Starting on Jan. 1, 1997, a mix
of players in a more deregulated telecommunications arena will enter a
new era, one of increased competition that brings more options for all
of us. Forget that the rules are not quite finalized. Carriers with different
backgrounds are formulating strategies ahead of time, hoping they'll be
ready to make quick advances when the real competition promised by the
Telecommunications Reform Act of 1996 begins. Inter-Exchange carriers (IXC)
are moving from their long distance services into the local loop. They
are also moving together with the Regional Bell Operating Companies (RBOCs)
into the cable TV business. The RBOCs plans to aggressively enter the long-distance
market. The Cable TV companies are upgrading their infrastructure to add
local and long distance telephone services to their traditional one way
entertainment and information services. All the players are also pushing
the technological envelope by adding Personal Communications Services (PCS)
to their portfolio. So the big question is: Who's going to win the game?
First of all, the players will start out offering a full menu of goods
and services, some of which they never offer before and probably know very
little about. They will all do this by relying on their market brand names
and logos. Some of the pieces that they are marketing will be homegrown,
and others resold services acquired from partners. The mix will depend
on who the providers are, the geographic areas they serve and what the
regulators say they can and cannot do. For example, the IXCs, Competitive
Access Providers (CAPs) and Cable TV companies today aren't allowed to
offer local service in all states. In states where it is permitted, the
RBOCs aren't always required to play along with the competition. Conversely,
the RBOCs are not allowed to offer long-distance within their regions.
In 1997, these boundaries will drop, and competition will become wide open
in both the local and long-distance arenas. In preparing to compete next
year, the players who are looking to expand their product offerings will
have to build or improve their own networks. They may also try to acquire
or merge with other players, which is not always a good choice. Despite
what one may think, the buy option delays time to market, costs tons of
money and takes precious time to put in place. However, the companies that
come fully prepared will no doubt be ahead of the game in the days to come.
So what can we expect from the major players? Since the RBOCs are currently
in control of most of the local loops going to the customer premises, they
will continue to benefit because they can charge competitors for switched
and dedicated access to their local loops. Even with a recent Federal Communications
Commission ruling to cut switched access fees, the RBOCs will still get
that money until competitors can build their own local nets. The IXCs are
currently paying more than 40% of their revenues to the RBOCs for each
minute of use. To cut this substantially the IXCs are working to originate
and terminate calls end-to-end on their own networks. They are also driving
traffic to dedicated access facilities, thus bypassing the local switched
network, and forging relationships with CAPs. They are determined to have
their local loops in place. The CAPs, which are becoming known now as competitive
local exchange carriers, are in an enviable position to pressure the RBOCs.
CAPs have a solid presence in major metropolitan areas with state-of-the-art
networks. Being locally based companies, they have forged tight relationships
with their customers and the cities they serve. The CAPs have their own
local networks that use fiber and ATM technologies, they have solid business
customer bases and a strong local presence. They are uniquely positioned
to immediately drive end-to-end competition in the local loop, whether
on a wholesale or retail basis.
The CAPs traditionally do not serve
residential customers. They connect primarily with the larger, thus more
lucrative business customers in large cities. This is because the 20/80
rule applies here. The large business customers represent 20% of the total
customer base of the RBOCs and 80% of its revenues. Cable TV firms have
powerful local networks, too, although many of them need enhancements to
adequately support two-way communications. These companies can also fund
growth from the deep pockets acquired from their monopoly position in delivering
entertainment to the home. Cable TV-based telephony services could become
some of the most interesting packages on the market, offering bundled dial
tone, long distance and cable TV for one price, and all on the same bill.
That will be great for residential consumers but not for businesses, since
business people do not watch a lot of TV at the office. The cable TV firms
is putting a high priority in capturing residential customers and not on
the business customers. So, although the cable TV firms will be formidable
competitors, they are probably the slowest among all the players. All that
said, competition is alive and well, as are regulatory pressures, and the
RBOCs will respond with lower access rates for both switched and dedicated
services. It's already happening. Bell Atlantic is offering a rate of 2.05
cents per minute for interstate switched access, and Pacific Bell is offering
intrastate switched access for 1.4 cents per minute. It doesn't seem long
ago that switched access averaged around 5 cents per minute. With switched
access rates falling, dedicated access from the IXCs will become less attractive.
As the IXCs pay less to the RBOCs, they are not planning to lower the long
distance rates. Instead, they are planning to expand their service offerings
and market coverage.
The customers can expect a number
of more attractive choices in pricing packages for local service. Look
for more bundled offerings, one price for a cache of service features.
As an example, we may be able to get a telephone line with the top five
custom local-area signaling services (CLASS) features for a flat monthly
fee of under $25. It's already offered by some CAPs. Competition in long
distance has driven rates down by 66% since 1984, no doubt customers will
benefit from competition in local services, too. And where we can get a
single end-to-end service, we can expect discounts that recognize, with
varying flexibility, the total business we do with that carrier. Customers
will receive more choice, more products and services, and lower prices.
With the barriers between local and long-distance falling, a local access
and transport area no longer has meaning. Intra-LATA toll charges will
slowly disappear, and Intra-LATA foreign exchange (FX) service will be
eroded by newly defined calling zones. Look for expanded local calling
areas and reduced rates for what was once toll or FX service. The new entrants
will drive toward simplicity, offering single-rate services, including
flat monthly fees, flat rates per call and no-charge features. As competition
increases, prices that are artificially inflated will be squeezed to more
closely reflect true costs. As a business customer one can expect to receive
lower cost local services, including dial tone, Centrex, PBX trunks and
ISDN. In this new environment, ISDN orders will escalate. After spending
the past five years upgrading their networks, the RBOCs will finally offer
almost ubiquitous service. Plus, many of the CAPs that are implementing
new local switching platforms intend to use ISDN as their flagship product.
ISDN will also benefit as the demand for online content and bandwidth continue
to increase. ISDN is the next step for even casual online service users
who are requiring more and more bandwidth. And, importantly, carriers can
and will offer it at a significantly reduced price, bringing it in line
with the cost of a standard business line. Ultimately, however, technologies
such as Asymmetric Digital Subscriber Loop (ADSL) will be needed to satisfy
the bandwidth appetite merely whetted by ISDN. It is interesting to note
that although more products and services will be brought to market, their
functionality will remain relatively unchanged. And although bundling is
the wave of the future, it's important to ask just how far it will go.
Many carriers expanding their product lines to include local services don't
want to bother with equipment, and some are taking a hands-off stance with
regard to inside wiring. Therefore, changing service providers could result
in having more of them to deal with - one for long distance, one for local
dial tone, one for inside wiring and one for equipment. The next-generation
carrier will integrate all services and provide seamless, end-to-end service
delivery. After all, customers still will look for price, performance and
ease of use. But will they get it? Overall service and billing will be
affected, adversely at first if providers hurry their packaging just to
get to market. Yes, packaging is important to grab market share, but worse
would be to lose a customer due to dismal service and poor billing. To
really compete, the providers - with the exclusion of the Big Three IXCs
and some RBOCs - will have to rely on the next generation of service delivery
systems that includes billing, customer reception and customer maintenance.
Face it: Although the CAPs and cable TV companies are working aggressively
to have billing solutions ready for Jan. 1, few of them will be the equal
of the established carriers on Day One. The IXCs have the advantage here
because they know what it means to get it wrong. They've been there and
have done just that. The CAPs have been concerned primarily with flat-rate
access arrangements, and most are not prepared for usage-sensitive rates,
let alone for the sophisticated pricing and discounting schemes supported
by Sprint's Invoice Processing System billing system. Today, a Centrex
service from an RBOC can easily result in over 10 different charges on
our monthly bill. Mostly driven by regulatory requirements, RBOC pricing
has been by piece part. we pay separately for the common line, the network
access and add-on services, including hunting/rollover; three-way conference
calling; call forwarding; call pick up; call transfer; and interstate toll
access. The IXCs, CAPs or cable TV companies may get that down to around
two charges; one for the line and one for the hunting/rollover service,
which automatically routes an incoming call to another number when the
number called is busy. With this all-in-one packaging and one bill, the
price tags might look high. The end of residential subsidies will soon
make it even higher. As competition drives prices to cover the real cost
of service, the subsidy businesses have been paying for residential services
in terms of higher prices will diminish. This could lead to price cuts
for business users. The bottom line is to be cautious about changing the
status quo. If different bills and different customer service telephone
numbers for long distance and local service are OK, we should not hurry
to change unless the new provider can prove the worthiness in their packaged
services. In the meantime, we should take a closer look at our communications
requirements, determine what we need or don't need because we are going
back to the future where a single provider does it all. This time around
though, the provider will do more for less - less price, that is.
Nguyen Tien Luc, Ph.D.
[email protected]
For discussion on this column, join [email protected]
Copyright © 1996 by VACETS and Ng. T. Luc
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