via Tl carrier, microwave or satellite.

With flexible night answer, a tenant manager may assign incoming trunks on a day-to-day basis. Night answer may be universal, assigned, and off-site.

Malouf urged his listeners to take cognizance of the man/machine interface by installing an English-language system. Then, as tenants move in and/or change offices, the system commands will be user-friendly, timely and cost efficient.

In summation, he reiterated that a shared telecommunications system should be capable of providing total communication services-- voice and data communication (local and long-distance), centralized answering/message center, voice mail, local-area networking and teleconferencing.

One of the first operators in the resale and tenant services business was the Chicago Board of Trade, said Malouf. Other early opportunists include LinCom properties and buildings managed by Olympia & York.

He listed these steps to follow to get into this potentially profitable business: Do market research to determine the feasibility of shared services, prepare a business plan (cover equipment, maintenance, tenant capture ratio), choose a telecommunications system and firm ("one that will back you up"), select a business approach, sell your tenants/users, get and stay involved in your system's implementation, hire qualified/trained staff, provide high-quality service, and intinue to enhance your system and services.

Said Malouf: "The resale and tenant services business opportunities can be very challenging and rewarding. However, careful thought, planning and preparation must precede a decision to enter this most-lucrative business. Selection of a product and vendor for this business should not and can not be accomplished utilizing the same methodology as that used for a simple PBX system.
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Publication:Communications News
Date:Nov 1, 1984
Words:1360
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