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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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MARCH 2, 2004
Tearing Down the Walls in Telecom [Page 3 of 3] HUNTING CONTENT. Even some ISPs might be interested in merging with long-distance companies. EarthLink, for one, could consider a tighter partnership with -- or an acquisition of -- a long-distance or local-phone company to strengthen its broadband service offerings, says Mike Lunsford, executive vice-president for products at EarthLink in Atlanta. Today, it has partnerships with the likes of MCI and Sprint. Other mergers -- perhaps with satellite-TV companies -- could strengthen the position of phone companies in video, where they don't have in-house capabilities. Satellite player EchoStar (DISH ) already has agreements with SBC, local-phone company Qwest (Q ), and Earthlink to resell its service. An outfit that acquires EchoStar could, finally, differentiate itself from the pack. Some communications players may also hunt down valuable content assets, which have the potential to offer them the most differentiation. That's partly what's behind cable company Comcast's bid of $54 billion in February for Walt Disney (DIS ). Disney rejected the offer, but many analysts expect Comcast to up the ante. Such an acquisition could, potentially, allow Comcast to show its subscribers new Disney features early -- or exclusively -- thus providing an incentive for customers to buy its pay-TV service. HANDHOLDING NEEDED. Consolidation among service providers could eventually trickle down into other industries, such as telecom equipment -- though probably not right away. This year, the capital spending of phone companies in North America will be essentially flat -- and that will seem like a vast improvement over last year, when the carriers cut spending on equipment by 20%, says Shing Yin, an analyst with telecom consultancy RHK in San Francisco. As the phone companies branch into supporting video, they'll need more handholding -- which will create an opportunity to sell them services, says Jim Dondero, a vice-president for wireline marketing at Nortel Networks (NT ). Yet if growth remains elusive, gearmakers could consolidate, says Michael Sophie, chief financial officer at telecom supplier UTStarcom (UTSI ). For the next few years, before consolidation abates, consumers will be the big winners: Any communications company that wants to survive will have to improve customer service and introduce cheaper and more innovative products. "We'll see Procter & Gamble-type marketing," says Andrei Jezierski, a founder of tech consultancy i2 Partners in New York. "It will be consumer-based, convenience-driven innovation." "WAR HAS JUST BEGUN." Starting later this year, Verizon will give its wireless customers a cradle that will turn their cell phones into a home phone -- so it'll accept calls to both your cell number and your home number. Starting in the middle of the year, SBC plans to give its customers a single mailbox for e-mail, voice mail, and faxes, which they can reach from any device, be it a PC or a phone, says Jeff Weber, vice-president for corporate planning at SBC. It also wants to eventually put a high-speed Internet connection onto consumers' TV set-top boxes so they can see a phone caller's ID while watching a movie and accept or reject the call using a remote control, he says. And starting next month, AT&T will allow subscribers to its new CallVantage service to schedule "do not disturb" periods, when their phone will ring directly into voice mail, or to use a "locate me" service that forwards calls to a specified phone or to several phones at once. That's just a glimpse of the new services to come as competition grows. The extent to which the industry will consolidate will also depend on regulators. And it could take some months for communications industry players to feel the margin pinch that will set many of these forces in motion. For instance, Cox's margins have increased in the past year, thanks to its foray into local-phone services. "We aren't seeing margin pressure, but the war has just begun," says Joseph Rooney, senior vice-president for marketing at Cox. That's the bottom line: The war has begun, and the telecom, cable, and related industries may be about to enter the bloodiest battle in their history.
 By Olga Kharif in Portland, Ore.
BW MALL
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