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Consulting Firm Identifies Telecommunication Trends.

The frenzied restructuring of the US telecommunications industry is proving traumatic. Traditional participants with a sheltered market-share position have been thrust into an intensely competitive and potentially bruising contest. Moreover, the US situation isn't unique. Similar, more subtle "games" are played within and among all developed countries.

"At stake are several hundred billion dollars of assets and revenues, growing at 9 percent to 11 percent annually to 1990," says Harvey Poppel, a senior vice president at Booz Allen & Hamilton, the international management and technology consulting firm. (See Figure 1.)

According to Poppel, "The major players are the telecommunications carriers (both local and interexchange), the suppliers and business customers. Setting the rules and monitoring certain aspects of the game are regulators and other policymakers. And investors and other stakeholders are eagerly watching the scoreboard, ready to cheer, hiss or, worse yet, exit the arena."

In a seminar for telecommunications suppliers recently, Poppel and his firm's telecommunications specialists, Howard Bland and Steven Nowick, explored the many opportunities and threats facing the players in this newly emerging industry. They identified five interrelated sets of strategic challenges for carriers (Figure 2) critical to survival through the 1990s.

In forecasting the likely developments in telecommunications networks over the next decade (Figure 3), Blank is especially bullish on the rapid migration to Integrated Sevices Digital Network--related programs. "Simply stated," Blank says, "ISDN is an agreed-upon broad set of international standards that will guide the development of new, more-powerful domestic networks to the point where they can deliver more value to customers. The speed at which these networks go into operators depends on the cooperation between the suppliers and buyers of equipment. "Commitment to ISDN," Blank continues, "will help generate new service revenues with above-average margins, bridge premium services (such as Centrex) to the next generation, enable more flexible redeployment of assets in response to demand shifts, as well as reduce operating costs and labor intensity." Foresees Distributed Processing

Noting an inexorable trend toward integrated switching, Blank says the goal is to provide voice, data, wideband and video services. He foresees extensive distributed network processing that will evolve from current PBX and remote switching module elements.

Blank describes how ISDN development in the more-dense wire centers will proceed in four evolutionary stages between now and the 1990s, specifically detailing how the current analog voice-grade transport networks will evolve into fully integrated service vehicles.

In the initial stage over the next 12 to 18 months, Blank says, a circuit network will be overlayed on the existing voice network to provide a mix of internal operations and customer data services. In the second stage through 1988, the mainly analog circuit switch network will be converted to a digital circuit switch network with limited ISDN access. The mix of customer requirements will dictate the choice between remote switching units (RSUs), which can be thought of as "Class 6" offices, and PBXs. Logically, Blank continues, by the late 1980s, RSUs and PBXs will become functionally equivalent, as both will be able to have ISDN signaling access to larger switches, as well as provide substantial stand-alone data and voice functions.

By the third stage, in the late 1980s, maintenance and control will be fully integrated. Finally, by the early to mid-1990s, full advantage will be taken of integrated digital switching.

"Core networks will support interfacing and functionality to enhanced and information-services providers," says Blank, predicting that the ultimate network will contain centralized architectural elements for all service control, administration and maintenance features across wire-center boundaries.

Supporting the consulting firm's view that ISDN is the Framework for future telecommunications industry networking was William Newport, Bell Atlantic's executive vice president for marketing and operations. Newport was the guest speaker at the seminar, and essentially concurs with the firm's assessment. He reports that nearly $1 billion--almost half of Bell Atlantic's 1984 budget--is ear-marked for fiber optics, digital and analog-stored program-controlled switching systems, and cellular radio facilities.

Newport also says that Bell Atlantic is committed to the provision of Centrex service. "Right now, we're in the process of filing tariffs to lower the per-line charge for Centrex, and we're introducing new features to make it more versatile and a better buy." Newport adds that he is seeking supplier cooperation to develop advanced forms of digital Centrex in concert with ISDN. He also underscores the need for new rural technology.

Another key imperative for carriers to consider is the balance between large existing core and incipient discretionary businesses. According to Poppel, carriers should define business and consumer segments more incisively as a basis for deciding which end-user segments to pursue aggressively, which to maintain and which to relinquish. He also stresses the need for carriers to clarify their strategic relationships with other interconnecting, but potentially competing, common carriers in terms of access, special services and encroachment from/on others.

To realize the full returns from new networks and customer segmentations, telecommunications carriers also need new pricing strategies and practices. Poppel says specific steps include building demand elasticity, as well as internal and competitive costing. Also, carriers should establish new pricing processes that involve marketing and network as equal partners. "Removing subsidies that undetermine competitive positioning is mandatory," adds Poppel. Stresses Carrier Restructuring

A major challenge for carriers is to maximize their leverage of financial and intellectual capital. "Carriers must ensure that they are optimizing discretionary investments by targeting specific geographic, customer, service and/or technology segments," says Poppel. He also stresses the need to consider seriously such new capital and corporate restructuring mechanisms as condominiumizations, acquisitions and divestitures, pooled R&D financing and debt-versus-equity ratios.

Most carrier companies are still in the early phases of evolving their organizational strategy, states Poppel, adding that carriers "should implement a transition from competitively sheltered to exposed organizational structures, cultures, management processes and information systems as soon as possible."

Finally, Poppel emphasizes the importance of establishing and sustaining entrepreneurial spirit, plus the recruiting and training of new staff members to infuse fresh thinking and attitudes.

As the new game begins, telecommunications industry players should assess the restructured situation, develop strategies and move with speed and determination. Stakes are high and carriers and suppliers can share in the predicted prosperity only if services are expanded concomitant with cost reductions. As telecommunications carriers forge ahead to develop their networks, suppliers must work in tandem to help them achieve their goals, the consulting firm advises.
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Publication:Communications News
Date:Nov 1, 1984
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