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Forecasts for 1986: A Banner Year for Changes in Telecommunications.

After divestiture, some question whether 1986 could bring any changes that further upset daily operations. Unlike 1984, the year of AT&T's breakup, or 1985, the first year after, 1986 will be the year that reality settles in. As divestiture has become an everyday occurrence and some telecommunications dreams founder, managers will have to weave their way through the maze of increased responsibility. Along the way, they'll encounter several major trends that will affect their organizations: dissolution of Computer Inquiry II, renewed vigor in the Centrex versus PBX battle, bandwidth capacity reaching excess capacity, and increasing focus on micro-to-mainframe connectivity.

Although officially year II, PD (post divestiture), 1986 will see the demise of computer II, the five-year-old decision that distinguished between data processing and message switching functions. In conjunction with the AT&T divesture and the 1982 consent decrre, Computer II required the pursuit of data processing services through subsidiaries.

The advent of Computer Inquiry III represents the lifting of restrictions for the Bell operating companies (BOCs) and AT&T. Action on many different fronts, and particularly by Congress, will lead to a gradual loosening of Computer II by the Federal Communictions Commission. Communications Commission.

Although AT&T and the BOCs are now forced to offer enhanced data processing services through separate subsidiaries, Computer III will allow AT&T and the BOCs to fuse their marketing functions. In addition, they'll be able to offer data services through one organization. Marketing consolidation is a major thrust of Congress, which believes that unencumbered BOCs and the seven regional holding companies can make a dent in the current trade deficit by exporting American telecom technology.

The demise of Computer II also impacts another crucial issue near and dear the heart of the US Congress--bypass. Bypass, using microwave and other technologies to circumvent communications through the local telephone company, seemed to be a big threat for residential and small-business users because of the degradation of service and necessary price hikes it would cause. By allowing the BOCs to offer enhanced data services, Congress seems to believe it can compensate for lost revenue from large users who choose alternate routes. In many cases, though, large organizations are bypassing the use of facilities provided by the local telephone company, and thus changing the whole picture of the bypass industry.

Two years ago, many analysts pronounced the certain death of Centrex, office communications provided on a tariffed basis through local telco central-office exchanges. Centrex systems were expected to lose the battle for office telephone systems to customer-premises private branch exchanges (PBXs). The advent of access charges, the lack of convenience features, and the desire of users to have more on-site switching intelligence reaffirmed this position.

Centrex's pending extinction may be exaggerated, however. While the North American Telecommunications Association (NATA), which represents the interconnect industry in Washington, DC, projected a market decrease of 8.7 percent by 1986, updated predictions for 1986 show a net gain of 2.8 percent. PBX makers will see the growth of their installed base stifled in the immediate future by revived Centrex sales.

The telephone companies have become very aggressive in pricing and adding new digital features to the service in an effort to keep it alive. As one spokesman for Bell Atlantic has stated, Centrex may not represent a very large portion of the revenue stream (in Bell Atlantic's case, about three percent), but Centrex users are their largest customers. The largest customers tend to be on the leading edge of communications technology. Ultimately, for Centrex to survive, it may be in a much-different form, with on-premises equipment, guaranteed rate stability, and customer reconfiguration capability.

Small Users Are Flocking to Centrex

Today the major growth in the switching industry is being driven by the up-to-100-lines segment and by very large office telephone systems requiring 400 lines and more. Small organizations, eager for some of the more-advanced but expensive features available on PBXs, are flocking to Centrex, lured by the 25-percent to 30-percent price cuts. Beyond the current cost advantages, these Centrex users are being lured by telco promises of voice/data multiplexing and local-area network interfaces to be introduced shortly.

To make the most of the appropriate system, managers should conduct a comparison study to choose between Centrex and a PBX prior to system selection. Though a Centrex system presently has a relative cost advantage over a PBX, since Centrex can't be purchased, the tax breaks of capitalization are lost. Further, PBX technology already offers digital features that are still in telco Centrex planning stages. Only on an individual case-by-case basis can the selection of a PBX over Centrex be truly effective, due to the unique requirements of each system.

As new fiber-optic and satellite-system networks come on line, bandwidth capacity available through new hybrid networks (some of them software-defined) will change the prices of and the way managers use communications facilities. Bandwidth demand will be satisfied by improvements in the local loop, bolstered by use of bypass technology if necessary, as users take advantage of the capacity available.

Long-haul networks, enhanced by fiber-optic nets, high-speed microwave backbones and hybrid terrestrial-satellite links, should provide users with a buyers' market for long-haul bandwidth well into the 1990s.

Bandwidth and necessary connectivity will be implemented by improved reliability, delivered by state-of-the-art replacements for switching gear that will just start to come on line. Managers should be advised to not get locked into a technology or service that can't exploit this progress. Over the next few years, bandwidth by pre-divestiture standards will become almost free, as excess capacity drives costs down.

High-tech private networks will offer a relatively inexpensive pipeline (transmission/delivery) function. However, rising service costs (least-cost all routing, billing, chargeback, subscriber information, change management, instrument movement and local-area communications) needed to transform a system into an effective business communications tool will be the responsibility of the local telco, end user, third party, or a combination of the three. The most-likely prognosis is that organizations will have to prepare to assume increasing responsibility for communications nets.

The year 1984 was the year of the crossover--sales of personal computers exceeded those of mainframes. While the impact of personal-computer processing hasn't been totally recognized, end users, accustomed to the power of a traditional mini on their desks, increasingly request access to main data bases for purposes of data integrity. Terminal emulation--the conventional form of linking PCs with a host--won't continue to satisfy those same power users, who, used to the power wielded by a micro, demand more than a dumb-terminal link.

Communications links between micros and mainframes, however, leave much to be desired. Much of the technology is still underdeveloped. State-of-the-art links will appear in the form of integrated systems that solve reformatting problems by automatically converting mainframe data structures into forms that micros can recognize and use.

These products, currently available as two separate software packages, one each for the mainframe and the micro, will eventually lose their applications-specific ability, evolving into the integrated generic link that will allow PC users to reach any mainframe data bases that they are authorized to access. Micro-to-mainframe links of this type will begin to be available through the increasing use of standard operating systems, such as UNIX and IBM's VM operating systems.

Better micro-to-mainframe links will affect the way PCs are used, which in turn will affect the way they are networked. Local-area networking technology will be truly important, and the market will swirl around different implementations. IBM, never a new-market leader but a fallower, will exert the same type of hold over the LAN vendors and standards that it has achieved with its de facto PC standard.

All totaled, 1986 will provide different and perhaps more-subtle challenges for managers than previous years. While many of the trends of the past two years have been due to the Bell breakup, 1986 is the year of stability of price decreases on the one hand and the release of restrictions for AT&T and the BOCs on the other.

Although AT&T, unlike Humpty Dumpty, can't be put back together again, 1986 will see the unification of some business areas that will enable it to operate in a more-logical form and give it the strength to meet the market head on in a more natural form.
COPYRIGHT 1986 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1986 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Vandegriff, Cheryl
Publication:Communications News
Date:Jan 1, 1986
Previous Article:Forecasts for 1986: The Electronic Data Interchange Market.
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