Telecom Supercarriers Set to Battle for Your Business
Companies will offer one-stop shopping, from wireless to Internet
P> Combine local telephone service with long distance, throw in cable television, Internet access, wireless, paging, maybe even video on demand. To offer all these things and more in the post-legislation era of freer competition, industry will create a new breed: The supercarrier, a telecommunications company that promises everything to everyone.
Along with connections faster than a speeding bullet, the supercarrier will offer one-stop shopping to the telecom customer. The regional Bell operating companies, Stamford, Conn.-based GTE Corp., MCI Communications Corp., AT&T and Sprint are all expected to bundle local with long distance and other services -- maybe even offer a special credit card for all the services. The bundled offerings would be cross-discounted to lure the price-conscious customer-- and possibly even antitrust watchdogs. The legislation specifically allows for joint marketing of tolls within and between states. "There will be a range of offerings this industry has never seen before," said Robert Allen, chairman of Basking Ridge, N.J.-based AT&T. "As much or as little as the customer wants."
AT&T jump-started its supercarrier status with a Feb. 27 announcement of its Internet strategy. For one year, AT&T will give its phone customers five hours of free Internet access a month through the dial-up service, AT&T WorldNet. And AT&T business customers can get unlimited monthly service at $19.95 a month.
If that doesn't draw in the reluctant surfer, this might: AT&T will cover any credit card fraud to the dollar for customers using the company's Internet service and Universal Card. The service will be available March 14 via 200 locations to 80 percent of the country. Look for the combined phone/Internet access bill as soon as AT&T gets things squared away with the Bells, which now do the billing.
One-stop shopping will be a hit, according to David Goodtree, director of telecommunications strategies at Forrester Research, Cambridge, Mass. The supercarrier will offer so much at such a good price, making it impossible to switch carriers, he said. Consumers might have little problem jumping ship though, given the way they already switch indiscriminately among the top three long distance giants.
But for businesses, switching won't be so easy. Some companies come close to disaster when changing long distance accounts. "This will be a lock-in strategy," said Goodtree.
Competition to get businesses first will be fierce. "The earliest ones will be the biggest winners," predicted Goodtree.
The supercarrier's brand name also will be of paramount importance, giving AT&T, Washington, D.C.-based MCI and Kansas City, Mo.-based Sprint a leg up on competitors such as the Baby Bells. "Can you imagine hanging out in San Francisco and seeing an ad for Bell Atlantic long distance?" said Goodtree. "The Bells have a lot of identity to create."
AT&T's WorldNet Internet service will have 24-hour, 7-day-a-week customer support. It also boasts nothing less than 28.8 modems, which will allow access even to people with slower modems, but no one with a 28.8 will get downgraded to a slower speed. Some access companies, especially the smaller ones, switch people to a slower 14.4 line when the faster 28.8 connections fill up.
To get the best brand names and the right mix of services, companies are in the midst of a flurry of partnerships, buyouts and reselling. "We are about to embark on a three-dimensional chess game," said H. Brian Thompson, chairman and CEO of LCI International Inc., McLean, Va. One of the most significant deals was last month's merger of US West Media Group, Denver, with Continental Cablevision, Boston. Continental is the nation's third-largest cable company, serving 4.2 million customers. Together with US West's clients, the deal will give the media group supercarrier access to 13.9 million homes.
US West will buy all of Continental's stock for $5.3 billion and assume the company's debt, which amounts to $5.5 billion. "With rapid advances in technology and with the fundamental realignment taking place in the telecommunications world, this merger comes at a critical time for our company," said Amos B. Hostetter Jr., CEO of Continental.
A merger, however, represents only one way of adding an element to a full suite of services. The Bells and long distance companies have similar goals, but they will achieve them differently. Take cellular, for example. AT&T bought McCaw, an established cellular phone company, and MCI resells AT&T cellular. Sprint, on the other hand, is starting from scratch, building a $7 billion cellular network. All three will be cellular players in their own ways. The same is true for other services such as paging, video, and the Internet.
The timing is right to bundle Internet access with a telco's other services. After all, a telecom company would appear behind the technology curve without an Internet strategy. Companies also would lose the chance to gain a lot of capital if the Internet industry grows as predicted. Market research firm Alex. Brown, Baltimore, predicts Internet users will grow to more than 130 million by 1998 from about 35 million users today. "All the [regional Bell operating companies] see the Internet as a cash cow. So do the three long distance companies," said Brian Ek, vice president of government affairs for Prodigy, White Plains, N.Y.
Don't mistake bundled services, however, for the oft-predicted world of convergence. "Convergence is a myth," said Goodtree. AT&T's break into three companies proves that, he said. But there is a fine line between diversification and getting into too many markets.
Goodtree said he thinks MCI, in fact, is overextending itself with partnerships and purchases unrelated to its core business. "They're squandering their money in the wrong place," he said. Instead, MCI should concentrate on "dumb minutes," the bread and butter of communications, Goodtree explained. The purchase of SHL Systemhouse, a systems integrator, may make MCI some money, but it still detracts from the business at hand. "MCI may as well be investing in flowers and furniture," he said.
A recent Forrester report criticized the telcos for allying with multimedia companies, specifically the Bells with Disney, MCI with News Corp. and US West with Time Warner.
"When faced with the choice between learning an unrelated business versus protecting and growing their core telecom business, carriers ultimately will realize their strength is in networking, not content -- but not before wasting billions in the process," the report predicted.
Goodtree said because MCI is distracted and Sprint has so much money tied up in building new networks, he sees AT&T as most formidable in the fight.
But besides the big three, there are at least 500 other long distance providers. And the telcos are not the only ones in the game. Cable and satellite companies pose a tough challenge, and gas and electric utilities are jumping in the fray. Cable modems, especially, have given the cable industry more power. And although most Americans have phone lines, 65 percent now have cable, said Ek. That link into people's homes and businesses is the first step to one-stop shopping.
Is the Internet all we need?
The Internet, not the chip, runs the newest wave of computers. The so-called $500 computer, which links the user on-line, is said to make personal computers as we know them today obsolete. The networked computer, a relative of the "dumb terminal" that was powered by a mainframe, is another sign that the real computing power lies in Internet connection.
Two weeks ago, Oracle Corp., Redwood Shores, Calif., demonstrated its version of the new computer, which is priced at about $500 and will go on sale in September. Acting like a personal appliance, the computer grabs software from the Internet. Operating systems, such as currently successful products from Microsoft, would not be needed.
Oracle's computer includes a World Wide Web browser and connections for both conventional and cable modems. As long as your connection is fast and you can get to the Internet, industry seems to be saying that's all you need.