Mergers Cause Industry Upheaval

Companies work to keep up with growth in wireless and IP communications as new players enter the market.
InformationWeek 500 - TelecommunicationsThis is a year of transition for the telecommunications industry. In January, SBC Communications Inc. revealed plans to acquire AT&T, the nation's largest long-distance company. Verizon Communications Inc. then revealed plans to acquire AT&T rival MCI. The mergers will remake telecommunications and probably lead to further consolidation in the industry.

At the same time, the industry keeps growing as more customers shift to wireless and IP-based communications. And new rivals keep entering the market. That makes it challenging to stay competitive, causing some telecom vendors to deploy new technologies to improve their internal IT infrastructures and help deliver better service.


Average portion of 2005 revenue spent on IT

Companies spending more on IT this year than last

Buying directly from foreign suppliers

Centralizing control of IT operations in past 12 months

Bringing outsourced functions in-house in past 12 months

Verizon launched two initiatives in the past year to improve operations and enhance its core products. On the operations front, its business units built more than 100 applications that handle 80 million customer transactions a month.

To enhance its core products, the $71.3 billion-a-year telecom company began a large deployment of fiber optics that will serve about 3 million businesses and homes by the end of the year, says Shadman Zafar, senior VP of architecture and E-services. "Traditionally video, Internet access, and phone calling haven't interoperated properly for customers," Zafar says. "But now our fiber-optic services integrate and converge the network, so the phone network, the Internet network, and the TV network can all come together as one."

Staying competitive in this changing industry also requires improving internal IT systems. Although much smaller than Verizon, with $4.9 billion in annual revenue, Qualcomm Inc.'s investments in emerging technology are just as ambitious. Over the past year, Qualcomm deployed VMware Inc.'s server virtualization for its Windows and Linux environments. The virtual infrastructure software lets Qualcomm run multiple operating systems and applications on a server using virtual partitions. Qualcomm now can support up to 18 virtual machines on a single physical server instead of adding costly hardware, a process that used to take up to six weeks.

The results have exceeded Qualcomm's expectations, senior VP and CIO Norm Fjeldheim says. It has saved close to $4 million by using virtual servers. Today, 49% of its Windows servers and 15% of its Linux servers are virtual. The company says 60% to 65% of its data centers will be virtual by next year. Since applications can be moved to other machines when problems occur, the uptime for Qualcomm's applications has improved.

"We've achieved the more, better, faster goal that IT is always trying to live up to. We are more responsive to the needs of our internal customers, which allows them to be more responsive to their external customers," Fjeldheim says. Ultimately, better service levels are exactly the kind of differentiator that will help Qualcomm, or any other telecom provider, stay relevant to its customers.


Hardware purchases

IT services or outsourcing

Research and development



Salaries and benefits


Everything else
38% 17% 11%

Data: InformationWeek Research

Illustration By Paul Watson

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  Alltel Corp.
* BellSouth Corp.
  BT Group PLC
  Cingular Wireless
* EarthLink Inc.
  Global Crossing Ltd.
  Lucent Technologies Inc.
  Qualcomm Inc.
  Qwest Communications International Inc.
* SBC Communications Inc.
* Verizon Communications
* Verizon Wireless

* denotes a top 100 company

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