Legislative and Industry Trends

1
Chapter 7

• Legislative and Industry Trends

2
Introduction

• The computer and telecommunications industries
  employ millions of people worldwide
• Changes in technology are rapidly changing the
  faces of these industries and effecting managers,
  employees, and customers

3
The Semiconductor Industry

• Worldwide demand tops 200 billion
• The top 10 suppliers account for nearly half the
  total market
• Greater than 80 of the market is controlled by
  firms based in the U.S. and Japan

4
The Worlds Largest Semiconductor Suppliers
5
The Computer Industry

• A dynamic industry with continual changes

6
Hardware Suppliers

• A diverse group of products ranging from
  notebooks to supercomputers, storage, and
  printers
• Server sales amounted to 60 billion in 2000
• Supercomputer sales are accelerating as
  corporations need higher levels of computing
  power to deliver services

7
The Software Business

• Continues to grow with 2001 sales of 195 billion
• Employment in the U.S. in the packaged software
  business is 336,000
• The industry leader is Microsoft with domination
  of the desktop operating system and application
  package markets

8
Industry Dynamics

• The industry is characterized by multinational
  corporations in multiple overlapping strategic
  alliances and partnerships
• Regulation of the industry by government, intense
  competition, and consumer demand are continually
  impacting these industries

9
Information Infrastructure

• The US telecommunications market for equipment
  and services in 2003 is projected to exceed 700
  billion
• Two factors drive this demand
• Transmission bandwidth
• Switching capacity

10
Telecommunications Regulation

• In the US, telecom firms are regulated by local,
  state, and national government
• Major national legislation has included
• Communications Act of 1934
• Cable Communications Policy Act of 1984
• Communications Satellite Act of 1962
• The 1956 Consent Decree with ATT
• Modified Final Judgment of 1982
• The Telecommunications Act of 1996

11
The Divestiture of ATT

• ATT was a monopoly provider of telephone service
  in the US
• Over time, the government required a progressive
  opening of infrastructure to competitors
• In 1982, ATT was split into seven independent
  Regional Bell Operating Companies (RBOCs)

12
The Breakup of ATT

• Many startup firms entered the market
• Cable companies began to offer voice service
• Phone companies attempted to offer video
• RBOCs began to join with cable companies in a
  regional focus to reestablish monopolies on
  communications

13
1996 Telecommunications Act

• A wide reaching act aimed at fostering an open
  market in communications based on aggressive
  competition
• It covered cable, broadcast, and telephone
  providers
• It fostered competition between RBOCs and
  Incumbent Local Exchange Carriers (ILECs)

14
1996 Telecommunications Act

• The Act increased the oversight of the FCC with
  numerous ruling and judgments
• The FCC set rates and formula for reimbursement
  in order to level the playing field
• Unfortunately, this meddling created
  disincentives for investment and a confusing
  landscape for investors

15
FCC Actions

• The Act granted the FCC broad new powers
• They created 80 major regulations in the first 4
  years
• The FCC has put in place rules that subsidize
  some users at the expense of others
• These rule have created a confusing environment
  resulting in massive litigation

16
Implementation Realities

• Local wireline competition is minimal
• Long distance competition is robust, but startups
  are unable to compete against established players
• Established long distance companies are under
  extreme financial stress with WorldCom, Sprint,
  and MCI all in or near bankruptcy

17
Privatization Around the Globe

• 69 members of the WTO opened their markets to
  competition
• Governments sold off telephone assets to
  investors
• Competition brought new capital flows from around
  the world, modernizing and expanding the
  telecommunications infrastructure

18
Industry Transformations

• With changes in the regulatory landscape, the
  industry underwent dramatic transformations,
  consolidation, mergers, joint partnerships, bust
  and bankruptcy, divestitures, and a sector
  depression

19
Local Service Providers
20
Industry Consolidation

• Bell Atlantic, NYNEX, Verizon, and GTE
• 1997 - Bell Atlantic and NYNEX merged to control
  30 of the US local lines Entity renamed
  Verizon
• 1998 Verizon and GTE merged to form the largest
  phone company in the US
• 100 million lines throughout the US

21
Industry Consolidation

• SBC, Pacific Telesis, SNET, Ameritech
• 1997 SBC merged with Pacific Telesis
• 1998 SBC bought SNET
• 1999 Merged with Ameritech
• 59.5 million lines in 13 states

22
Industry Consolidation

• BellSouth
• Focused on international expansion controlling
  6.2 million customers in 10 Latin American
  countries in 2000

23
Industry Consolidation

• US West, Qwest, Time Warner, Frontier
• US West pursued a cable strategy buying Wometco
  Cable, Georgia Cable Holdings, and 25 of Time
  Warner Cable
• In 1997 it bought Continental Cablevision
• Qwest bought US West and divested parts to Global
  Crossing
• Global Crossing filed for bankruptcy, and Qwest
  is in shaky financial shape

24
Local and Long Distance

• The MFJ created local and long distance areas of
  service these areas were called LATAs
• RBOCs could provide inter-LATA service if they
  could prove (with the FCCs 14-point checklist)
  that effective competition existed in the local
  market

25
Traditional Long Distance Providers

• With increased competition, profits decreased as
  pricing power eroded
• Providers attempted to differentiate themselves
  by entering other markets such as data (WorldCom)
  or wireless (Sprint)
• These moves required enormous amounts of capital
  expenses and huge debt burdens

26
Long Distance Competition

• ATT started in a dominant position, but pursued
  a cable strategy wasting capital
• WorldCom acquired MCI, but in the succeeding
  years began to misrepresent its finances, and
  filed for bankruptcy
• Sprint created a wireless network, but is
  currently in financial difficulty due to its
  highly leveraged balance sheet

27
Cellular and Wireless

• Consolidation of the parent wireline companies is
  producing needed consolidation in wireless
  companies
• Consolidation is more difficult in the wireless
  sector because not only do the geographic service
  areas need to work, but the cellular technologies
  of the two companies need to be similar (TDMA,
  GSM, or CDMA)

28
Major U.S. Wireless Operators
29
International Wireless

• People in many countries worldwide are exchanging
  wireline phones for wireless
• In 2002, there were more than 1 billion wireless
  subscribers
• Ericsson predicts 1.6 billion global subscribers
  by 2005 as China and other third world countries
  begin to build out a cellular infrastructure

30
Leading Global Wireless Operators
31
Satellite Cellular

• At one time this was thought to be the next
  frontier with cell sites in orbit
• Eight companies attempted to build an orbital
  system
• To date none of these have been successful, and
  investor capital has dried up, closing this
  cellular mode for the foreseeable future

32
Global Telecom

• Privatization in the 1990s has begun to radically
  reshape the global marketplace
• As emerging economies grow, the demand for voice
  and data services will continue to expand
• These markets are immature, and will require huge
  capital outlays to develop

33
The Worlds Largest Phone Companies
34
The Fall of the Monopoly System

• The current phone system in the US has its roots
  in the Bell System
• Over the past two decades, enormous changes have
  reshaped the industry
• Stresses from regulators, customers, competitors,
  technology and financial markets have radically
  transformed the face of the playing field

35
Implications

• The IT industry is undergoing rapid changes that
  are profoundly affecting managers at all levels
  and in all segments of business
• The dynamic nature of the telecommunications
  landscape will offer bold and innovative
  management the tools and technology to deliver
  competitive products and service it will also
  punish those unable or unwilling to adapt