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Publisher's Outlook
March 2001

Rich Tehrani

Exploring The Theory Of "Natural sILECtion"

BY RICH TEHRANI

Go Right To: The Evolution Of A Superior Conference Program

The recent tragic oil spill in the Galapagos Islands made headlines the world over. Of course, every news story written about the ecological disaster made mention of the fact that the Galapagos are the island chain that inspired British naturalist Charles Darwins theory of natural selection. Recently, some scientists have said that the unique wildlife of that area will likely rebound and that natures resilience might allow a full recovery over time. In any event, this is another factor (man-made or otherwise) that the creatures in the Galapagos will have to adapt to.

That got me thinking about evolution in general, and evolution of the service provider market in particular. (What can I say? This industry is near and dear to my heart!) But, coupled with a press release I had received at about that same time, it set the wheels spinning.

The release, from Technology Futures, Inc. (www.tfi.com), touted a research report entitled The Impacts Of Competition And Technology On Local Exchange Switching Assets. The report set out to quantify the effects of high-speed data access and wireless on the value of ILEC investment. As a reporter on the effects of IP telephony technology, I was fascinated to learn more about the future of circuit-switched technology, especially in light of the fact that I have been very focused on the packet telephony threat (as opposed to wireless) to traditional service providers. I thought it would be interesting to see what cumulative effect these next-generation technologies would have on the incumbent providers.

It's abundantly clear that the ILECs have their work cut out for them. It seems everyone wants to provide local telephone service to consumers and businesses. And as new technologies emerge that enable competitive service providers, the battle will only continue to heat up.

I requested a copy of this research report in hopes of giving you a picture of how competition is affecting the PSTN switching environment. Many of the report's conclusions are based on assumptions, backed up by mathematical projections. This is in contrast to some industry reports that deduce market sentiment about the future by averaging the opinions of the media and vendors to a specific market segment. To its credit, the report explains projections in a logical manner, based on a set of assumptions. So, say you don't agree with every assumption in this report or see other factors affecting the general thought process at hand; you can factor in your own viewpoints to get a slightly different result.

The report starts with the fact that roughly half of North American ILEC revenue comes from usage sensitive charges such as long-distance and access charges from long-distance companies; the other half is made up of monthly and other recurring fees. I found it interesting to learn that ILECs hold a very high share of the low-speed data market characterized by modem calls. They hold an approximate 50 percent market share in the high-speed data market.

THE THREAT
Wireless voice is having an immediate impact on ILECs as more and more revenue producing minutes-of-use are migrating to wireless networks. Other threats to wireline voice are so-called "e-communications" such as e-mail, e-commerce, and IP telephony.

Wireless
The growth in wireless will indeed have a dramatic effect on wired telephone access as more households turn to wireless as their primary or only source of voice service. Currently however, only two percent of households use wireless as their primary source of voice service. And yet, a full 30 percent of the population has already adopted cellular/PCS service and that number is growing quickly.

e-Communications

The report continues, stating that the e-communications market will have a dramatic impact on ILEC voice revenues over time. Some examples include ordering something on the Internet instead of calling an 800 number, sending an e-mail instead of making a phone call, and visiting a Web site instead of making a telephone inquiry. According to the study, over 10 years, online users will transfer half of their base wireline voice minutes to e-communications. There is another factor here worth exploring: While it is logical to assume that e-communications will certainly displace voice communications, it's my opinion that over time, brick and mortar purchases will move to the Web and as a result, greater numbers of customer/representative interactions will take place online instead of face-to-face. If voice communications resulting from e-commerce remain constant, then as e-commerce sales increase, the number of phone calls generated by e-commerce will likely increase as well.

The study continues its hypothesis estimating that by 2005, 70 percent of U.S. households will be online. The conclusion is that 30 percent of wireline voice usage will be displaced by e-communications. By multiplying 70 percent by 30 percent, you receive the amount of total wireline usage the study estimates will be eliminated by e-communications in four years, which TFI rounds down to 20 percent. An interesting point to factor in here is that as long-distance rates continue to decrease worldwide, we will likely see an increase in calling minutes that are difficult to currently project. I, for one, still think twice before I place an international call but if I could call Europe or Asia for a few pennies a minute, I would surely increase the time spent talking on the phone with my distant friends and relatives.

As you can see, ILECs are facing an assault on many fronts. Taken together, the projected amount of lost voice usage due to e-communications and wireless competition will total a whopping 50 percent by 2005! In these pages, we constantly discuss the use of enhanced services as a way for service providers to attract new customers as well as retain old ones; well, the incumbents are on an increasingly limited schedule by which they must roll out these services or risk losing business.

At the recent COMNET show in Washington, D.C., one of my fellow editors had the opportunity to meet with many equipment vendors who as recently as two months ago were focusing exclusively on CLECs. It seems the recent CLEC financing shakeup has made many of these hardware vendors rethink their priorities and are now shifting to focus on the ILEC market. They are also fairly quick to mention that "the CLEC thing wasn't really serious, we always believed the ILECs would make up the majority of our customer base." Funny, how companies constantly reposition themselves to adapt to an ever-evolving telecom market.

CONCLUSION
So as the plethora of new services continues to evolve, the question becomes, who will provide them? I always thought of the incumbents as being too slow to adapt to changing technology. They had little need to work that hard in light of the guaranteed revenue stream they enjoyed. Perhaps market competition is already affecting the way ILECs operate as they realize the need to focus on providing other services, whether they be wireless, high-speed data, or other enhanced services.

In my home-base in Fairfield County, Connecticut, the primary source of broadband Internet access is Cablevision's cable modem service. I wonder if SNET realizes how much business they lost by not rolling out DSL sooner. I know many people who have signed up for broadband service, and yet I don't know a single person in my area that uses DSL -- everyone seems to have a cable modem. So as time marches on and technology flies ever faster, it will be interesting to see how the ILECs evolve to maintain their revenue streams and grow into new areas. I am looking forward to the day when SNET starts to offer lots of new and exciting enhanced services so we can test-drive them in these pages. If you have an opinion, I'd love to hear it. Please address it to rtehrani@tmcnet.com.

[ Return To The March 2001 Table Of Contents ]


The Evolution Of A Superior Conference Program

We have just finished redesigning the conference program for Communications Solutions EXPO, which will be held May 2325 at the Washington Convention Center in Washington, D.C. In keeping with the theme of evolution, we took scope of our environment, made some changes, and came up with one of the best programs we have ever developed! We spent a great deal of time reinventing our conference program, constantly looking for the best way to target exactly what you need to know, and I think we have come up with something unique and extremely useful. If you are a service provider, we have a wealth of sessions that will affect you directly. If you are a developer, an enterprise customer, or a government user, we have sessions designed to help you get the most out of this event. How'd we do it? Search the conferences on our Web site for more details. As you can see, there is no more targeted way to learn exactly what you need to learn in the communications market.

We have added case studies for everyone involved in any facet of communications and we have also focused new, "must-attend" sessions on every area of communications worth knowing about such as broadband, unified communications, CRM, enhanced services, mCommerce, optical, and much more.

Please visit our Web site (www.csexpo.com) for more information, including detailed explanations of each session, registration info, and more! Also, see how you can qualify for a FREE Palm Pilot or Handspring Visor, just by registering for Communications Solutions EXPO. I look forward to seeing you May 23-25 at the Washington Convention center in Washington, D.C.



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