Cabling-contractor research premiers

One of the most frequently asked questions at Cabling Installation & Maintenance magazine (Nashua, NH) is about the nature and composition of the installation-contracting market. To date, there have been no good answers to such questions.

Dec 1st, 1998
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Cabling contractors must diversify to succeed, or even to survive.

Arlyn S. Powell, Jr.

One of the most frequently asked questions at Cabling Installation & Maintenance magazine (Nashua, NH) is about the nature and composition of the installation-contracting market. To date, there have been no good answers to such questions.

This lack of market data about installers of premises and campus communications cabling infrastructure has led Cabling Installation & Maintenance to conduct what we believe to be the first full-fledged market study of the installation-contracting marketplace. The results of this research were presented for the first time at PennWell`s Structured Cabling Marketplace seminar, held at Cabling Installation Expo `98 in Atlanta, GA, last October.

The market study was conducted during the summer of 1998 by market-research firm Readex (Stillwater, MN), with a questionnaire sent to 1000 randomly selected readers of the magazine who listed their primary business as contracting, systems integration, or design and engineering. A total of 441 responses to the questionnaire were received, representing a response rate of 44.1%.

Business profile of the cabling contractor

What is the mix of different business activities reported by the cabling contractors contacted for the study? The immediate conclusion drawn from the data is that cabling contractors have had to diversify and provide a range of different business services to succeed--if not simply to survive.

Overall, the highest percentage of total revenues earned by these companies is derived from cable-plant design services (33.7%), followed by installation services (25.4%).

Below this first tier of clearly dominant activities, which generates nearly 60% of the typical contractor`s business, is a second tier that falls roughly in the range of 10% per activity: system integration (11.5%), repair and troubleshooting (9.1%), and maintenance services (7.2%). This primary focus on core business activities supported by diversification into other profit-making services will reappear later as a regular theme in the business strategies of cabling contractors.

The median value of a contractor`s premises and campus design and installation contracts was reported to be $100,000. Almost one-quarter of the contracts reported (23%) were large jobs valued at more than $500,000, while another one-quarter were mid-sized projects ranging from $100,000 to $500,000. Smaller contracts valued at under $100,000 clustered in the $10,000-to-$50,000 range. More than half of these contracts (53.1%), according to the survey respondents, came from commercial and industrial installations, while almost one-fifth (18.5%) were institutional installations, such as those done at schools, colleges, nonprofit organizations, and government agencies. Considerably smaller numbers of specialized installations were performed at military facilities (9.4%), hospitals and health-care establishments (7.9%), and in residences (3.6%).

The high percentage of commercial work performed by cabling contractors in comparison to other types of jobs is mirrored in the breakdown of these installations by application. There is a clear predominance of a single application--data communications--which accounts for almost half (48.4%) of the revenues reported by survey respondents. Telephony, at less than one-fifth (17.2%) of total revenues, comes in a distant second.

Electrical wiring (16.4%) accounted for almost as much contractor income as installing telephone systems, and audio/video installations (10.6%) were not far behind. Security/surveillance and miscellaneous other applications accounted for less than 10% of reported revenues.

In our look at services provided by cabling contractors, it was apparent that two business strategies were coming into play: Diversify into different types of services to protect one`s revenue stream but also specialize in a few types of services to position oneself in the marketplace. The same two business strategies are being used as well for types of jobs performed and applications installed. Most cabling contractors offer several different services, perform commercial as well as other types of work, and compete for business in data communications, telecommunications, and perhaps one or two other specialties. However, despite this diversification, it is still possible to characterize the typical cabling contractor; the company provides design and installation services, it does mostly commercial work, and the principal type of equipment it installs is for data communications.

UTP dominates marketplace

Most of the market-research information we have reviewed in the past suggests that the installation picture with regard to cabling media is fairly simple and straightforward: about 80% unshielded twisted-pair (utp) copper cable and 20% multimode optical fiber, with the copper cable used for horizontal runs and the optical fiber for backbone cabling. The true picture turns out to be a bit more complicated. utp cabling clearly dominates the marketplace, but it accounts for only a little over half (52.7%) of the feet of cable installed by the contractors we surveyed. Multimode fiber accounts for 13.4% of installed footage, but singlemode optical fiber, which is now finding some applications in campus and even building backbones, contributed another 8.3%.

Shielded and screened twisted-pair (stp/sctp) cable are generally regarded as European alternatives that are not making much headway in the North American market, but in our survey, they accounted for 12.3% of the installed footage. Coaxial cable is widely considered to be a moribund medium, used only in legacy mainframe-based computer networks, but cabling contractors report that it represents about 10.9% of their installed footage.

Average job size, measured by number of drops installed, clusters around two values: medium-sized jobs of 200 to 500 drops (21%) and smaller jobs of 100 drops or less (36%). There is also clustering in the data for the number of jobs a company performs in an average year, with 29% claiming to do 100 or more jobs and 41% stating they do between 10 and 49 jobs per year.

A third factor relating to average job size that also shows some clustering of data is the average length of time a company spends on a job, measured in person-hours. In this case, most cabling contractors reported that they devoted between 100 and 500 person-hours to the average job (32%) or between 50 and 100 hours per job (24%). Ranking third was 10 to 50 hours per job (16%). The clustering in this case is at the low end of the scale, suggesting that the typical cabling contractor most often performs medium- and small-sized jobs.

Cabling contractors were polled on a number of current business issues in the survey, among them buying through distribution, vendor certification programs, and servicing warranties.

One business trend characterizing the cabling industry is that contractors buy through distribution, and this trend is indeed borne out by the data. Almost three-quarters (73.5%) of the purchasing reported by respondents to the survey goes through distributors. This is split about evenly between national distributors and those serving regional, or interstate, markets. About one-fifth (19%) of a contractor`s purchasing is done directly with the manufacturer.

Almost half (47%) of the cabling contractors surveyed said they were not vendor-certified installers for any manufacturer. Other contractors represented manufacturers as follows:

- Certified by one to two vendors 17%

- Certified by three to four vendors 15%

- Certified by five to nine vendors 7%

- Certified by 10 or more vendors 7%

This data supports information gathered by the magazine`s staff, suggesting that cabling contractors are hard-pressed when it comes to representing the lines of multiple vendors. The training required by a vendor to be certified to install its products costs the contractor lost working time, and the contractor may then be required to produce an annual volume of business to retain its certification. It seems clear from the survey that, of those contractors who depend on vendor certification, the average survey respondent can afford about three such certifications.

Long-term warranties, sometimes for as long as 15 to 20 years, have been another hot topic in the communications cabling industry over the last few years. Many recent installations are now covered by both component and performance warranties, with the latter typically offered when vendor-certified contractors perform the installation. Some cabling contractors have looked ahead and expressed concern about what will happen if too much of their working time is taken up with unpaid servicing of long-term warranties.

Data from the survey suggest that this type of service is not currently a problem. More than one-third of the respondents (35%) said they were spending no time in servicing warranties, while almost half (49%) reported they were spending only 1% to 10% of their time in this activity. A total of 15% of cabling-industry contractors claimed they were spending more than 10% of their time on servicing warranties.

As noted, training is a resource issue with many cabling contractors. Training requirements associated with vendor certification programs are certainly one aspect of the training issue, but such requirements are by no means the only question. About one-third of the companies surveyed (32%) budget 20 to 40 hours of training per year per employee. Another one-third (30%) budget more than 40 hours per employee, while only 10% budget between one and 10 hours per employee and 6% engage in no training. This substantial investment in employee training is necessary because of the rapid change and complex technology found in the cabling industry.

Approximately 92% of the contractors surveyed depend on multiple sources for employee training. Almost three-quarters (71%) maintain in-house training programs implemented by their own staffs. Almost two-thirds (63%) depend on manufacturer-sponsored training, while more than half (51%) attend distributor training programs. Independent training vendors (with a 44% response) are used substantially more than the programs offered by nonprofit organizations (20%) and vocational and technical schools and colleges (19%).

Buying influences and business opportunities

An important function of market research is to identify the decision-makers in the purchasing cycle for new and established products, as well as to isolate product features that are of interest to potential customers. In this survey, cabling contractors were asked to rate various individuals as to their importance in influencing the company`s buying decisions regarding premises and campus cabling and components. A rating of 4 was established as meaning "extremely important," while a rating of 0 meant that the individual had little or no importance.

The most influential individuals in the purchasing process, according to the cabling contractors surveyed, are the cable-plant designer (with an importance rating of 3 out of a possible 4) and the end-user or customer (2.9). The designer is most likely an employee of the contractor, as are those receiving the next highest ratings: project manager (2.8), installation foreman (2.5), and installation technician or crewman (2.2). Accorded less importance are the cabling consultant (2), equipment vendor (1.8), and distributor (1.6). At the bottom of the influence scale are the company president of the client (1.8) and its senior and financial managers (1.4).

Criteria influencing purchasing decisions were also rated on a scale of 0 to 4, with 0 representing "no importance" and 4 "extreme importance." Performance (with a score of 3.7 out of 4) is rated as the most important purchasing criterion by cabling contractors, followed by reliability and standards compliance (both at 3.5). Availability and price (both at 3.2) are of moderate importance, with ruggedness (3) and ease of use (2.9) ranked next. Least important of the purchasing criteria presented to contractors are technical support and manufacturer`s warranty (both at 2.8).

Perhaps the most important business questions of all have to do with how much money a company is making, how its revenue picture has changed in the recent past, and how it is projected to change in the near future. The companies surveyed had a median income of $4.57 million in their most recently completed fiscal years, estimated revenue growth of about 25% over the last five years, and projected revenue growth of almost 30% over the coming half-decade.

It is clear from this revenue information, which is supported by other data points about average job size discussed here, that the typical cabling contractor is essentially a small to mid-sized business. It is also evident that most businesses surveyed have grown moderately over the last half-decade and expect to grow in revenues as much or more in the next five years. These revenue projections mirror the forecasts prepared by market- research firms studying cable and component sales; most such forecasts have shown steady sales growth over recent years, with the trend predicted to continue well into the next century.

Asked where their companies did business, all respondents (100%) indicated that they operate on different geographic scales, as follows:

- Locally 51%

- Regionally 52%

- Nationally 37%

- Internationally 26%

What conclusions can we draw from all this data? The main points seem to be that

- Cabling contractors get most of their business from design and installation, but they also perform several other business services.

- The mainstay of the cabling contractor is commercial work.

- Data-communications installations account for more than half the typical contractor`s business.

- Contractors predominantly install utp copper, but all other standard cabling media--stp, coaxial cable, and multimode and singlemode fiber--are healthy contributors to the business mix.

- Cabling contractors rate themselves and their employees as important influencers of purchasing decisions, along with their end-user customers.

- Most contractors work locally and regionally, while a substantial number also work nationally and even internationally.

Overall, it seems clear that the contractor sector of the cabling industry is a financially important one, vital to the business interests of vendors and end-users alike.

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Regional distribution is a surprisingly strong force in contractor purchasing decisions.

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After in-house and manufacturer training, contractors depend heavily on distributor training programs.

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Cable-plant designers and end-users are the most influential people in the purchasing process.

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