InformationWeek

June 21, 1999

Telecom's Competitive Culture

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While many IT managers may be reluctant to trust their networks to new carriers, more companies are expected sign up for cheap broadband network services as startups such as Level 3 and Qwest prove themselves. Ford Motor Co. and Walgreen Co., for example, have signed on with Qwest. And newer Internet-oriented companies such as Broadcast.com and Intervu Inc., which provide video streaming services to Web sites such as CNN and MSNBC, have signed with

Level 3
The new service providers are building networks that use the latest IP and fiber technology, which they say make the networks much cheaper to operate and manage. Qwest, for example, says that its 18,000-mile network will be able to carry all existing U.S. communications traffic and operate 30% to 40% below the cost of traditional carriers.

Level 3, meanwhile, says its new network will be even cheaper than Qwest's circuit-switched and IP network. Level 3 says its all-packet IP network will transport traffic for less than 4% of what it costs to send traffic over a circuit-switched network.

"Just the fact their services are available is making a big difference in the market," says Bard Haerland, VP of telecommunications for Unisys Corp. in Blue Bell, Pa. "You'll see some real fallout in the market when they have big-name accounts, have more of a presence, and a fuller service offering."

With prices that low, even conservative telecom managers will have to give the new carriers serious consideration. "It can put the telecom manager in a defensive position," says Giga analyst Pierce.

Innovation Pays
The new carriers are also leading the charge in introducing innovative services. Level 3 recently introduced a service that can sharply lower bandwidth costs for application service providers that deploy hosted-applications on Level 3's network and use local lines to connect to customers. The IP Crossroads Intra Gateway Exchange service is priced at a flat monthly rate of $1,500 for 1-Gbps speeds and $1,000 per month for 100-Mbps speeds.

With new competitors and services appearing almost daily, analysts predict that the telecom industry's merger and acquisition frenzy will continue. "Nationally, we'll end up with a few mega-players and really small boutique firms that specialize," says Giga's Pierce.

For customers, the industry changes mean the Telecom Act of 1996 is finally beginning to deliver on the promised benefits of competition: new choices, lower prices, and more innovative services. More changes took place in the industry in the past year than in any year since the breakup of the Bell System in 1984.

But according to industry executives and analysts, the changes have just started--and the best is yet to come as wide-open telecommunications competition begins to take hold.