Deregulation: bonanza or bust?

The Telecommunications Act of 1996 vowed to break up communications monopolies and spark competition. Here's how you can take advantage of a multi-billion dollar industry.

FOR THE SAVVY SMALL ENTREPRENEUR WHO can strategically position his or her company to service the changing needs of our technology-driven society, the information superhighway could be a road to riches. Just ask James Brady, vice president and chief financial officer of Telecon Ltd. Inc., a telecommunications products and service company in San Francisco.

Brady partnered with his wife, Debra, now the company president. The Bradys used a single computer and $350 in start-up costs to get their business of the ground in 1987. Through extensive networking, they bid for and landed contracts to provide training on telephone switching systems for a number of Fortune 500 companies, including Lucent Technologies and AT&T.

Today, the eight-employee firm, which earned $750,000 in revenues last year, has expanded its services to include voice mail service and training, basic writing and low-voltage infrastructure design (installation of voice data and fiber optics for telecommunications functions such as 911 call centers).

When the Telecommunications Act of 1996 was passed, one of its benefits was to open up opportunities for smaller businesses like Telecon to compete in areas once dominated by large conglomerates. Traditionally, only those with deep pockets and powerful industry contacts could take advantage of the multibillion-dollar telecommunications industry. As a result, many minority-owned firms were left out.

The Telecom Act, however, has opened some doors for African American entrepreneurs to successfully do business. With the industry experiencing tremendous growth and more than $300 billion up for grabs, those small business owners on the alert for creative niches in the areas of telephone service (wired, wireless and cellular), broadcast (cable and satellite) and computers (hardware, software and training), can parlay their experience into business opportunities, particularly in procurement. There are also a number of opportunities to provide access to newer technologies in personal communications services (PCS, or wireless communications) and digital television (combining TV with computer and Internet access).

Catherine Sandoval, director of the Office of Communications Business Opportunities for the FCC, says small telecommunications firms can provide a number of services including the wiring of schools, computer training and consulting, and reselling and distribution of mobile phone and pager services. "And, of course, there's the Internet, which is still being developed," she says. "There are a lot of opportunities available, but to take advantage of them, small business owners must narrow down their choice of field, learn as much as they can about the industry they want to get into and know how it is regulated."

With the Telecom Act set to go into full swing, it may be even more crucial for black-owned firms to thoroughly investigate the industry and its opportunities if they are to survive.

A COMMUNICATIONS FREE-FOR-ALL?

As the first major overhaul of telecommunications law in almost 62 years, the Telecom Act of 1996 affects telephone service (local and long distance), cable programming, broadcast services (including radio) and services provided to schools such as computer equipment or basic wiring. The Act allows any company (major and independent) to enter any communications business and compete in any market against any other. The most immediate impact of the Telecom Act allows long-distance companies to compete in local markets for customers and local phone-service providers to compete in the long-distance market. Before they can compete outside their area, local providers must first open their markets to competition.

However, a ruling last December struck down this portion of the act saying that it unfairly kept "Baby Bells" out of the long distance arena. The FCC plans to appeal this decision, made by the lower U.S. Appeals Court for the Eight Circuit in St. Louis, to the Supreme Court this fall. To ensure everyone has access to basic local phone service, the Universal Service provision to the Telecom Act says providers must offer service at an affordable price to all Americans regardless of where they live.

Minority-owned radio stations are already feeling the effects of the Telecom Act, which among other things, allows one owner to own multiple radio Outlets in the same market. "We have seen tremendous consolidation in the radio industry over the last year and a half, and as a result the number of minority owners of these stations has declined," says Sandoval.

According to the Department of Commerce, nationwide minority ownership of commercial broadcast properties has dropped from 3.1% to 2.8% in the past year (see "Black-owned Radio Stations Tuning Out," Newspoints, September 1997). Currently, African Americans make up less than 1% ownership in the telecommunications industry overall.

The idea behind this deregulation was to break up consolidation in the industry and spark competition. However, it may have had a reverse effect. Six months after its passage, there were some $850 billion worth of mergers between phone service providers, cable companies and computer giants. What does this mean for the small, minority business owner? It depends upon whom you ask.

Opponents of the Telecom Act say it merely represents a consolidation of the old guard in which a few major players with deep pockets control most of the telecommunications industry, much like the former AT&T monopoly. Advocates, on the other hand, say completed and pending mergers spawned by the Act--such as MCI and WorldCom, Bell Atlantic and Nynex, and SBC and Pacific Bell--give African American entrepreneurs an opportunity to develop partnerships with major conglomerates.

"Traditionally, these companies have not relied on us as being major players even though we spend money buying the pagers and call phones," says Telecon's Brady. "But with the mergers that happened since the Telecom Act was passed, a lot of people have been laid off, and these companies are looking to outsource many of their needs to smaller firms, including minority-owned firms," he explains. Motorola recently approached Telecon about providing end-user training for their handheld radios.

Monica Conley, president of the National Association of Black Telecommunications Professionals credits the Act for opening up procurement opportunities for small minority-owned firms. However, she says deregulation has offered black business owners few affordable options beyond subcontracting.

"The Telecommunications Act did not mandate that there be more opportunities for African Americans or minority businesses," says Conley. "It merely opened up some avenues for other businesses besides the traditional big players to come in. But your pockets have got to be so deep that the only kind of business most African American entrepreneurs can afford is the subcontracting type of business," she says.

Gerard Adams, CEO of Integrated Communications Group (ICG), a PCS carrier in Pasadena, California, agrees. "I think the Telecom Act has probably created procurement opportunities, but as far as becoming a PCS carrier, for example, it's very tough for a minority business owner because you are competing with some of the largest companies in the world for capital to purchase a PCS license," says Adams.

In 1995, Adams, who is Hispanic, partnered with three other minority firms--one Hispanic and two black-owned--to form ICG, which now has three partners. "We got together in 1994 to combine our resources and talents so that we could bid at FCC auctions for PCS licenses," says Adams. "Since that time we have acquired 10, and now we're in the process of putting together an investment group to build out these licenses," he says.

It costs millions to purchase PCS spectrum. These licenses can be used to provide wireless communications that can link pagers, portable computers, cellular phones and fax machines. ICG says it paid a total of $4.5 million for its licenses.

But purchasing the license is just the beginning, says Conley. "Once you do, then you have to get money to build all the equipment necessary to operate, then run [it]; and you have to go after customers that major players such as Southwestern Bell, Bell Atlantic and AT&T already have or are going after," he adds.

Conley says this is the stage at which many African Americans who have purchased PCS spectrum get into trouble. "I knew a black business owner who bid on some spectrum and what he came up with was a $13 million outlay that would not start paying back for five years because it takes that long to build out your equipment, get your market share and start to earn revenue past what you've already spent," she explains. Conley says she hopes that newly elected FCC Chairman William Kennard, the first African American to hold the position, will devise strategies to help black business owners keep the licenses they've purchased.

However, as a small business owner, you should not expect to purchase a PCS license. Helping carriers to develop these systems (for example, those who can help build the infrastructure for voice data) offers Perhaps the greatest opportunities for minority-owned firms.

But for those ambitious few, wireless licenses can be obtained through FCC auctions over the course of the next few years. For more information, contact the FCC at [phone] or visit their Web site at www.fcc.gov.

CASHING IN ON THE HIGH-TECH CLASSROOM

When Carole Colvin, CEO of Southern Telecom Communications, a voice, data, video and sound systems cable installation company in Tampa, Florida, started her firm in 1993, she had seen the future's handwriting on the board. With a degree in education, Colvin worked as a consultant to the Hillsborough County public school district, teaching children who had communications disorders. When the local school system applied to get its share of a $30 million grant the state of Florida had set aside to retrofit its schools for the digital information age, Colvin stepped up to the plate. She began talking with school officials about their technology needs.

"I saw an opportunity to provide a service because they were starting to integrate technology into the classroom," says Colvin. "So I took some courses at the University of South Florida in engineering and got involved in some telecommunications trade organizations."

While it sounds almost too good to be true, Colvin utilized her expertise in education--knowing what teachers and administrators wanted and students needed--while upgrading her own skills to make her bid. "My knowledge of education was my inroad. I had written grants and gotten scholarship money for students (while teaching) by getting the business community involved. I also spent time talking with teachers and administrators to determine what they needed, and I brought my passion for education and children. I wasn't just there to get a contract," explains Colvin, who thinks those were the measures that set her business apart from larger service providers.

Today, Colvin, offers consultation and installation services. "We provide not only voice and data engineering and wiring, but also intercom and security systems wiring," she says. "We talk with their architects and engineers and are pretty much a part of their team in terms of looking at their five and 10-year projections about how technology will be used." The company also provides maintenance services to the school system.

With 12 employees and nearly $1 million in revenues, the six-year-old firm also provides engineering and structured wiring systems for telephones for a number of clients including Tampa Electric Co. and its parent company, TECO Energy. It is also a master contractor for Sprint and Lucent Technologies, which automatically gives it access to upcoming projects for bidding, and is on the national vendor list for GTE.

Like Colvin, many small business owners are providing telecommunications services in the educational arena. According to a 1995 report, School Facilities: America's Schools Not Designed or Equipped for the 21st Century, about 75% of the nation's 80,000 schools do not have the physical infrastructure necessary to support new learning and communications technologies. Based on these and other findings, the Clinton Administration has made a push to have all schools wired by the year 2000 (See "Reading, Writing and RAM," March 1998).

Last year, the FCC created the Universal Service Fund as a way to connect the nation's schools and libraries to the information superhighway. A $2.25 billion fund, it pays for the communications infrastructure (i.e., wiring, Internet access, and local and wide area networks) of schools and libraries nationwide. The fund has also increased opportunities for small business owners.

So for small businesses that can offer a quality, cost-effective product or service, bringing classrooms up to technological snuff could mean big bucks. Several service providers, including phone companies, cable companies, Internet service providers and electrical subcontractors, can compete to supply services to these facilities. Rick Cimerman, director of state telecommunications policy for the National Cable Television Association in Washington, D.C., says business owners must enter into a competitive bidding process.

"If they are selected as the winning bidder, the competitively bid price is discounted 20%-90%," says Cimerman. "The business owner then gets reimbursed for that discounted amount." Computer equipment, curriculum software and teacher training are not covered by the discounts.

The Schools and Libraries Corp., which administers the fund, has created a Web site (www.slcfund.org) on which eligible schools post their requests for proposals (RFPs). These documents describe the types of services each school would like to purchase. "As a business owner you would go to this Web site and plug in the zip code that you're interested in serving," says Cimerman. "It will give you a list of schools in that area and the services they are requesting," he says.

When preparing to do business with schools, first identify your local education decision makers. Call your local school district office to find out who makes decisions on buying technology.

Schedule a meeting with education officials to discuss the school's technology needs and how your company can fill those needs. Be sure to conduct a technology assessment to determine if you have the resources to provide advanced services.

As a way to display your tech expertise and establish good faith with a potential customer, you can also offer to assist schools in writing their RFPs. Use technology-neutral language when creating these documents.

For more information about the Universal Service Fund, call the Education and Libraries Coalition hotline at 800-733-6860 or visit their Web site at www.eratehotline.org.

RELATED ARTICLE: GETTING YOUR PIECE OF THE TELECOM PIE

Starting and growing a telecommunications firm can be costly. To ease the pain, Congress created the Telecommunications Development Fund (TDF). Another adjunct to the Telecom Act, TDF is $21.9 million fund that provides loans, equity investments and technical assistance to small communications businesses. "After doing extensive research, we found that capital is very scarce for new firms and that the problem is exacerbated for minority and women-owned firms, so the TDF focuses on companies in the start-up phase," says Catherine Sandoval of the FCC.

Of course, capital isn't the only stumbling block. Many business owners fail to study the industry before jumping right in. Whether you own a cabling company or Internet service, there are a few basic things you must do in order to get your piece of the multibillion-dollar telecommunication pie:

[check] Research your industry. The telecommunications industry is a complex filed, so it is important that you understand all of the regulations surrounding it. Telecon President Debra Brady, a former employee of a local phone-service provider, knew the telephone service business. But her husband James did his bonding up on the industry by attending telecommunications seminars and taking a course about emerging technologies at San Francisco State University. He also put his name on the FCC mailing list for industry updates. To add your name to the list, contact the FCC, Office of Communications Business Opportunities at 202-418-0990.

There are a number of telecommunications publications you can find at your local library, including Telephony magazine, America's Network and Communications News.

Small business owners should also take courses to strengthen their knowledge of the industry, advise Conley. "There are colleges and universities that have telecommunications masters and undergraduate programs, so you can take introductory telecommunications classes to get an overview of the business," she says.

[check] Network, network, network. There are few minorities in the telecommunications field, so networking is crucial. To make contacts, attend seminars and conferences.

You should also join a telecommunications organization. The National Association of Black Telecommunications Professionals (NABTP) is a 1,500-member organization that represents small independent telecommunications companies, interexchange carriers (i.e., Sprint, AT&T) and employees of small, medium and large telecom companies. Each year NABTP holds a four-day conference to discuss the issues surrounding the telecommunications industry. This year's conference is scheduled for April 1-5 in Washington, D.C. For more information call 800-946-6228.

[check] Find start-up capital. There are a number of funding sources, outside of the traditional bank loan, that you can use to finance your business. Contact the TDF for more information about the fund. Also check with organizations such as NABTP and the Small Business Administration for alternative methods of financing (see "5 Alternative Ways to Finance Your Business," March issue).

[check] Contact corporate procurement departments. Most large telecommunications companies have special programs targeted to minority- and women-owned firms. Contact the company's procurement officer for information about their needs and to discuss the products and/or services you can provide.

Bell Atlantic is just one of many corporations that have programs to help minority- and women-owned firms secure contracts. Call Bell Atlantic's Office of Diversified Supplier Relations for more information, 800-445-0325. Request a copy of Doing Business with Bell Atlantic, A pamphlet that explains the kinds of services purchased.