VACETS Regular Technical Column

The VACETS Technical Column is contributed by various members , especially those of the VACETS Technical Affairs Committe. Articles are posted regulary on forum. Please send questions, comments and suggestions to

October 4, 1996

A New Era in Telecommunications in the US

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.

For discussion on this column, join

Copyright © 1996 by VACETS and Ng. T. Luc


Other Articles

How high can you suck

Asynchrounous Transfer Mode (ATM) - an analogy

The UNIX Runtime environment

National Information Infastructures in Pacific Asia: A Vision ...

Largest known Prime discovered

Internet over Cable

Statistics as A Formal System

Cubic Planet Earth

Other Links

VACETS Home Page

VACETS Electronic Newsletter