Oct 8, 2001 12:00 PM,

BEYOND TELRIC

by Dan O'Shea

For five years, lawyers representing ILECs and CLECs have been scurrying around the Telecom Act of 1996 like mice trying to frighten an elephant away from its peanuts. But instead of enjoying the elephant's feast, the mice helped create an immovable beast.

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CEO FOR RENT

ON 3G ISLAND

A new crop of competitive carriers was born. They thrived. They faltered. They died, smothered by the weight of unrealistic expectations and a sliding economy.

Through the course of its life, the Telecom Act's purpose both came and went. A new crop of competitive carriers was born. They thrived. They faltered. They died, smothered by the weight of unrealistic expectations and a sliding economy.

Now the U.S. Supreme Court has horned in on the action: The elephant may finally be moved, if only a few steps.

The court is currently considering several telecom-related cases, including one that challenges the TELRIC pricing regulations that govern how ILECs charge CLECs for leasing equipment, lines and space.

The TELRIC part of the Act is really the heart of the matter. Most ILECs believe they should be able to lease their network elements using cost-based pricing, preferably the costs they incurred to build the network. Most CLECs think TELRIC pricing should be below cost, or at least based on forward-looking costs for network replacement.

NUMBERS CRUNCHED

5
Number of executives named in Cisco's proxy statement that are not getting a bonus in fiscal year 2001

$1.8M
Total base salary of those five executives during the same fiscal year

$37.41
Average amount consumers spend on local telephone service, according to a survey by Solomon-Wolf Associates

$37.28
Average amount consumers spend on long-distance service, according to the same survey

$18,500
The amount of money Billy Tauzin, R-La., has received from telecom equipment makers and service providers during the 2002 election cycle, according to the Center for Responsive Politics

$5550
Amount given by the same group to John Dingell, D-Mich. Charles “Chip” Pickering, R-Miss., leads all House members with $24,100 in contributions

ILECs contend that the return on their investments in building networks has suffered because of TELRIC. CLECs argue that TELRIC renders prices too high to allow them to build profitable business operations and forces them to be too dependent on the ILECs. CLECs also say TELRIC prevents them from eventually building their own network facilities.

TELRIC convinced some CLECs and their investors that it was not only the easiest way to start a business but also the easiest path to profits. That is where logic, and the CLEC market, took a wrong turn.

While dozens of CLECs have gone out of business, the existence of TELRIC was not the main problem. For some, a poorly drawn plan for moving beyond TELRIC was the problem. For others, it was overly ambitious plans, too much upfront network spending or inexperienced managers who could not grow their companies ably.

Many CLECs might think changes in TELRIC will jump-start another new era of telecom start-ups. However, learning from the past is a lesson the elephant should never forget.

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CEO FOR RENT

On Nov. 1, Frank Dunn takes over one of the most unenviable jobs in telecom: president and CEO of Nortel Networks. When current chairman and CEO John Roth announced in May that he planned to step down in April 2002, Nortel was already starting to lose market share. Roth was at the end of a good run. Now he can't get out of the way fast enough for a replacement who may not last that long. At a press conference last week, Roth's introduction of Dunn had a Freudian edge. He described Dunn as the man for the job “at this point in time.” Roth's replacement is Nortel's current CFO, but the company needs much more than numbers wizardry to stop the bleeding. Nortel needs reinvention more than executive intervention. Dunn must refocus a company that overextended itself into the competitive carrier market and counted on its core Bell company customers to stick by its side, even as it ignored them in favor of the CLECs. Dunn's welcoming gift from the financial community last week was a warning from two bond rating services that Nortel's debt rating is close to falling into junk territory. In less than a year, what was once considered among the most plum jobs is looking more like the equivalent of captaining the Titanic. Too bad the iceberg isn't hiring.
by VINCE VITTORE

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ON 3G ISLAND

The wireless industry once waited anxiously for Japanese giant NTT DoCoMo's 3G debut, excited to witness the wonders of a technology that promised advanced applications such as video over mobile phones. DoCoMo finally launched last week, and the carrier claims handsets are flying off the shelves throughout Japan. Everywhere else, reaction is tepid at best. Previously, wireless watchers were looking to Japan and DoCoMo to see whether 3G would be successful. Now they realize it doesn't matter because Japan is isolated on its own wireless island. It's the only country in the world that has made a huge success out of pre-3G wireless data, with DoCoMo's i-mode Web service supporting more than 27 million customers and competitor J-Phone's service overtaking i-mode. But that adoption rate is attributable primarily to Japan's low PC penetration and an infatuation with hand-held devices, neither of which factors exist in other countries on the same scale. Further, a dismal attitude toward 3G has taken root virtually everywhere outside of Japan. Network equipment is plagued with technical problems, and few compelling applications have been developed because carriers are trying to figure out what customers are willing to pay for. DoCoMo's efforts will provide no gauge of how successful 3G can be around the world. Carriers worldwide must continue justifying their investments in 3G without a true model because DoCoMo is not the savior of the 3G industry.
by LYNNETTE LUNA

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