Telecommunications Deregulation

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Telecommunications Deregulation

• Kevin Koby

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ATT Breakup

• All local telephone switches had to be equipped
  to handle the customer's selection of a
  long-distance carrier
• Long-distance rates had to be priced at rates
  that could compete with the new competitors MCI
  and Sprint
• ATT had been specifically prohibited from
  entering into computer manufacturing and data
  processing
• Much more liberal policies about connecting
  customer-owned equipment to the network

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Seven Local Telephone Baby Bells

• Pacific Bell
• Ameritech
• Southwestern Bell
• US West
• Bell Atlantic
• BellSouth
• Nynex

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ATT Market
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Telecommunications Act - RBOCs

• Negotiate interconnection agreements in good
  faith
• Provide interconnection to their networks on
  just, reasonable, and nondiscriminatory terms and
  conditions
• Provide access to each separate network element
  such as subscriber numbers, databases, or
  signaling systems (CLEC)
• Offer resale of their telecommunications services
  at wholesale rates
• Provide reasonable public notice of changes in
  their networks
• Provide physical collocation (facilities sharing)
• Reward - Entry into the long-distance market
  (14-point checklist)

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FCC 14 Point Checklist for RBOCs

• Interconnection - requires the RBOC to allow
  requesting carriers to physically link their
  communications networks to its network for the
  mutual exchange of traffic
• Access to Unbundled Network Elements - The RBOC
  must provide a connection to network elements at
  any technically feasible point under rates,
  terms, and conditions that are just, reasonable
  and nondiscriminatory
• Access to Poles, Ducts, Conduits, and
  Rights-of-Way - The RBOC must show that
  competitors can obtain access to poles, ducts,
  conduits, and rights-of-way within reasonable
  time frames
• Unbundled Local Loops - RBOC must demonstrate
  that it has a concrete and specific legal
  obligation to furnish loops on an unbundled basis
  
• Unbundled Local Transport - requires the BOC to
  provide competitors with the transmission links
  on an unbundled basis that are dedicated to the
  use of that competitor

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14 Point Checklist (Cont)

• Unbundled Local Switching - Equal access to call
  waiting, call forwarding and caller ID
• 911 and E911, Directory Assistance, and Operator
  Services - The BOC must provide competing
  carriers with accurate and nondiscriminatory
  access to these services so that these
  competitors customers are able to reach
  emergency assistance
• White Pages Directory Listings - White pages are
  the directory listings of telephone numbers of
  residences and businesses in a particular area
• Numbering Administration - The BOC must provide
  other carriers with the same access to new NXX
  codes within an area code
• Databases and Associated Signaling - call-related
  databases and signaling systems that are used for
  billing and collection, or the transmission,
  routing or other provision of a
  telecommunications service

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14 Point Checklist (Cont)

• Number Portability - Number portability enables
  consumers to take their phone number with them
  when they change local telephone companies
• Local Dialing Parity - The RBOC must establish
  that customers of another carrier are able to
  dial the same number of digits to make a local
  telephone call
• Reciprocal Compensation - The RBOC must
  compensate other local carriers for the cost of
  transporting and terminating a local call from
  the RBOC
• Resale - requires the BOC to offer other carriers
  all of its retail services at wholesale rates
  without unreasonable or discriminatory condition
  or limitations such that other carriers may
  resell those services to an end user
• Bell Atlantic becomes the first baby bell to be
  approved to offer inter-LATA long distance
  service to customers in New York

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Telecommunication Act 1996 (Universal Service)

• Quality telecommunication services should be
  available at just, reasonable, and affordable
  rates
• Consumers in all regions, including low-income
  consumers and those in rural, insular, and high
  cost areas, should have access to
  telecommunications and information services at
  rates that are reasonably comparable to rates
  charged for similar services in urban areas
• All providers of telecommunications services
  should make an equitable and nondiscriminatory
  contribution to the preservation and advancement
  of universal service

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Why?

• Prevent monopolies from forming in the telecom
  industry
• Increase competition
• Lower Telecommunication rates for consumers
• Accelerate the deployment of advanced services
  throughout the nation

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Where is the Competition Coming From?

• Wireless service (easier and cheaper to connect
  new customers)
• Local Service Providers Unaffiliated with the
  RBOCs
• Competition from Other RBOCs
• Long-Distance Carriers
• Cable and Utility Companies

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Deregulation effects on E-Business

• Over 200,000 thousand new jobs have been created
  in the competitive telecom sector
• The number of publicly held telecommunications
  companies has nearly doubled in the past 5 years
• New and incumbent firms have invested tens of
  billions of dollars in facilities, services, and
  research and development
• Competition is now spurring broadband deployment
• Output of services has increased and prices have
  declined industry- wide
• Source Council of Economic Advisors, 1999

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Benefits of a Deregulated Market

• Economically more beneficial - market
  capitalization increased by 800 billion
• Improved education (preferential rates for basic
  service mandates a plan for deploying advanced
  services)
• More access to international markets for telecom
  companies
• Better paying jobs

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Negative Effects of a Deregulated Telecom Market

• Appeals from RBOCs has blocked much of the
  deregulation attempts
• Not as effective as originally thought incumbent
  providers still control about 97 percent of their
  local markets
• Too many competitors in the market too much for
  consumers to choose from

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Example of the effects of deregulation
(California)

• About 500 resellers (buy wholesale service from
  long-distance carriers and sell it to consumers)
• 5 out of region RBOCs providing service
• A typical consumer can choose from at least 150
  long distance companies

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Industry Trends From Telecommunications
Deregulation

• Provider Consolidation (Mergers) - protect core
  business of the RBOCs, local telephone service,
  and expand into long-distance service
• One Stop Shopping - buying local, long-distance,
  wireless, data, and Internet services from one
  provider
• Emergence of Local Operators - cable, electric,
  and wireless firms

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Provider Consolidation (MCI WorldCom - Sprint
Merger)

• Valued at 129 billion in cash, stock and debt
  leading competitor to ATT
• Gained 37 percent of the long distance market
• Outbid BellSouth by 29 billion
• Operating cost savings of 3.0 billion by 2003

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Provider Consolidation (Vodafone AirTouch -
Mannesmannn Merger)

• 198.9 billion stock swap, the biggest takeover
  ever 42 million customers
• Gives Vodafone control of the Germanys largest
  cellular service company and make it the largest
  telecom company in Europe
• Vodafone had acquired AirTouch Communications to
  become the worlds largest cellular company

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One Stop Shopping (ATT Broadband)

• Provides digital television, digital telephone
  and high-speed cable Internet access
• Uses wireless radio waves to send high capacity
  communications signal to home using existing
  phone lines
• Add up to a total of four phone lines
• Convenience of one company, one customer service
  number, and one bill

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Local Operators (Cox Cable)

• Based in Atlanta serves 6 million customers in
  20 states
• Delivers cable, digital video, local and
  long-distance telephone and high-speed Internet
  access over broadband coax and fiber optic cables
• California operation became nations first cable
  company to deliver these services
• 5 billion in revenue

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Local Operators (Potomac Electric Power)

• Delivers electricity at regulated rates to 1.9
  million people in Washington D.C.
• Its subsidiary, Potomac Capital Investment
  Corporation, offers telecommunication products
  and services
• Another subsidiary, Pepco Energy Services, sells
  energy services and competitive electricity and
  natural gas

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WTO Basic Telecom Agreement (1997)

• Signed by 65 of 69 (including the EU member
  countries) countries representing 90 percent of
  the worlds telecom revenue
• access to the public telecommunications transport
  networks of incumbent suppliers under
  non-discriminatory terms and at cost-oriented
  rates
• competitive provider's technical ability to
  interconnect to the public network using
  standardized, open interfaces
• fair and transparent licensing procedures for the
  right to use spectrum for public or private
  services
• US Abolish foreign ownership restriction for
  indirect investment (direct investment for the
  carriers utilizing radio stations should be
  limited up to 20)

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Telecommunications Deregulation in Japan

• Nippon Telegraph and Telephone (NTT) Corporation
  Law (1984)
• - Privatized NTT allowed limited
  competition
• Telephone Corporation Law (1985)
• - Opened the market and set conditions for
  service offerings by competitive carriers
• - Permitted New Common Carriers (NCC) to
  charge lower prices for services
• July 1999 - NTT was split into three carriers
• Recent activity in a deregulated market
• - ATT bought 30 percent of Japan Telecom
• - DDI bought KDD and IDO for 26 billion in
  the nations biggest ever takeover

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Telecommunications Deregulation in the Caribbean

• Major provider in the region was the British
  transnational company, Cable Wireless
• controls the international cable and satellite
  gateway
• Liberalized telecommunications market has allowed
  new competitors (TeleBermuda International)
• Special focus is on enhancing the offshore
  technology sector to diversify economy
• Case in Bermuda Because of a deregulated market
  multiple international carriers have created a
  competitive environment
• country is emerging as a transatlantic hub
  linking North America, Europe, Latin America and
  the Caribbean

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Increase in International Carriers
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Telecommunication Strategy for my Company

• Deregulation has increased number of vendors
  available for contracting
• New contract with Ameritech and Bell South will
  save 200,000 for 3 years - volume discount based
  on total amount spent among all locations
• CLECs are occasionally recommended concern for
  long-term viability of the market
• Resellers are never recommended because no
  confidence in dependability

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Placed-Displaced Workplace

• Deregulated telecom market makes it more
  affordable for someone to work away from an
  office environment
• International telecommunication markets will
  become more accessible
• Improvements in the quality of service
• More choices in telecommunication services for
  the worker