Telegraphing the Future of Telecom Manufacturers

Matthew Flanigan, president of the Telecommunications Industry Association, spoke to Washington Technology's J¿rgen Wouters recently about issues affecting the association's membership and the industry in general. The TIA encompasses about 575 telecommunications equipment manufacturers.

WT: Cable Television Laboratories Inc. recently issued a $2 billion request for proposal for telephone switching equipment. How significant is this potential order for TIA members? Is it a harbinger of things to come?

FLANIGAN: It makes our members smile; it just creates a bigger pie out there. They view convergence as the opening up a market that just wasn't there before, and cable companies need switching equipment if they are going to offer telephone service.

We manufacture the gamut of everything necessary to run the network, from basic twisted pairs to software, local area networks and sophisticated switches.

Cable companies have got a lot of pipe laid, but need almost everything else. And they need not only the equipment, but the knowledge and the know-how that our manufacturers can provide. So it's the tip of the iceberg.

WT: There's been a tremendous amount of hype about the so-called "telecom wars" brewing. It appears that regardless of who "wins," the TIA's members are in a lucrative position to supply arms to all sides, so to speak.

FLANIGAN: I would say yes, that is true, the members can't lose. But let's not step back in time. When they open it up to allow the local exchange carriers into cable or long distance, and cable into local phone business, let's make sure that everyone has a level playing field.

We don't want to go back to the time prior to the breakup when there was self-interest and self-dealing by someone providing the services and the manufacturing. Manufacturers want to have the ability to sell to everybody.

WT: Has the hoopla surrounding multimedia, interactivity and the infobahn translated into significant, tangible benefits for manufacturers?

FLANIGAN: It is having a big effect. Sales of telecommunications equipment this year is already up 28.4 percent over last year. The business is probably one of the fastest-growing industries in the country, and I think that's because of the convergence. It's also due to new companies; there are an awful lot of start-ups.

What it means to TIA is that our present membership of roughly 575 will grow, and one of the things I hope to do is to grow our membership to over 1,000 members within a couple of years.

And that will happen because of new companies and the convergence of technologies. That's part of the excitement on the manufacturing side; this is a pivotal point here, and it's a more exciting future than people can imagine.

WT: But as things stand now, many of the nascent interactive trials have been mired by technical difficulties. Meanwhile, the most critical components, the mega-servers needed to provide video-on-demand, have yet to be perfected and market-ready.

FLANIGAN: Technology doubles so quickly, and that's what's happening now as they are trying to push more and more information down a pipe, whether it be fiber or coaxial cable.

There will be glitches along the way; it's a learning curve. But the outcome will be more and cheaper products and services, and the consumer ends up winning here.

WT: If you take the emerging multimedia market, which segment promises to yield more revenues, entertainment or business applications. Many companies, some of them major players, seem more keen on games than anything else, is that where the real money lies?

FLANIGAN: I think, as always, the entertainment gets a lot of hype, and entertainment today is making the money.That's what is fueling video-on-demand. So that's the first wave.

I think what follows is just information, and having the ability to have information at everybody's fingertips is really what's going to propel this country further ahead in this information technology age; and business and information, go hand in hand.

WT: Despite the aborted mega-mergers earlier this year, industry observers are still predicting a good deal of vertical integration among major infotechs in the computing, entertainment, telco and cable industries.

Do you foresee a similar consolidation among manufacturers?

FLANIGAN: I don't think there will be any more or less than has happened in the past.

WT: How about a corporate colossus on the scale of a Bell Atlantic or TCI deciding to absorb an equipment manufacturer?

FLANIGAN: Oh, that can definitely happen and that's a real concern, that there is no self-dealing that will take away the fair and competitive issues for buying products. That's what makes the industry and technology grow: competitive forces.

WT: Will personal communications services -- PCS -- be the bonanza some people seem to think it will be?

FLANIGAN: I think PCS will happen, as to it being a bonanza, I think what it will do is help drive prices down in some of the competing fields. Is it going to sell more equipment? Yes, it's going to sell more equipment.

But I think a lot of work needs to be done on PCS. Last I heard there were seven standards, and they are trying to narrow it down, which certainly needs to be resolved.

Is it something for the future? Yes, definitely, our members are excited about it, and a lot of money is being put into by our members for research and development.

WT: How do you feel about the recent death of telecom reform on Capitol Hill?

FLANIGAN: We are disappointed that we did not get a bill. I think the bill contained some of the elements that we considered to be important, but we will never know what would have happened on the Senate floor.

WT: What are the implications for manufacturers?

FLANIGAN: I don't think it's a major factor, because I think there will be a bill next year. And it's already happening on the state side, with MCI and others applying to get into the local exchange, and we think that will continue to happen.