Before the Telecommunications Act of 1996, the future looked bright for AT&T, MCI and Sprint. Executives at the interexchange carriers wore their rose-colored glasses through countless mergers, divestitures (even trivestitures) and global alliances, and straight into the harsh realities of the post-dotcom era . . . blind to what lay ahead.
When the Telecom Act of ’96 passed, all the pundits predicted that cable would be king and serve as the single line into homes and businesses. What they didn’t foresee was that the local exchange carriers (LEC) were next in line for the throne. Verizon and SBC consolidated their power, their coffers and their customer bases. Their vision was crystal clear: grow through acquisition, diversify and focus on the consumer market.
Main index: The fate of the IXCs
The big three must look inward at their true assets and exploit their strengths to replace consumer and corporate long-distance revenue. The traditional interexchange voice business is disappearing fast and there’s nothing they can do to stop it.
Wireless voice and data is booming. The wireless device obviates the need to have a watch, an alarm clock, an address book, a calendar, a pager, a calculator and a home telephone line. With cell coverage improving, thousands of people have disconnected their home phone lines and use their cell phones instead. Many businesses have opted not to provide staff with office phones and simply have employees use cell phones. They save money and find it easier to have just one number.
Emerging services such as British Telecom’s BluePhone in Europe extend the use of cell phones throughout homes or offices. Consumers love it and can’t get enough. The enterprise is sure to follow. Verizon Wireless, Cingular, T-Mobile and Sprint PCS love it all the way to the bank. AT&T and MCI watch with despair.
It gets worse. The would-be kings of telecom are rising to the challenge. After making needed investments in their infrastructures, the consolidated cable companies are launching comprehensive VoIP services that are drastically driving down already rock-bottom long-distance prices. If that weren’t enough, the LECs are bundling whatever long-distance market is left into their local voice services for an additional $10 to $15 per month. The IXCs simply can’t compete on price and aren’t able to justify higher prices for their services. They have to look at other means for survival.
Having sold off its cable interests and wireless business, AT&T clings to the hope that it can compete with VoIP providers such as Vonage. It promises to be a bitter battle. To compete, AT&T must quickly reduce its operating cost structure to match its new (smaller) revenue streams. The once all-powerful monopoly needs to transform itself into an emerging player to survive.
While MCI has emerged from Chapter 11, its true assets are harder to find. To its credit, the cash-poor, customer-hungry company managed to hold onto more of its customer base than anyone expected. Unfortunately, it wasn’t enough.
A true voice, data and Internet-based firm, MCI faces stiff competition and price pressures on all fronts. Its one shining star, UUNET, promises to keep the company afloat meeting the growing demand for VPN services until it can find a buyer. It has been rumored that MCI has been put on the sale block with an asking price of $6 billion. It may simply be a matter of time until MCI is sold piece by piece to the higher bidder.
Sprint, the underdog of the bunch, has managed to hold its own throughout a period when its competition simply imploded. Plagued with failed attempts to sell itself, first as a member of Global One (a partnership with Deutsche Telekom and France Telecom) and then later in its failed WorldCom/Sprint merger, Sprint has been forced to go it alone. Sprint admirably has retained its traditional corporate data customer base and survived the long-distance voice decline because of its growing wireless business. While the smallest of the three, Sprint’s true assets are worth more as an ongoing concern than both of its more sizeable competitors.
AT&T, MCI and Sprint must determine what they will be called next. As IXCs become a thing of the past, these companies must either re-invent themselves or cease to exist. There aren’t a lot of choices and MCI has already cashed in its chips. AT&T and Sprint should closely examine strategic partnerships or acquisitions that let them capitalize on the growth of wireless and mobile technologies.
The future is not bright, but a glimmer of hope remains.
