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TELECOM Digest     Sat, 6 May 95 07:58:00 CDT    Volume 15 : Issue 227

Inside This Issue:                          Editor: Patrick A. Townson

    Re-Engineering The Telephone Industry (Comm Week Intl via D. Shniad)
    Re: Annoying Calls: Can We Deal With Them? (Heath Roberts)
    Book Review: "Get on the Internet in Five Minutes" (Rob Slade)
    Re: Mexico Billing Method: Digit Analysis or Meter Pulse? (J.
Hinnerk
Haul)

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----------------------------------------------------------------------



{Communications Week International}
10 April 1995

Re-engineering the telco

By Jennifer L. Schenker

  In 1987, a few years before New Zealand opened its market, the
country's incumbent monopoly had 26,500 employees -- including craftsmen
who made the company's furniture and mechanics who serviced its motor
vehicles.

  Once competition was introduced, the workforce was trimmed and
remaining employees went to work on upgrading the operator's network,
improving customer service and developing new products.  The operator
is spending NZ$4 billion ($2.6 billion) to phase out its 55,000 party
lines and completely dig ititize its network, a process now almost
complete.  It is developing broadband services for business customers,
expanding its cellular activities and looldng to invest abroad.

  As Telecom New Zealand continues to cut its workforce, to 7,500 by
1997, it is apparent that few of these employees will be raising a
hammer or turning a wrench on company time.

  The company now considers itself a world-class competitor, pointing
to 1993 and 1994 consultant studies that ranked its infrastructure
highest among telecoms operators in industrialized countries for
meeting business requirements.

  "We have nearly completed tuming the vision into a reality," says
John Crook, Telecom New Zealand's strategic issues manager.  "The fact
that New Zealand has the most open and competitive telecommunications
market in the world made realizing this goal possible.  It also made
achieving it a necessity."

  The lesson?  As telecoms markets are deregulated, competition is
introduced and tariffs are lowered in line with costs, telephone
companies must overhaul their businesses to survive, analysts say.
Even more radical restructurings will be required as bandwidth becomes
plentiful and network digitization both decreases network maintenance
requirements and changes the dynamics of competition by allowing
several operators to cohabitate on the same wire.

  The telco of the future will be leaner, and its core business will
extend to entirely new services and businesses.

Heyday over

  The heyday of huge profit margins for basic connections and
international calls is over, analysts say.

  By 2005, end-users may pay as little as $0.03 for an hour-long
international call, according to a report by consultancy Cambridge
Strategic Management Group.

  The report, titled "The Macroeconomic Effects of Near-Zero Tariff
Telecommunications," predicts that market liberalization and a
bandwidth glut will lead to an electronic commodity market for global
telecoms capacity, with buyers choosing the least expensive option of
the day.

  "The big message is don't stay in basic connectivity," says Simon
Forge, one of the report's authors.  "For the first time in the
history of telecommunications, telcos will have to completely
re-engineer their companies.  They will have to shed 80 or 90 percent
of today's staff and find a new operating profile or diversify into
new businesses."

  Conventional telecommunications will no longer be the core business
of most telcos, Forge says.  "Which services a telco chooses to be in
will change radically, with customization becoming far more
important," he says.  "And what telcos charge will change.  As we move
up the value chain, con nections could be given away."

  Telcos will slip into new, value-added roles, providing credit card
or entertainment services over their networks, or specializing in such
sectors as health, financial or educational services.

Getting the message

  That message is starting to sink in.

  Telecom New Zealand is rolling out a cable TV network, offering
original entertainment and news programming as well as connectivity.
The operator is talking with health providers about developing a
telemedicine network and is considering branching into other
sector-specific services.

  For its part, Sweden's Telia has laid off more than 15,000 employees
since 1992, reduced the number of switching points in its network to
250 from 6,000, and digitized its entire network.

  Basic telephony represents only about half of the operator's
revenue, compared to an average of 70 percent at public telecoms
operators in industrialized countries.  Telia sees basic telephony
generating only about 30 percent of the operator's revenues within a
few years, says Bertil Thorngren, senior vice president in charge of
strategy.

  Thorngren concurs with the Cambridge report that international call
tariffs could drop as low as three cents an hour.  "There is a
tremendous decrease of costs, especially for international and
broadband services, and prices have been artificially high and cannot
be sustained over the longer term," he says.

  Shedding businesses that no longer fit into its plans, such as
manufacturing telephone handsets, PBXs and Unix minicomputers, Telia
has branched into mobile and financial services.  And like Telecom New
Zealand, the Swedish operator is looking for partners to develop
expertise in sectors such as medicine.  It has also created an
internal restructuring program called-Project Telia 2001.  "We are
trying to restart the company from scratch to move as fast as possible
away from the present structure," Thomgren says.

Change brings profits

  The Telecom New Zealand and Telia experiences are interesting case
studies because both companies have had to adapt to voice and network
infrastructure competition, something most of the rest of the world's
telephone companies are expected to face by the end of the century.

  In the European Union, a deadline of 1 January 1998 has been set for
member states to open their markets.  The World Trade Organization,
which represents 82 countries, is pushing its members to do the same.

  In New Zealand, where all telecoms services have been open to
competition since 1991 and there is no special regulation for the
sector, and Sweden, with widespread voice and network infrastructure
competition, profits at the incumbent operators are up.  Other
operators that face competition in their homes markets, such as AT&T
and Australia's Telstra, announced record financial results last year.

  This evidence has led the Organization for Economic Cooperation and
Development to conclude that, despite losing market share to
competitive operators, incumbent operators stand to gain financially,
says Sam Paltridge, a telecoms analyst in the OECD's directorate for
science, technology and industry.

  The OECD, which is to release a report later this spring on how
telephone company employment is changing, also argues that market
liberalization creates jobs.

  In Japan, for example, former domestic monopoly Nippon Telegraph and
Telephone cut its workforce from 329,000 in 1980 to 248,000 in 1994.
But the same number of jobs have been created by the country's
competitive long distance carriers and Value-added service providers,
Paltridge says.

  In the United States, the seven regional Bell companies collectively
cut their workforces by 13 percent between 1988 and 1992 while still
exercising a high degree of monopoly power.  But employment in the
competitive U.S. long distance market increased 21 percent and
employment in mobile communications services increased more than 50
percent during the same period, Paltridge says.  Meanwhile,
competitive local access carriers and equipment suppliers have also
sprouted, creating their own j obs.

  No operator in an OECD country has gone further than BT, which has
cut its workforce from 245,000 in 1990 to 137,000 today. Some, but not
all, of those jobs have been offset by new employment in the booming
U.K. mobile and value added services sectors, analysts say.

  The problem for those being laid off is there is no guarantee they
will step into the jobs being created.  The growth jobs identified by
the OECD in its "1995 Communications Outlook" report require expertise
in software, sales, marketing and management rather than line
maintenance, in stallation or operations (see chart).

  Fearing strikes and voter dissent, governments are reluctant to
allow their telcos to whip out the hatchet--even if they are convinced
that restructuring will ultimately produce efficiency and net
employment gains.  And European governments are not taking the
necessary steps to retrain workers, says consultant Forge.

  "In Europe, there are legal, social and political barriers to the
cost shakeout seen in the U.K.," says Andy Embury, a partner at Price
Waterhouse in London.  "It is difficult for telcos in France, Germany,
Spain and Italy, because on the one hand they are told you need to get
your costs sorted out and be competitive within three years and on the
other hand you can't lay anybody off."

  France Telecom, for example, is restructuring more slowly than any
other telco in the OECD, Paltridge says.  Revenue per main line is
falling faster than wages per main line, meaning the state- owned
company is under pressure to increase productivity by downsizing.  But
the French government is reluctant to face the wrath of unions, he
says.

Management pitches in

  Some telcos are getting around the problem by setting up new
companies geared around the skills of surplus employees.  For example,
if a network maintenance operation has 25 percent too many employees,
the telco helps to come up with a service those employees could
provide both to the telco on a contract basis and to other companies.

  "A number of people are exploring it because it saves hundreds of
millions of dollars from coming straight off the bottom line in
redundancy costs," Embury says.  "But there is a commercial risk to it
because you might not be able to make that new business work."

  While BT has been criticized for laying off large numbers of
employees with little warning and Bell Atlantic strikers last year
donned T-shirts reading "I'm roadkill on the information highway,"
other telcos have cut their workforces with the cooperation of unions.

  Nynex Corp., which reduced its work force by 19 percent to 76,200 in
the decade since the AT&T di vestiture, drew praise from the U.S.
Secretary of Labor for the agreement it was able to hammer out with
union officials last year.

  Telia was able to make its cuts without social unrest, offering its
employees a variety of options, including early retirement, training
for new skills and education for new positions within the company.
And it is encouraging employees to start their own businesses,
sometimes under outsourcing arrangements.

  "There were sad stories and even tragedies and also quite a few
success stories,' Thomgren says.  "Overall, we managed very well."

Multimedia era

  Once telcos have streamlined, they must decide how to best approach
the multimedia era.

  Given current U.S. restrictions, cable TV is a key option for the
Bell companies because it is their only way to expand domestically on
the delivery side outside of their regional territories.

  "We look at it as a great financial hedge at worst and at best a
great bet for the future," says Euni Park, director of the media and
telecoms group at Lehman Brothers in London.

  Nynex, meanwhile, has gone a step further, investing $1.2 billion in
Viacom Corp. to jointly develop video-on-demand applications, games
and other content.

  In Europe, Deutsche Telekom is still in talks with German media
giant Bertelsmann AG, which has teamed with America Online Inc. to
jointly launch on-line services in Germany, France and the United
Kingdom.  BT, barred from delivering broadcasting traffic, is
nonetheless conducting video-on-demand trials.

  Telstra and partner News Corp., under a joint venture called Foxtel,
plan to spend $2.7 billion on a digital broadband network that will
run to 4 million Australian homes by 1999, delivering cable TV an
advanced interactive services.

  "The $64,000 question," analyst Park says, "is whether telcos should
own content."  Telia's Thorngren says it is important to at least "be
related to it."

  To some extent, you can't own media even if you have the money," he
says, "so it might be wiser to try and understand media better than to
spend a lot of money."

Developing world

  In the developing world, the issue for telcos is "not about owning
content or when should I introduce video dial tone, but rather how can
I double my penetration in my domestic marketplace," says Price
Waterhouse's Embury.  "Issue No.  2 is how can I radically improve my
productivity as a PTO."

  When competitive operators arrive, they bring the latest technology
and their costs are a small fraction of those borne by the incumbents.
They attack the most profitable business segments.  So telcos in the
developing world must get their cost bases under control in
anticipation of competition, analysts say.  But most are starting with
poor infrastructure and poor productivity.

  "The nature and timing of competition is absolutely critical,"
Embury says.  "If they face full-blown competition without
restriction, without giving them time to adjust, they risk being blown
away."

  Operators in Latin America, in particular, face a difficult
situation, says Andrew Fyfe, head of the telecoms practice in Price
Waterhouse's Washington office.  As part of operator privatizations in
the region, governments are pushing for shorter monopoly concessions
than those handed out in the 1980s and early '90s.

  "In nine years, maybe you could get to some sort of state of
equilibrium but there is no way to do it in five years," Fyfe says.
And even though most operators are meeting government targets for
quality, he says, the targets are too low and will not prepare the
incumbents for competition.

  Meanwhile, incumbents in some of the Asia- Pacific's developing
countries, such as Indonesia and Malaysia, are "diverting government
attention with initial public offerings, claiming financial markets
will make them more efficient," Fyfe says.  "How will this ever make
them more efficient?  These countries would have more telephones and
better service if they allowed strategic investors, but this is not
favored in Asia."

  For its part, Telecom New Zealand is proud of the transformation it
has made from a bloated part of the post office .

  "The challenge now is to continue being as innovative and flexible
into the future," says strategy manager Crook.  'We must be able to
recognize the opportunities new technologies and the growing synergy
between telecommunications, computing and electronic entertainment are
creating."

------------------------------



[e-mail] wrote:

> If Pac Bell, or the PUC, really cared about giving us peace in our
> homes, these limitations would have been removed by now, and I'm not
> inclined to believe stories that it's impossible.  The bottom line is
> that telco cares more about the income from these junk calls than
> about our right to peace.  I can only hope that dialtone competition
> will change their attitudes.

I think what happened in California is that when the telcos wanted to
offer CLID, the California Public Utilities Commission (your
representative government) placed so many different kinds of
restrictions on what offering it would allow that it became

╖_


economically unattractive for the telcos to offer. The market
determines the price, remember ... the telco can't charge more than
what people will pay, and the fewer people who buy the service, the
less capital the telco has to buy software to implement the service.

It's important to remember that telephone companies are *businesses* and
they're not going to do anything that doesn't make them money. There's
this warm fuzzy that people get when talking about the good ol' days of
Ma Bell, but those days are gone now. We've turned the phone system into
a cut-throat business where every penny of cost has to self-justify
itself. You're right that the bottom line is that telco cares about
income, which is as it should be in a capitalist society. The "problem"
is that the customer doesn't care enough to make an issue about it.
Government will never come up with the best solution, but if you let
there
be a (perceived) need for a governmental solution, you're damned well
going to get one.

So if you want CLID, or any other service the market will support, call
your PUC/state representative/Congressman/Senator, and tell them you
want to see barriers to a free market removed ... don't bitch at the
company trying to provide the service.

As always, my opinions only, but after all, isn't everyone entitled to
my opinion?


Heath Roberts

------------------------------



BKINT5MN.RVW   950320

"Get on the Internet in 5 Minutes (for Macintosh)", Miser, 1994,
1-56830-135-9,
U$9.99
%A   Brad Miser [e-mail]
%A   Marta Partington [e-mail]
%A   Brian Gill [e-mail]
%C   201 W. 103rd Street, Indianapolis, IN   46290
%D   1994
%G   1-56830-135-9
%I   Hayden Books
%O   U$9.99 800-858-7674 [e-mail] 317-581-3743
%P   88
%T   "Get on the Internet in 5 Minutes"

If you live in New York City, or if you are willing to call and pay the
toll
fees, you can "try the Internet for 30 days, risk-free".  This gives you
*ten
minutes* of access, making it one of the most limited I have ever seen.
Also,
it is not "Internet" access, but simply a subset of the Pipeline BBS.

The booklet gives an overview of what you *can* do on the Internet:
there is
almost *no* how.  The installation is "plug and play"; it is unlikely
that
you'll be able to take advantage of a high speed connection in any case.

Get on the Internet in five minutes?  No, I don't think so.

copyright Robert M. Slade, 1995   BKINT5MN.RVW   950320. Distribution
permitted in TELECOM Digest and associated publications. Rob Slade's
book reviews are a regular feature in the Digest.


DECUS Canada Communications, Desktop, Education and Security group
newsletters
Editor and/or reviewer [e-mail], [e-mail], Rob Slade at
1:153/733
Author "Robert Slade's Guide to Computer Viruses" 0-387-94311-0/3-540-
94311-0

------------------------------



In comp.dcom.telecom is written:

> Does Mexico / Central America use a digit analysis method for
> calculating charges, or a metered pulse method?  What I'm actually
> refering to is the SMDR output on a PBX.  I believe the U.S. is in the
> minority in using digit analysis, or am I wrong?

Well, it depends...

Most countries (errr... PTTs / carriers) give call supervision data
to the PBX in some form or the other.

Typical methods are high-frequency pulses on top of the voice signal
(e.g., Germany uses 16 khz). These pulses are filtered out by the
PBX. Each pulse signals that one "unit" or "tick" of charge applies.

The duration of the unit is varied based on time of day and distance
of the call; the price of the unit is constant.

The method is country-dependant, so there really is no universal
answer.

Also, this pulse is quite often disturbing fax transmissions and modem
connections, on top of often being an additionally-chargeable feature,
so quite a lot of PBXes can do number analysis as an alternative
method.  The drawback of number analysis is, of course, that no call
supervision is possible, letting users being "billed" with uncompleted
calls if they wait longer than the set timeout period and letting very
brief calls unbilled. If your interest is mainly to catch the
expensive calls, like an office setup, this is fine. When you want to
bill the calls (like an hotel setup), it is not as easily acceptable.

On ISDN (being a bit more popular, it seems, in Europe than in the US)
you get accurate call supervision and billing information in the
signalling or "D" channel (the calls take place in the "B" channels).
This is called out-band signalling (like ITU-T System 7) and is
generally
the better way of doing it (no disturbance, more tamper-proof).


Regards,

Jan

------------------------------

End of TELECOM Digest V15 #227
******************************