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transform telecom market

Competition, new technology
transform telecom market

What is silently going on around us is the transformation of existing networks and networkers in subtle ways that are going to change the way we interact. Providers are changing who they are and what they offer–not only technology and products, but packages of customer solutions as well.
There are many ways to list and describe the underlying shifts. Let us try eight:
1. The movement toward competition is irreversible. The monopoly utility model is not dead, but it is mortally wounded. Those who believe that cable television or communications service should be provided by one firm because of perceived natural monopoly attributes tend to be viewed as public-policy dinosaurs in Washington, D.C. Public-policy makers today favor active promotion of competition.
Through their actions, even the major firms in telecommunications have shown they recognize there will be alternatives to what they offer. Every major piece of communications legislation seriously considered by Congress in the last decade has had competition as its key aspect, whether it has dealt with local telephone service, cable television, long distance, cellular or mobile service, satellite television delivery or international telecommunications competitiveness. There is already extensive activity in the new Republican Congress to move pro-competitive legislation. Pro-competitive policies also drive state action. In New York, the Rochester Tel Open Market Plan led the nation; now there are similar initiatives under way elsewhere. Effective competition, once in place, removes much of the need for government intervention, and it can deliver the maximum amount of societal benefit. (It also does not hurt that this could also be a way to lower the cost of government.)
2. At bottom, telecommunications transport is a commodity. A bit is a bit is a bit, whether it is used in a voice call or a data transmission or a video program. Therefore, telecommunications carriers look for ways to differentiate their fare, and to increase revenue by adding value. This takes the form of new features, functions and connected offerings, like adding toppings to a basic pizza. If a carrier fails to do this, the commodity status of its offerings will limit margins. Commoditization works across technology lines. Wireless telephony is expected to substitute for your local phone service at some point. Cable television over a wire faces competition from satellite television and from local wireless programming, like Rochester Choice. It is just a matter of time, given the first item above.
3. Boundary erosion creates opportunities for entirely new forms of service. Offerings of companies used to be kept separate by law or regulation. A broadcaster could not operate a full TV show production house. A company that delivered local voice telephone service could not provide local video programming via CATV. Bundling of regulated products was taboo.
Those boundaries are going away quickly. As these boundaries are lowered, firms cross them to expand their reach. Integration is the new Holy Grail for telecommunications. A company that achieves integration has what is, in effect, a new product. It offers ease and simplicity for customers. And, if it is successful, that company covers all of the alternative avenues to a customer, limiting opportunity for its competitors. This is not reintroduction of a monopoly–but the ultimate competitive success!
4. If you cannot market well (and to the right customer segments) you are in trouble. The time when telecommunications giants could sit back and take orders is gone. Once people get a choice, many of them will use that choice to opt for some other provider. Basic communications service is a little like electronic aspirin. At bottom, the best products are comparable, but success is a function of how they are sold. So too with telecommunications. A firm has to find ways to create real uniqueness in promoting its features and benefits. But, it cannot be too cute. Recent marketing fights in long distance are attacking complicated service plans that promised lower rates but that may not always deliver them. In reality, most customers want to be marketed to–to have someone honestly help them understand what is out there that is of value to them, and to help sort out a basic but complex necessity. Good marketing makes friends as well as revenue.
5. A great name or brand is priceless. What is it that Motorola, Northern Telecom and CBS have that Nokia, Antec and USSB are working toward? Recognition. Recognition opens doors to revenue and growth. A good company’s name or brand operates like a warranty. It provides security. Many of the mergers and joint ventures you read about in telecommunications–whether in television, telephone service or wireless–are intended to allow the participants to establish a brand that ultimately will have nationwide familiarity.
6. The integration of computers with communications is not only inevitable, it is already very far along. I could use the entire space of this article to list the invisible advances that have taken place in the last decade that have transformed the most basic communications. Exploiting the digital processing and transport revolution is a big part of the plans of the largest Rochester firms. But, as in other computer-industry evolution, the path of convergence with communications is erratic, and the end result cannot be predicted. Nevertheless, that is where the richest consumer benefits of the future lie.
At bottom, a telephone network switch is a big computer. The telephone industry is one that, over the last hundred years, has mastered the concept of scale. It offers quality and reliability to millions on a seamless basis. Combining this attribute with the technological applications of computing should deliver benefits of almost incomprehensible richness. Ultimate success depends in part on the ability to accommodate new platforms across the 1,000+ local telephone companies and most of the long distance, wireless and other carriers operating in the United States. Global integration anticipates even more: compatibility across networks that differ greatly from ours.
7. Communications is expanding as an effective substitute for relatively costly or time-consuming activities. There are many examples. The 1990 San Francisco earthquake forced telecommuting on northern California, and it is now widely used throughout the country, for outside sales forces and for executives who dial in from home or while out of town. Educational distance learning is common, and is a staple that connects many Monroe County schools. Telemedicine has been trialed in many parts of the country, and a network among Rochester-area hospitals promises cost-effective transfer of records, bills, patient information and expertise. The courts have increased security and saved money by conducting criminal proceedings over closed-circuit video. Videoconferencing is expensive, but not as costly as flying people to meetings. And home shopping is already a multibillion-dollar business. One day the Internet may replace the post office, the shopping malls–and more.
8. Playing in the major leagues of telecommunications is getting more expensive. Worries about being big enough consume even the biggest carriers. They know that they need a critical mass, with room to test new avenues to profit. Recent deals? AT&T bought McCaw Cellular. MCI hooked up with British Telecom. Our own Frontier is purchasing regional long-distance companies to get a larger footprint and customer base. Nynex and Frontier’s wireless properties were joined last year into an upstate cellular supersystem, and Nynex joined Bell Atlantic, US West and Airtouch to bid nationally for new wireless communications licenses. Time Warner is seeking out more cable properties and has allowed US West to become a major equity investment partner. All of these spell bigger.
This movement seems inexorable. The currents run deep. While other trends also are at work and new ones may become apparent over time, the eight listed here will be critical for a long time to come.
Martin McCue is corporate vice president of planning and legal services for Frontier Corp.


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