Phone Carriers are Redefining Themselves

SAN MATEO (05/08/2000) - In the wake of the e-business gold rush that has created such an explosion of Internet traffic, traditional telecom carriers are edging further away from their voice roots, attempting to carve out potentially lucrative space in the market for offering data-centric services.

MCI WorldCom, Sprint, and AT&T are each moving to reposition themselves as integrated service and data providers, leveraging their large customer base and established infrastructure to deliver a broad range of services. The RBOCs (Regional Bell Operating Companies) are also moving in the same direction, while battling to establish themselves as national players to boost their credibility in the enterprise marketplace.

"There is no denying that voice revenues are increasingly just a commiditized product. Margins are falling; prices are falling. Even if usage goes up with services like wireless, there are all sorts of forces that are driving down the ability to increase revenue based on voice," said Jilani Zeribi, a senior analyst at Current Analysis, in Sterling, Va.

The Yankee Group estimates that the overall market for toll voice services is expected to grow by only 2.4 percent until 2004 -- relatively flat compared with IP services and Web hosting, which is expected to shoot up by 23.5 percent by 2002.

The major phone companies have been preparing for this shift. AT&T, for example, has been working to broaden its service offerings, investing heavily in wireless, cable, data, and Internet services. AT&T officials said its revenues this year tipped the balance in favor of nonvoice services for the first time.

"AT&T doesn't consider itself a telecom carrier. Voice is no longer a business, it is just a service," said Kathleen Earley, president of AT&T data and Internet services, in Basking Ridge, N.J. "You need to be a facilities-based infrastructure player, moving [into] a broadband world in which the unifying protocol ... is IP. Voice will just be a data type carried on IP."

In addition, AT&T is making a big push into Web hosting, hoping to complete by 2001 a hosting center build-out totaling 44 centers in 16 countries, AT&T officials said.

In a similar vein, last month MCI WorldCom CEO Bernie Ebbers revealed a plan to reposition the company around data-centric e-business services and get some distance from its telecom heritage.

Ebbers said WorldCom would move beyond offering frame relay, ATM, and IP transport services, shifting resources toward deploying value-added services for e-businesses. The initiative detailed plans for a $1.2 billion investment in data-center infrastructure, adding 15 data centers by the year's end.

WorldCom also announced e-business toolkit services, which include e-mail, billing, directory services, and VOIP (voice over IP) as well as custom hosting and storefront e-commerce services to be accomplished through partnerships and internal development.

Sprint, still in the process of merging with MCI WorldCom, has traced a similar path.

"We [have evolved] into an e-communications company," said Gayle Howard, director of e-business applications at Sprint, in Kansas City, Mo. "It is just a given that people will use the phone networks and data networks [as the] infrastructure for their e-business communications and applications. We are the network infrastructure that lets you be an e-business."

A key part of Sprint's data presence is its Integrated On-Demand Network (ION) initiative, which is an aggregated platform for IP, voice, frame relay, and ATM. Putting multiple traffic types into one transport platform gives users one connection that services all transport requirements, according to Sprint officials.

"We are undergoing a paradigm shift from just being a phone company ... to becoming a partner [to] e-businesses and a communications provider," Howard said.

For the RBOCs, the challenge is even greater: They are also attempting to expand data services, but regulatory constraints prevent them from providing long-distance services, which can pose challenges for deploying data.

"They are not allowed to provision long-distance services, including long-distance data, and that is a significant impediment to being able to compete in [the data] space," Zeribi said. "RBOCs [have] been very slow in getting into data services, in part because of regulatory constraints and in part because they didn't understand how it would impact their business."

Many RBOCs are expanding their national footprint and tapping into nationwide IP backbones via partnerships and acquisitions.

US West is being bought by Qwest Communications, Bell Atlantic is buying GTE, and SBC Communications recently struck a deal with Cisco to ramp up broadband services. In addition, BellSouth recently worked with Sun for wireless data and has partnered with Nortel Networks to further VOIP efforts.

According to one analyst, the telcos' movements into other forms of communications is logical.

"[Telcos] have gone through the stage of network building, and now they need to build up their profile and [show] what customers can do with those networks," said Melanie Posey, research manager at IDC, in Framingham, Mass.

One way they are meeting this goal is by billing their offerings as the only way to get full infrastructure support and services.

"They are trying to make owning the network into a virtue in the sense that, 'We have all the building blocks you need to do e-commerce,' " Posey said.

But as much as telecommunications companies are beating the drum for data services and e-business offerings, analysts say the legacy voice infrastructure and services will continue to serve them well.

"They won't want to eliminate voice. [Telcos] generate billions and billions of dollars from voice every year," said Patrick Liles, a research analyst at The Yankee Group, in Boston. "If they don't have a strong revenue base -- a large component of which [is from] voice -- they can't invest in high-growth areas."

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