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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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FEBRUARY 4, 2003 SPECIAL REPORT: ALL-DISTANCE TELECOM Here Comes the Real Fun for Telecom This will be the year that long-distance and local calling get reunited in one business. And that's sure to transform the industry
Beneath the surface, however, major change is afoot: This year will go down as the one in which the worlds of long-distance and local calling are finally reunited into one business that industry executives already have given a catchy new name: all-distance telecom. In 2003, federal regulations that forced customers to pay one company to call around the corner and another to call around the world will be taken off the books. Nearly 20 years after the Justice Dept. broke up Ma Bell, Humpty Dumpty is being put back together again, albeit in the form of several big phone companies instead of just one. "It's clear that the ability to integrate and incorporate all the customer's needs -- wireless and wireline, local and long-distance, even broadband -- will be the cornerstone of any strategy to compete," says Duane Ackerman, chairman and CEO of BellSouth. Reasonably soon, if not this year, that realization could set off a series of monster mergers in the industry. SPREADING STRATEGY. The introduction of all-distance wireless calling plans in the late 1990s set the wheels in motion by providing consumers a way to make both long-distance and local calls using service plans for which they paid a set monthly fee, rather than traditional per-minute charges. Then last year, WorldCom's (WCOEQ ) MCI unit introduced its "Neighborhood" plan for traditional, nonwireless customers, becoming the first major phone company to offer unlimited local and long-distance phone service for a flat rate of $49 to $59 per month. To date, more than a million customers have signed on. Across the country, other carriers have mirrored that plan at varying prices. Meanwhile, a new technology called voice over Internet protocol (VOIP) is making phone calling possible using the same cable-TV network that delivers The Sopranos -- as well as over DSL lines that link PCs to the Internet. VOIP startup Vonage in Edison, N.J., has lured 10,000 customers to its $40 per month unlimited calling plan, which routes calls over the customer's cable or DSL broadband connection. Given the financial pressures on the industry after the worst three years in its history, it's no surprise that the phone companies are embracing all-distance. The continuing fallout from WorldCom's $9 billion accounting fraud, disappointing financial results across the industry, and declines of as much as 90% in telecom stocks, have had the effect of forcing carriers to scratch for ways to prosper in a down market -- principally by selling more services to each customer and making more efficient use of their networks. BELOW-COST ACCESS? That explains the ferocious lobbying that has preceded a Feb. 13 Federal Communications Commission (FCC) decision, which among other things, will decide the terms under which the regional Bell companies are required to sell space on their networks to new competitors in the local-phone business -- including AT&T and WorldCom. The Bells claim that the current policy mandates that they sell network access below cost, adding to the financial turmoil of a slow economy and the popped Internet bubble. Preliminary indications are that the FCC will phase out that requirement, a change that would make it harder for the big long-distance carriers, such as AT&T, to increase the number of local customers they serve -- at the same time that the Bells are signing up tens of millions of long-distance customers. Still, a regulatory victory alone won't "obviate the need for a strategy to counteract the erosion of [the Bells'] traditional business by wireless and e-mail," says Blair Levin, a telecom analyst at investment firm Legg Mason. That's why the Bells are embracing the all-distance calling model with a vengeance. Verizon is pushing its "Veriations" package, which offers consumers local, long-distance, wireless, and DSL service for a flat fee of about $150 per month. Just six months after it introduced the program, more than 560,000 customers have signed up. WOOING BUSINESSES. SBC, however, is still awaiting long-distance approval in several key states. "We want to integrate wireless and wireline," says Forrest Miller, SBC's group president for corporate planning. "We want to integrate Wi-Fi so that customers on the road get Internet service no matter where they are. There's a sizable segment of the high-end market that values integration. That's where the battle is." The same thing is happening in the market for business customers. Both Verizon and SBC have begun new initiatives aimed at selling additional services -- including long-distance voice, network management, and data storage -- to their existing business customers. On Jan. 27, SBC announced the hiring of 1,000 new salespeople to peddle its PremierSERV package of such services. And Verizon has spent $30 million to install fiber links in three metro areas -- Dallas, Seattle, and Los Angeles -- that are outside of its regional stronghold. That bet has paid off. By the end of 2002, Verizon says it served 65% of the corporate offices in Los Angeles. As part of the conditions of its merger with Ameritech in 1999, SBC has has installed fiber networks in 30 markets outside its region, including Denver, Miami, and Las Vegas.
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