NEW YORK-Seven key developments promise significant changes in the telecommunications industry in 1997, according to a newly released global outlook by A.T. Kearney, Arlington, Va.
(1) Merger activity within and across markets will be accompanied by skyrocketing demand for high-capacity networks. As a result, regional Bell operating companies will begin to receive regulatory approval for in-region long-distance service.
The merged Bell Atlantic Corp. and Nynex Corp. will negotiate to join the British Telecommunications plc/MCI Telecommunications Corp. combination. By the end of 1997, Ameritech Corp. and US West Inc. will merge. Sprint Corp. and WorldCom Inc. will be fighting off merger offers. Only BellSouth Corp. likely will stand alone.
“Wireless isn’t part of the causation, but there will be an effect with respect to wireless,” said Joseph Kraemer, vice president of A.T. Kearney’s Telecommunications Consulting Group and author of the 1997 outlook.
A series of smaller mergers, often involving wireless services, will occur around the larger ones as companies seek to aggregate into larger-scale enterprises. Wireless communications will become part of a cluster of service offerings that are transparent to users in terms of their mode of transmission, Kraemer said.
(2) The rush to merge will lead to post-merger traumas. One of the biggest potential dangers is that talented MCI management will leave the BT/MCI combination if British Telecom focuses capital on Europe and if questions persist about the partnership’s added value.
“MCI, which is the largest reseller of wireless services, is a rare company; it’s not a network but a pool of talent,” Kraemer said. “If BT directs its capital away from MCI on the theory that MCI has the market saturated, MCI management will leave. It won’t necessarily be an abrupt or traumatic (departure) … but over a year or so. And North America will be the best market in the world for all telecom services for the next five years.”
(3) The market will continue to be buffeted by a complex interplay between deregulation and re-regulation. In the United States, local service resale will enjoy deregulation while the Internet will begin to come under increasing regulatory pressure.
(4) Accelerating merger activity will be accompanied by increasing competition, new market entrants and increasing consumer demand. Prices, especially in the international market, will plummet as a result. In response, the telecommunications industry will continue to reorient itself away from commoditized services and into those specialty areas that can bring greater profitability, such as prepaid calling, automatic call-back and affinity group marketing.
“As part of that, companies will assemble packages of services, and that’s where wireless comes in,” Kraemer said.
(5) In the United States, the cable television industry will get deeper into financial difficulties due to greater competition, a stagnant market and skyrocketing capital needs. The one bright spot is that demand for cable modems exceeds the capacity of manufacturers to fill it.
“There are two issues around wireless here. Part of cable’s problem is competition from wireless-satellites, LMDS (local multipoint distribution systems), MMDS (multichannel multipoint distribution systems),” Kraemer said.
“The cable industry has a lot of money invested in Sprint Spectrum, so there’s a question of whether it can afford to build out its PCS (personal communications services) license.”
(6) Despite the continuing eruption of the Internet, telecommunications companies will remain unable to capitalize on its profit potential. “The way phone companies are set up today, prepaid Internet services are local calls at a flat rate. Eventually, Internet providers will consolidate and become more like America Online, a proprietary service,” Kraemer said.
“Wireless Internet access is charged on a time basis, so in the near term-the next three years-it will be for business use which is justified on basis of cost savings or revenue generation.”
(7) The heavyweight long-distance carriers will look for profits by moving aggressively into local service markets. AT&T’s stated goal is to have 30 million such customers by the end of 1998. That is the equivalent of two RBOCs, according to Kraemer.
“If each accomplishes what it wants, we will end up with three-to-four $100 billion consortiums,” he said. “It won’t happen in 1997, but will be the result of an ongoing alliance and grouping.”
