Change Will Continue to Be Major Activity during 1985.
Ask that same manager jor executive about 1985. Chances are, the answers will be surprising, because the answers are legion. The beginning of 1985, looming just ahead, is for many characterized by new directions and new opportunities--surging ahead, gaining market shares, different avenues to explore, more jpotential revenues--precisely because of the changes that marked 1984. For many, 1985 could be a boom year.
Others will not fare as well. The problem is that 1985 will also be tinted by change. Not as much change in the way of structure, perhaps; but certainly the stance of market participants, and their position relative to other industry players, promises to undergo several dramatic transformations. the delayed "spring-effect" of divestiture is in fact about to become manifestly evident.
Developments next year will, of course, be tied directly with those of 1984, and with several intriguing years preceding this one. Regardless, 1984 has been full of curious movements, which hindsight will probably reveal as preparatory ventures. And although long-term strategies--and monies--are always at stake, successful short-term results remain critical. To many, 1985 is pivotal.
If we examine 1984, the causal relationship with 1985 directions should surface. The year 1984 saw the initial results of divestiture emerge. Barriers for entering into new markets were removed. Tactics for various organizations began to gel as divestiture prompted new measures and tore down old boundaries.
Certainly many goals of AT&T Communications have been laid bare. Although besieged by regulatory constraints and the worrisome equal-access issue, AT&T Communications is still searching for a 12 to 15-percent revenue growth. Moreover, while maintaining margins, the higher echelon is reaching for a 90-percent market share. And the prospects for bypass look brigher each day.
How have the RBOCs fared? Fairly well, actually, although precise returns and margins vary between regions. Despite the bypass threat, the local exchange services provided adequate profits--for most. The retention of the Yellow pages acted as an additional boost, with perhaps one of the greatest areas of promise lying with enhancements to Centrex. Still, one gets a distinct impression that RBOC eyes have for some time been locked on the '85 horizon.
Selling into the RBOCs in 1984 proved for some very profitable. Others, however, ran into a wall. As revenues pouring into the PBX industry barely climbed above the previous year's level, vendors found themselves jockeying for position in the hotly contested RBOC arena.
Six months into the year, clear winners were already emerging. Northern Telecom surged ahead, as did TIE. With a multi-billion-dollar industry at stake, companies seemed to assail the market with an intensity that verged almost on panic; panic that they might be one of the losers that falls through the crack in 1985. 1985 Strategies on Drawing Boards
Strategies for 1985 have already left the drawing boards. To a large extent they are being employed today. Some events don't require a great deal of crystal-balling to anticipate. AT&T Communications, despite well-publicized cutbacks, will once again be buouyed by prevailing strengths. Its geographic reach, coupled with a flexible network, will act as a barrier to significant market-share erosion. MCI, GTE Sprint, et al, will make headway, but the measures taken by ATpT Communications to promote this success are straightforward. 1985 will see a focusing of its strategies as short-haul price increases begin to give way to incentive-based price cuts. The year will also propel AT&T Communications deeper into bypass, as it struggles to close the gap between its services and both established and potential "Fortune 500" needs. Moreover, it must live up to the image of an organization that is conscientiously moving toward productivity--and cost--improvements.
As AT&T Communications, AT&T-IS will be concentrating on its largest accounts. As the relatively young entity strives to attain market leadership in premises systems, expect to see a broadening of its product line. Indeed, product-line expansion is probably necessary to arrest the movement toward market-share decline, and to minimize what could amount to substantial losses.
In addition, it is highly likely that AT&T-IS will intensify efforts to stream-line its organizational structure. Ironically, in the midst of this belt tightening, don't be surprised to see some sharp acquisitions.
Strategies from the board rooms of the regional holding companies will in many ways be targeted beyond the boundaries of their respective territories. Supplying interLATA services will account for a large portion of those strategies, as RBOCs seek to embrace new and more-promising sources of revenues. Dedicated Sales Force for BOCs
And the other players? To be consistently successful over the long term, true contenders will have to employ dedicated sales forces to the regional Bell operating companies. In addition, concentration within different line-size categories could enhance long-term market opportunities; accordingly, expect firms to focus more energy and monies on specific needs and industries.
If there are about 30 principle participants in the PBX arena at the close of 1984, how many will still be around when 1986 rolls around? Little doubt remains that 1985 could be a year of disaster for several players. Certainly some of the most intensive competition in the short 16-year history of the interconnect industry try will occur during the next 18 months.
Why? The signals have been surfacing for some time now. Consider this: In 1982, PBX revenues exceeded $2.86 billion. In 1983, they climbed to $3.16 billion. In 1984, they approached $3.6 billion. 1985 will mark the beginning of a fall in PBX revenues; during that year they will drop to $3.5 billion, with 1986 promising only $2.6 billion--some $500 million less than 1983.
This drying up of industry sources will levy severe penalties on unwary corporations.
Interestingly, the forces dictating market growth in the PBX industry will remain more or less constant. Specifically: real business-establishment growth; installations due to customer moves; and replacements.
Combined, these forces have spurred a growth rate that is only marginal. Indeed, in 1985, aggregate PBX shipments are forecasted to be 12.6 percent lower than in 1982. And a good part of 1985 potential sales is based on the possibility of wide-spread Centrex replacement. If the BOCs' attempts to revitalize Centrex succeed, entire market segments could collapse.
What will make or break many companies will be their ability to convert corporate energy from an encompassing approach to a very narrow one. Specific line markets have to be targeted. For instance, both the over-1,000-line market and under-100-line market will experience healthy growth--not only in 1985, but through the rest of the decade.
Conservative projections by The Eastern Management Group put the sub-100-line market size at $1.25 billion in 1992, while the over-1,000-line market soars to $2.1 billion. For some competitors, focused marketing in one or both of these areas could mean survival. Pinpointing Industry Shake Out
Indeed, the problem is no longer analyzing if an industry shakeout is in the offing; just pinpointing when. Deep into 1985, when very few older-generation PBXs are up for grabs, the growth of several manufacturers will abate; some will begin to experience flat or declining earnings. As noted, if the Bell operating companies are able to contain the migration away from Centrex, the PBX market would go through the throes of a severe contraction. Those companies who stand to be hardest hit are those without a trump card. As noted, perhaps, a system below 100 lines or above 1,000. The most vulnerable may be those who operate exclusively between those extremes, specifically in the 100 to 400-line range.
The prognosis for the industry, therefore, during 1985 and two to three years after, is guarded. Casualties will surface as market segments approach saturation. In particular, manufacturers who do not understand that older-generation Bell PBXs are a depletable resource will expose themselves to possible calamity. Those who selectively seek out--and capture--new avenues of sales and distribution should weather the storm.
For years, the North American Telecommunications Association has admonished interconnects to branch out. NATA's advice is sound, and 1985 should concretely reaffirm those admonishments. First, there is more to the information industry than PBXs. Second, some large manufacturers have plans to gain control of their own distribution.
Vendors, therefore, will accentuate their efforts to branch out--a broadening of product lines, more enhancements and new services.
The impact of 1985 will not be limited to the PBX industry. These changes in the PBX market, coupled with new tactics from AT&T Communications, will have a spill-over effect into the transmission market. The whole complexion of the transmission market will in fact change during 1985 as AT&T girds for warfare. Certain rates will tumble as others sky-rocket. Choices of carriers and services as we know them today will be altered.
Furthermore, 1985 will give rise to a new wave of data processing firms in the communications industry as they take advantage of foundering PBX suppliers and go head to head against the incumbents. It may be curious to watch IBM throughout the next 12 to 24 months, along with DEC, Xerox and Wang (whose involvement with InteCom has already been well publicized).
And the communications manager? After 1985, the job of directing corporate telecommunications may never again be the same. The difficulty lies in grappling with a list of disparate issues. Push aside the problem of identifying long-range plans and efficient suppliers, and still the questions surge forward:
* How big a business will facilities management be in 1985?
* If a PBX vendor fallout does ensue, what are the long-term effects on corporate telecommunications plans?
* Will 1985 be the "must year" to undertake the development of a strategic communications plan?
* Is a price war imminent? And how much will it spill over into service and maintenance agreements?
* Will "fourth-generation" switching technology change the role of the PBX in 1985--or ever--as an information controller?
Capturing good, accurate information at this point is paramount. An accurate appraisal, however, can be anything but easy.
In 1985, anticipation and foresight will be the keys to success for some; for others, they will ensure survival.
PBX manufacturers, brokers of information systems, interexchange carriers and, most certainly, data processing vendors are still gathering information. Insight is critical--insight and timing. Identifying what users need today and over the next 18 months (or perhaps, more importantly, identifying what users want) and being able to mold corporate strategy around those desires is absolutely necessary for any long-term success.
There is however, a very real gap in communications between vendor and telecommunications manager. The ensuring 18 months will see certain vendors penalized for that gap. There can be little doubt that 1985 will be a year of celebration for only those who are alert today.
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|Date:||Oct 1, 1984|
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