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Telecommunications for Small and Medium Business

Industry Issues:

The telecommunications industry has experienced massive change over the last twenty years and will continue to experience massive change for the foreseeable future. The following is a short list of some of the major industry trends and issues:

• Technological Change: the twin dynamos of computer technology and telecom specific technology drive technological change in the telecommunications industry. Computer technology has enabled huge cost reductions for telecom switches, significantly reduced application development time, and provided much more robust customer care and telecom operations applications.
  
• Telecommunications specific technologies have moved from 2,326 patents in 1990 to 9,170 patents in 2000. Optronics (the electronics associated with placing signals on optical fibers) has enabled a tenfold increase in the number of circuits that can be placed on a single fiber resulting in a precipitous drop in transmission expense. Much of this drop has been passed on to the end users in the form of lower rates. The use of Internet Protocol to ship voice traffic on the public telephone network will lead to simpler and less expensive telecom switches as well as new applications.
  
• The initial impact of technological change in the telecom industry for business users will be continued reductions in cost. New applications will also continue to be introduced into the marketplace. The challenge for businesses will be to determine how to employ these new applications to competitive advantage.
  
• The Adoption of Wireless Communication: There is now one cell phone for every two Americans and the growth of wireless communications continues in the double digits. Many people, especially young people, have abandoned wire line communications in favor of wireless service as prices have dropped. For the first time in history, the number of wire line users dropped in 2002. It is clear that this trend will continue for the near future.

The have been significant technological advancements in wireless service recently, including improvements in quality and reliability, messaging applications, GPS capabilities, and Web connectivity. These advancements provide new ways for businesses to reach their customers such as sending messages to everyone traveling near your location and offering a discount for stopping by, communicating menus and specials to passers by, providing real-time premium information to subscribers (weather, stock quotes, commodity pricing, news flashes, etc.), and many others.

• Legislation and Regulation: Telecommunications, a supposedly de-regulated service, is subject to a tremendous number of rules, regulations and taxes – especially the latter. Telecom may be subject to a series federal, state, and municipal taxes depending on the locations involved. Taxes may make up 20% or more of subscriber’s bill as the price of the service itself continues to drop.

Current regulations make it possible for Competitive Local Exchange Carriers (CLECs) to operate by mandating that the Incumbent Local Exchange Carriers (ILECs) lease facilities to them at reasonable wholesale rates. The ILECs, not surprisingly, really do not want lease facilities to competitors under any circumstances. The spend millions lobbying to get this regulation changed even though they agree to it as a condition of getting into the long distance business. Should the ILECs be successful in getting this legislation changed it will probably mean the end for most CLECs and remove one of the few restraints upon the RBOCs monopoly pricing power over local service.

Current regulations require long distance companies to pay access and termination fees to Local companies and a variety of taxes as indicated earlier. These fees and taxes constitute a significant portion of the expense associated with providing long distance services. Internet services are not subject to these access fees and taxes as they are viewed as a data service versus a voice service even though, in many cases they use the same facilities as voice services. Companies using voice over Internet Protocol services (VoIP) offer very low priced long distance service because they are not currently subject to access fees and taxes. The quality of IP telephone service is not at the level of the public telephone network but it is rapidly improving and will soon be a major competitor to traditional services. As more people use these services, pressure will build to assign fees and taxes to them in the same way a traditional voice services.

• Financial Stress and Market Consolidation: The bursting of the Internet and Telecom investment bubble caused bankruptcies for some and financial stress to many telecom carriers. Some of the bankrupt carriers continue to operate, have reorganized, and will emerge from bankruptcy. In many cases (MCI, Global Crossing, Lightyear, others) these carriers continued to provide service to their customers without interruption. In other cases, (ViaTel) customers lost their service with very short notice as failing carriers pulled the plug. These customers were especially inconvenienced in getting their 800 numbers transferred to a new carrier since there were no operations people left at the old carrier to work with.

What strategies should the manager of a small or medium sized business adopt to handle this volatile telecom environment? An expensive defensive strategy would be to sign up with a tier one carrier (AT&T, Sprint, MCI, the RBOCs, etc.) and pay a 30% premium or more for peace of mind. An alternate and much more economically efficient strategy is to sign up with a solid, well researched, tier two or tier three provider and monitor their financial performance regularly. Business Telecom Specialists can help you find such a carrier and with our SmartNotify™ service we will assist with performance monitoring.

• Scandal, Crime, and Various Telecom Scallywags: The newspapers have been full of the wild goings-on in the Telecom industry over the past few years. Everything from avaricious CEOs who raided the corporate coffers to provide ice sculptures that urinated champagne for their wife’s Bacchanalian birthday party, to accounting practices that would make an Enron CFO blush, to outright fraud.

While the Telecom executive “perp walks” continue, how should a businessperson react? Luckily, most telecom companies and their executives are honest and are embarrassed about the behavior of the few that make the headlines. As with sorting out carriers in financial difficulty, Business Telecom Specialists can help small and medium sized business managers choose among the many honest carriers in the market.