Snap Out of It!

In the Oscar-winning movie, Moonstruck, there is a classic scene that has become a staple of great movie moment retrospectives. Nicholas Cage turns to Cher and proclaims his love. 

In response this unsolicited overture, Cher hauls off and smacks him in the face and screams, “Snap out of it!” It is time for someone to tell the CEOs of the telecommunications industry the same thing.

We are just coming off an intense couple of days where the vendors in the telecom sector have broken the bad news to financial analysts and investors that things are: 

• not good

• may get worse, and 

• no one knows when it will get better. 

So tell us something we didn’t know.

We all knew, for instance, that the IT slowdown was a reality before September 11th. What the horrific events of that day did, along with the subsequent anxieties it has caused domestically and globally, was accelerate sector weaknesses that were and are systemic. We all knew that whether September 11th had happened or not, there is little or no reason to believe that we had reached the bottom. 

We all should have known and acknowledged that the world had already “changed forever” in our industry. It just took a horrendous “disruptive event” to capture the attention of the masters of the digital domains. What has been surprising has been the extremely slow response of the sector to the changed circumstances.

Almost as vexing as the stubbornness of the people who have preached “make change your friend or perish,” but who refuse to accommodate in their strategy and tactics the new reality that the world is now a buyers market filled with skeptical buyers, has been the rush to blame everyone but themselves. While all of the captains of IT companies have done more than their fair share of hand wringing over their challenges, and have looked for scapegoats, none have been quite as vigorous in pointing the finger at others than the telecommunications industry CEOs.

MORE INFO CAPITAL SQUEEZE THREATENS VENDOR LIVELIHOOD As SBC and other carriers slash capital expense budgets, technology developers feel the pinch. Vendors must now seek creative ways of sustaining themselves on less.  by Glenn Bischoff WHITACRE'S BLUNT MESSAGE MAY BACKFIRE WITH REGULATORS Oct 28, 2001,Telephony by Donny Jackson

Pick your favorite telecom company and just read the press releases that accompany their financial reports. For example, SBC chairman and CEO Edward Whitacre, Jr. released a statement that: “In today’s weak economy, pervasive and uncertain regulation that drives up the costs and limits our ability to grow and compete against unregulated companies has become an anchor on the company.” 

WorldCom CEO Bernie Ebbers blamed government tardiness in looking at M&A deals as a reason for his woes. Sprint saw everyone but themselves as the reason ION had to be folded, and their fixed wireless rollout shelved. 

I don't mean to single out these companies. In fact, if you are really into sob stories read the material from AT&T and BellSouth. Not only are they going to continue with their force reductions, but AT&T has even put its sprawling Basking Ridge fortress on the block. How the mighty have fallen.

Whether the industry leaders admit it or not, nobody likes a whiner, especially when they are constantly whining about the same thing and have done nothing to accommodate their changed circumstances. 

In perusing commentary on the financial results on the Internet, one things stands: SBC has become the poster child for sector whining, and the lightening rod for criticism as well. Yet, the criticism is just as good for the rest of the ILECs as it is for SBC. Observers have made several noteworthy points:

• The government is not to blame for SBC and other ILECs over-estimating demand for DSL and not being prepared for the fact that the broadband market is cyclical just like other markets.

• The government is not to blame that cable companies have been faster to market with broadband than the telephone companies.

• The government is not to blame that the pair gain efficiencies of installing DSL cuts into profits from installing additional lines. They are certainly not to blame that service provider expenses in providing broadband have outpaced company abilities to generate revenue because of the pricing cap the existence of competitors has place on the market. Laying this at the feet of being required to offer equal interconnection is a specious complaint given that a reasonable wholesale access business would more than cover the costs. There appears to be a residual anger management issue about competitors that is a hold over from monopoly days.

• The government is certainly not to blame that the wireless arms of these same entities have made regional and off-peak calling so attractive that people have made wireless service their choice for second, third and fourth voice lines. It really is a shame that rational consumers choose to purchase things rationally.

OCTOBER 8, 2001, TELEPHONY MURDER BY NUMBERS Three years and out. That was the cloak-and-dagger plan for Teligent, and it entangled everyone—from the media-shy billionaire family and the internationally successful venture capitalist who backed the company to the market-mover CEO and his golden-boy management team. They planned to sell their creation to the highest bidder but failed to anticipate that a lethal combination of greed, inadequate technology, ambitious power plays and conflicting self-interests would trip them up on their way to cashing in. BY DAN O'SHEA

In addition, nobody feels sympathetic, especially Wall Street, to the ILECs since they have successfully crushed all fixed wireless local competition, and most if not all of the competitive DLECs and CLECs. Financial analysts whose firms underwrote the likes of Northpoint, Rhythms, Covad, Winstar, Teligent and others, and who felt obliged to keep recommending these stocks to their clients well after there was any economic justification, have long memories. They are also notoriously unsympathetic.

Most galling, though, is the notion that we should feel sorry for these businesses because they seem incapable of offering us premium services that we might want to buy. Indeed, what is most astonishing is that the policy makers, before they were literally so rudely interrupted, were close to buying the notion that doing things like allowing the RBOCs into currently restricted markets on an accelerated basis was the only way to assure the expeditious deployment of broadband services. Broadband access? Possibly. Broadband services? I don’t think so.

The reason the access market has a “possibly” is because the ILECs can’t stomach the possibility of a true integrated network connection that allows quality IP telephony over a DSL connection. Why? Because with an IP phone attached to an always on IP network that is being provided at a flat rate, you can say goodbye tp intraLATA toll calls. 

Goodbye to intraLATA toll calls means goodbye metered, high-margin service. It means the enemy has destroyed the nerve center of the economic engine that enables the ILECs to maintain their enormous financial power even in the face of a deteriorating market.

The RBOC victory over the DLECs is a case of winning the battle, but losing the war. Forcing customers to have a wired phone connection for voice and a DSL connection for data and multimedia, is an invitation to contact the first cable company that provides a wireless LAN so a customer can share a cable modem connection for unlimited voice calling over telephone handsets as well for a computer. 

Look no later than next year for such a development. It will include support by some enlightened cable operator of all the most popular telephone features--call waiting, call forwarding, voice messaging, calling name ID--as part of the service. It may or may not be flat rate. It certainly will be less expensive and more feature rich. 

Sans this offer from cable, people will continue to use cell phones for more and more regional and off-peak calling. In tough times, scrutiny of every household discretionary expenditure will inevitably lead to the adoption of this strategy. Cell phone service provides compelling value.

AT&T, WorldCom and Sprint, had it directionally correct when they saw that cable and/or wireless (specifically fixed wireless) was the route to undermining the financial power of the local exchange operators. The problem is that their management did not have the expertise to finish the job they started. They were too easily distracted by the antics of each other, and a total misunderstanding of value creation.

The reason for the emphatic, “absolutely not,” on the services side is because the incumbents in both the local and long-distance business have yet to offer the compelling value that can be seen from the likes of AOL. Access services--speeds and feeds--are not services in the sense that they are not about how I can increase the value of my connection once I am on. 

On that front, every year that passes we seem to get two years further away from the actual wish list of broadband network deliverables--real-time, videoconferencing over heterogeneous network elements and multiple vendors is a good example--as has been promised by the incumbent service providers. Giving them more is almost a promise to receive less.

From Internet.com Give Me Liberty Or Give Me Microsoft! By Mark Merkow, CCP, CISSP October 22, 2001 From TheStreet.com Once Again, Sun Steps Into Microsoft's Path By Joe Bousquin, Senior Writer 09/26/2001  Liberty Alliance Project

We keep hearing from computer industry that going forward the world is about “experiences.” The telecommunications operators need to take a close look at what is going on in the war between Microsoft, AOL and the Liberty Alliance over user authentication if they want to understand the future. 

The future is about being authenticated by a gateway/gatekeeper for safe passage and interaction when online in an always-on world. It is the authenticator and not the facility owner that holds the key to the next generation services agenda. 

The telecom service providers are going to miss this one just like they missed Group III Fax, e-mail and being the preferred ISP. And, they won’t be able to buy their way out of it. We will get our “services” from somebody else.

The world of networking right now and for the foreseeable future is about TRUST. If you are not selling me a “safe experience” you are not going to be my vendor. Seeing articles on the front pages of the general press about network infrastructures that are highly susceptible to being taken out by acts of terrorism is not conducive to building TRUST. Putting competitors out of business, raising prices because of the leverage that arises from doing so, and putting the blame for not being able to provision a broadband connection to my house because it is too expensive, is not the way to engender TRUST.

There is more opportunity for the communications industry, right now, than at any time in its previous history. Security and interoperability can and will sell. What the marketplace is waiting for is a change in behavior from the incumbents. Who knows? At some point they may even try and sell us things that not only would we like to buy, but we actually might pay a premium for.

It is time for the incumbents to “snap out of it.” A conservative estimate would put 90% of the problems of AT&T, Sprint and WorldCom--and many of the RBOCs--as being internally induced. The problem is not technology, it is marketing and execution. 

Nobody likes a whiner. To paraphrase Pogo, “They have met the enemy, and they are them.”
Peter Bernstein is President, Infonautics Consulting, Inc. He can be reached at pabernstein@worldnet.att.net.