What separates the defunct and soon-to-be-defunct carriers from those more likely to survive is a willingness to adapt and acquire characteristics that let it compete and prosper in a changed environment.
The history of telecom is replete with many once-vital companies that have failed to adjust to the times, technology and trends. The fossil record includes Western Union, a throwback to another era, Cable & Wireless as it devolves into a single-island denizen, and 1990s newcomers such as PSINet, NorthPoint Networks, WorldCom and scores of others.
What separates the defunct and soon-to-be-defunct carriers from those more likely to survive is a willingness to adapt and acquire characteristics that let it compete and prosper in a changed environment.
Main index: The fate of the IXCs
The top three non-RBOC long-distance companies in the U.S. are AT&T, MCI and Sprint . Each is pursuing a different path to the future. MCI faces the rockiest – one that might lead it straight over a cliff, and a rather steep one at that.
AT&T: A new identity based on VoIP
Over the span of a single generation AT&T has gone from a colossus to a rather small and weak operator. It pursued the wrong strategies time and again for 20 years:
• Hanging onto Western Electric for years when it should have spun out on Day 1 after divestiture in 1984.
• Handing over its wireless licenses to the RBOCs at divestiture (which became most of Verizon Wireless and Cingular except for the assets that were McCaw Cellular, Vanguard Cellular and GTE Cellular).
• Spinning out its recently acquired McCaw Cellular/Vanguard Cellular, the one industry sector that demonstrated growth and value creation.
• Acquiring TCI and MediaOne under the reign of CEO Michael Armstrong in what had to be the most foolish set of acquisitions in the history of telecom, then admitting defeat and selling them at a loss to Comcast .
• Failing to join with other industry participants in a full-scale assault on the regulatory foundations of RBOC dominance, letting the RBOCs fight tactically as needed and ultimately be victorious.
Now that necessity is forcing AT&T’s hand, we see at least an opportunity to create a new identity. AT&T’s alliance in marketing its CallVantage VoIP platform with the cable TV industry is essential to the carrier. If this alliance can forestall cable operators from deploying their own VoIP platforms, AT&T becomes the partner to the cable industry and its target audience of more than 60 million households.
If this alliance stumbles, AT&T will falter with it. It cannot survive in the consumer sector as an independent provider of VoIP services except at bargain basement prices. Allying with cable firms that can bundle AT&T VoIP with basic cable, ISP services, broadband and HDTV might be the carrier’s last chance at independence.
On the enterprise side, it is becoming obvious that a) companies are not spending the way they used to on networking and equipment; and b) the RBOCs are finding it difficult to translate success in the consumer markets into success in the enterprise markets. This is where AT&T might find a decent and interesting strategy that outflanks the RBOCs: ally with the big outsourcers.
When a company outsources IT to an IBM or HP or Computer Sciences Corp. (CSC ), the network side is soon to follow. Banking giant Citigroup operates in more than 100 countries, has 200 million customer accounts and processes $1 trillion in financial transactions every day. A CSC, HP or IBM would find an AT&T network invaluable in reaching many of those 100-plus countries.
Because no one network exists that covers the globe, AT&T, which has the most experience globally, would be a natural fit. RBOCs, on the other hand, have almost no international capabilities and offer a poor fit for outsourcers.
MCI: Should it merge with AT&T?
When this operation was known as WorldCom, it was obvious to many that the firm had become delusional. After the fact, we realize that a lot of the delusion was actually cover-up of accounting “irregularities.”
When Michael Capellas came in from HP, we thought the company would become a catalyst for the industry under his astute leadership. Boy, were we wrong. Apparently Capellas is content to simply have gotten MCI out of bankruptcy and now he wants to sell the company. That leaves most observers with little to say about strategy, other than it is one of self-immolation.
MCI is on the block, and the only question is whether anyone wants the company. A link with AT&T is the best outcome for MCI (and for AT&T). It would give the combined entity far more clout with cable providers by bringing to the table the combined consumer divisions of the two companies. It also would have the biggest enterprise network reach, which would force the RBOCs into spending heavily to replicate those assets. From the FCC’s point of view, such a deal would encourage competition and investment.
Sprint: Wireless is the answer
Sprint is a three-headed beast with local phone companies, long-distance and mobile. Financial markets give little value these days to local and long-distance and give much value to wireless. Once Sprint ended the tracking stocks and issued a unified stock, the company’s financial fortunes improved dramatically.
The carrier is offering its wireless network for wholesale re-branding by other entities. While it might end up competing against itself, it is reaching customers it would not be able to capture on its own.
Sprint should offer the AARP a deal it couldn’t refuse: wholesale cellular service to any and all of AARP’s 35 million members, branded as AARP. After all, AARP has attacked the cellular industry’s indifference to the senior population, its incomprehensible calling plans, and somewhat useless and thick cell phone instruction manuals.
Sprint’s long-distance business is in decline and it has little in the way of metropolitan assets, so it will have difficulty competing with the RBOCs, AT&T and MCI for enterprise customers.
Sooner or later, we expect Sprint to become essentially a wireless company. Its consumer long-distance base is increasingly concentrated within its local phone company territories, and this is not a prescription for growth.
Although Sprint went through the process of combining its two tracking stocks, it will move to sell its local properties and simply exit the consumer long-distance business, writing down whatever assets it has to.
A new industry
IP technology separates service provisioning from access provisioning. In a sense this might help companies such as AT&T and begin to hurt companies like the RBOCs. This separation also forces down pricing. Vonage and Skype exist without access assets and offer services at low prices or in the case of Skype, free.
Service bundles are now the rage for their ability to cut pricing across the board. AT&T, especially if merged with MCI, can be a very large service provider allied with cable.
It is even possible to see a complete break-up of AT&T and MCI into a merged consumer company and a separate enterprise company, each pursuing different markets that have no logical connection to each other.
