Calls to the future

During the summer doldrums, Sprint unveiled a multibillion-dollar network to carry voice, video, and data over a single phone line, heralding it as a "Big Bang that expands the universe of what telecommunications can do."

The industry, however, greeted the news with a collective yawn.

Such is the state of the telecom industry in the chaotic Information Age, where even giants such as Sprint risk irrelevancy unless they embrace the technological whims of the market. What were once connection-oriented layouts perfectly fit for telephone service are quickly becoming multidimensional transports for a variety of traffic, zipping around as voice, video, and data "packets."

This technology free-for-all in turn has inspired a slew of mergers, hailed by telecom executives as necessary to deliver a so-called one-stop shop for voice, video, and data services to business and residential customers. The results are combinations once unthinkable in a highly regulated industry.

This year's examples include:
• The $48 billion merger of long distance giant AT&T and cable industry stalwart Tele-Communications Incorporated, a not-so-subtle attempt by AT&T to take advantage of a new network technology--broadband cable--to offer an all-in-one package of converged communications and media technologies while potentially avoiding regulatory barriers to local access.

• SBC Communications' continued acquisition push, which resulted in a $62 billion buyout of Ameritech in May that followed the purchase of Pacific Bell two years ago. The deals underscore SBC's efforts to become a giant in not only the local and long distance markets but also in the burgeoning area of data communications.

• The rise of what is now MCI WorldCom out of Mississippi, stemming from the merger of WorldCom and long distance giant MCI Communications. The deal, yet another example of an attempt at universal telco services, creates a Net-oriented powerhouse because the two firms together control a substantial portion of the Internet's backbone networks.

If convergence is ever going to definitively reach the home, it will be because the back-end networks being built and connected by these carriers have enough capacity to handle all the content delivery services that consumers need.

Behind the all-in-one bluster trumpeted by telcos and scrutinized by regulators are market realities and technological changes that will force these multibillion-dollar giants to be quick on their feet in the face of rapidly commoditizing businesses.

How did all this happen? The federal Telecommunications Act of 1996 essentially opened up the industry to competition, facilitating mergers such as the AT&T-TCI deal. Despite numerous chinks in the landmark legislation, lawmakers intended the regulations to be a sequel to the break-up of the AT&T monopoly on telephone service that took place more than a decade ago.

But legislation created to promote a new era of competition has, in one sense, had the opposite effect. The Big Three telco players and the regional Bells have tried to build up their stable of technology and services through acquisitions. The Baby Bells, in particular, seem bent on reestablishing themselves as the primary drivers in the telco industry--starting to put Ma Bell back together again.

At the same time, various new players, often called "Green Field" companies, are taking their cues from the legislation and building new-age high-bandwidth networks to compete with the Big Three in the one-stop-shop game. They are following various strategies, often a combination of partnerships with regional carriers, wholesale supply of bandwidth to third parties, and home-grown services.

The underpinnings of these network shifts involve a technological revolution centered around the Net and the use of its transmissions medium--IP, or the Internet protocol--to deliver voice, video, and data-based packet services. That revolution will likely lead to dramatic changes in the cost of delivering voice services and will free up congested voice switches not intended for Net use.

"It may take a decade, it may take two decades...but I think the outcome in the end is already predetermined," noted Gordon Vanderbrug, executive vice president at embryonic IP voice company VIP Calling.