Defusing the data bomb: Strategies on winning the data revolution

It doesn't take a fortuneteller to predict the future rate of data vs. voice transmissions. Voice carriers already are preparing for what they think will be a massive revolution, changing the current data/voice split from 50-50 to 90-10.

While voice grows at 10% to 15% per year, data traffic bounds ahead at rates greater than 100% per year. Predictions aside, voice still is the moneymaker. While current voice and data transmission levels may balance each other, voice revenue holds steady and comprises about 90% of overall carrier revenues, said Jennifer Pigg, senior vice president at The Yankee Group.

Incumbent carriers talk of enhanced infrastructure and converged networks, but they aren't always aggressive in developing and deploying profitable applications, such as call waiting and callback offered today, Pigg said.

One problem is the availability of equipment, which either doesn't exist or still is in developmental stages. Instead, carriers are trying to profit by offering Internet services. But competition so strong with Internet access, "The only people making money in the Internet market are you and me," Pigg said, referring to the fact that consumers get good deals on Internet service. Still, carriers focus on enhancing speed, bandwidth and footprint. Incumbents expand through acquisitions and petitions to the FCC, while long-distance carriers migrate to local and international markets. Both groups advance into the Internet and data markets either alone or through company acquisitions. Regardless of which route they take, nearly all carriers are moving in the direction of data.

One example is SBC Communications, which announced its $6 billion Project Pronto last week (see related story on page 8). With Project Pronto, SBC plans to provide high-speed Internet services to 80% of its customers within the next three years. The investment in fiber optic cable and ATM equipment will enable applications such as voice over asymmetrical DSL, videoconferencing, home networking and interactive online games.

Another carrier embracing the data revolution is BellSouth, which undertook a comprehensive architecture campaign during the past year, said Alan Blackburn, principal member of the technical staff for BellSouth Science and Technology.

"We want to push fiber deeper, including fiber-to-the-curb and fiber-to-the-home," he said.

While ATM is the safest bet for BellSouth now, the carrier's objective for the next generation is a single, multiservice network that exclusively uses packet switches, not voice or narrowband switches, he said.

Despite advances in high-speed networking, the question is whether legacy carriers will be able to turn a profit with data. "RBOCs say they want to be all things to all people, but they have to decide what they want to offer," said Christine Heckart, executive vice president for TeleChoice. Some carriers say they want to do it all but find that they can't. To be successful, RBOCs should build wholly owned subsidiaries to focus on targeted services and markets, she said.

Sprint is using this strategy with its wireless and DSL acquisitions. "All give us more bandwidth and flexibility to reach the demands of higher data transmissions," said Philip Edwards, group manager for marketing and development for Sprint. The carrier's goal is to remain competitive as it transitions to support the data revolution.

"We'll look at competitors and adjust accordingly. We'll see what our customers are looking for," Edwards said.

And eventually, everything comes back to what the customer wants. "Enhanced applications aren't enough," said David Williams, vice president of strategic marketing for GST Telecommunications. GST's plan is to offer complete solutions, including voice over DSL, Internet over DSL, outsourcing, hosting and security, to differentiate itself and to make money, unlike some RBOCs, which shy away from technology such as symmetrical DSL, fearing it will jeopardize its own legacy networks, he said.

In the past, only the largest carriers could take full advantage of high-speed networking. Today every carrier, big and small, can take advantage of that high-speed network. The key is how carriers use that network to profit from the data revolution.