Carrier carnage prompts focus on fundamentals

By Lisa Pierce
Network World, 05/27/02

It's a meat-and-potatoes, back-to-basics kind of year for telecom services. Customers and providers are continuing to focus on the fundamentals: price/performance, coupled with incremental enhancements to services.

The situation is driven, in large part, by the still-dampened economy, and exacerbated by the attacks of Sept. 11. My advice to customers has remained constant: Expect little in the way of true innovation from providers, but demand they continue to improve on those fundamentals.

A quick look at the U.S. telecom landscape explains why hunkering down makes sense.

The range of carriers facing financial crises grows ever wider, from Global Crossing to competitive local exchange carrier McLeod, metro Ethernet provider Yipes Communications, and just last week, Metromedia Fiber Network. Industry speculation abounds about the future of others, in particular WorldCom, Qwest and Adelphia.
Wholesale providers have seen prices erode by 30% to 40% in the past two years. First-quarter industry revenues are below last year's disappointing figures.
Layoffs by major U.S. providers will exceed 30,000 this year. Combined with last year's fallout, the total number of U.S. service provider layoffs will exceed 90,000. The equipment vendor meltdown has been more severe: in excess of 170,000 positions lost.
Capital investment projections for service providers continue to decline. The little money that carriers are spending is going toward improving their own margins by reducing expenses, not rolling out new products or services.

There is good news amid the gloom:

In response to customer requirements and near-term top-line concerns, carriers are providing customers with attractive multiservice contracts for terms of two years. Negotiated prices for voice, private line, frame relay and ATM services continue to erode: on average 10% to 15% compared with 2000. T-1 access line prices continue to fall, particularly on the wholesale side, which translates into some benefits for customers who use interexchange carrier-coordinated access.
In response to lack of customer interest in quickly migrating to new services, long-haul providers are giving renewed life to mature services, which have better records than new services anyway. Recent evidence includes WorldCom's Bundled Frame Relay and Economy Frame Relay packages, and Broadwing's PLX Multiconnect T-1/T-3 private-line service. The aim of both services is better prices in hopes of an upswing in customer adoption.

Hybrid IP-Frame Relay services also offer customers some of the performance comfort of traditional Layer 2 frame networks, combined with some of the cost-attractiveness promised by fully meshed router-based IP networks. These providers continue to roll out incremental improvements to newer (IP-centric) services. Examples include recent announcements by three major providers to induce customer interest in their converged (voice-over-IP) services, and by Sprint's announcement in January concerning its upcoming site-to-site IP VPN service.

Many companies are turning their attention to local expenses and are looking for incumbent local exchange carriers (ILEC) to find creative solutions to their pain points. This is an ongoing struggle.

Our client feedback regarding ILEC responsiveness to their concerns is mixed, at best. Companies continue to find that ILECs fall short in meeting their expectations regarding billing, customer support, prices, installation and maintenance.

One last note: In a recent conversation with a group of clients, all agreed that in the midst of a vast sea of disappointing performance, the Ameritech portion of SBC Communications is the worst.