Verizon, Other Telcos: Time to Get Geeky?

As home networking becomes more complex, telecom and cable providers could take a page from Best Buy's team of trained technicians, Geek Squad

by Ron Kermisch, Josh Chernoff and Dianne Ledingham

Anyone who has taken a do-it-yourself approach to home networking gets exactly why we need Best Buy's Geek Squad. As digital media technology finds more locations within the home, and becomes increasingly complex, there's a growing need for technical experts to help make it all work together. Today's homes have begun to resemble small businesses, with multiple networked computers and increasingly networked devices like printers and entertainment systems. It's no surprise that Geek Squad, which pioneered the business of dispatching a national network of trained technicians, has built a highly visible service brand that positions Best Buy (BBY) for the future.

Now it's time for telecom service providers to get in on the Geek Squad game. Carriers such as AT&T (T) and Verizon Communications (VZ) are doing an impressive job of bundling services like video, telephone, and Internet to meet customer demand. We expect the number of customers buying three communications services from the same provider to increase 29% a year for the next two years. But the proliferation of services and digital options is causing problems on the home front. No fewer than 15% of the calls to the customer service center at cable provider Cox Communications involve home networking problems. Such frustrations have opened the door for an army of versatile technicians, who, unlike the traditional cable installer or telephone repairman, can integrate Internet, TV, phone, and digital entertainment.

To date, most telecom and cable providers have shied away from the opportunity, fearing the cost and potential drain on resources. But now they're facing slower growth rates not just for traditional wired communications, but wireless services, too. Mobile-phone subscriber growth is expected to slow, to 2.5%, by 2012, down from 7.5% today. As that growth slows, a new battleground will emerge, this one over servicing customers' digital media needs.

The Charge of the Geek Brigade

Market pioneer Best Buy has sized up the IT services and home installation market at $50 billion. While that figure includes a range of service offerings, the company is wagering that Geek Squad will be both a profit center and a driver of long-term growth, contributing double-digit sales increases. For its part, Cox has rolled out Cox Solutions, a Geek Squad-like service.

These companies have recognized a real opportunity: Every time customers call in the Geek Squad or Circuit City's (CC) Firedog service, the only other national home networking service, it's a chance not only to build customer loyalty by taking care of their home networking needs but also to sell related services and products. For cable providers and telcos struggling to preserve a customer base, digital home service teams are both a defensive requirement and an offensive opportunity. Defensively, the carriers cannot allow themselves to be preempted by a competitor or retailer that could play a role in recommending a broadband provider in the future. Offensively, these services are an opportunity to help drive sales of additional services.

As companies start developing a home services strategy, they need to tackle four critical issues.

• Building the business case. The question isn't whether a provider should jump into this arena, but how. Should a company build a digital home services team internally or acquire it? Each approach has pluses and minuses. When successfully integrated, acquisitions are the faster way to expand a national brand, since the hardest piece is in place; the target has already created a team of specially trained technicians.