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June 21, 1999

Telecom's Competitive Culture

Mergers, acquisitions, and a spate of new competitors are battling to offer customers a full range of services

By Mary E. Thyfault

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hree years after Congress passed the Telecommunications Act of 1996, the telecom industry is transforming itself into a competitive culture. A wave of acquisitions and mergers has swept the industry as new competitors enter the market and established companies bulk up and fill holes in their product lines in order to provide customers with a full range of communications services.

"We've seen a complete explosion of the old model that the telecom industry set up over the last 100 years," says John Sidgemore, vice chairman of MCI WorldCom. "Today, the older carriers are scrambling because the new entrants are moving very, very quickly."

In the past year alone, AT&T spent tens of billions of dollars to buy cable-TV companies; a relatively unknown carrier called WorldCom bought MCI Communications, which had been negotiating to merge with Britain's BT; large Bell and non-Bell local phone companies are merging; and new competitive carriers are laying tens of thousands of miles of fiber-optic cables throughout the world in order to break into the telecom services market.

For business customers, the new competition is producing lower prices, a greater variety of service packages, better service-level agreements, and improved customer service. The pricing changes alone can be dramatic: Qwest Communications International Inc., for example, offers a T1 line (1.54 Mbps) for $1,595 per month, while AT&T charges $2,690 for the same line. For a T3 line (45 Mbps), Qwest charges $3,190; the AT&T service is priced at $12,650.

That kind of competition is forcing established carriers to adapt to a new environment, and no carrier is working harder to transform itself than AT&T, the nation's oldest and largest carrier. "We've been focused on extending our network to the last mile," says Dale McHenry, director of strategy for AT&T Business Network Services. "We realized we have got to own our own network, and we went out and got it."

Buying Surge
AT&T just acquired cable giant Tele-Communications Inc. for $55 billion and is in the process of buying MediaOne Cable for $58 billion. It plans to use the cable systems to provide a link into homes and businesses to offer high-speed Internet access and local voice service, along with the long-distance and wireless services it offers.

Overseas, AT&T is entering into a $10 billion joint venture with BT to create a joint network service organization that will provide customers with comprehensive global network services. AT&T's former international venture, WorldPartners, provided seamless global service, says Jim Haney, director of global network services for Whirlpool Corp. in Benton Harbor, Mich.

But Haney expects the new AT&T-BT venture to provide even better response times and higher-quality service. "Our cycle time [for new services] will improve because with their own network, they will have much more direct control of their delivery of services," says Haney.

Overall, AT&T is "being more responsive to their customers," says Jim Russell, information officer for Xerox Corp.'s Stamford, Conn., headquarters, which inked a $100 million contract with AT&T for a wide range of services. Instead of the traditional service-by-service volume commitments, AT&T and Xerox agreed to broad revenue commitments, giving Xerox the flexibility to migrate its network from one technology to another or from one bundle of services to others.

The Network Route
Carriers such MCI and WorldCom were among the first to realize that owning a network was the way to go. The industry was shocked last year when WorldCom came out of nowhere to make a bid for MCI, but the combined company is now able to offer services that neither could offer alone.