Feature Stories - February 2004

Telecommunications

Changing Trends Create More Options

by Kim Becker

There’s no question that rapidly evolving technology impacts the way people communicate. Gone are the days when a business could operate efficiently with a single phone line and a dedicated fax. Instead, new innovations are pushing customers – residential and business alike – to keep up in order to stay connected. So it comes as no surprise that telecoms are pushing the envelope to offer the fastest, newest and most convenient communications and service options available.

Voice over Internet Protocol (VoIP) is one such service. It uses high-speed data networks instead of traditional phone lines to complete calls. The benefit to the consumer is increased functionality and a potential cost savings over traditional carrier networks.

"The cost benefits of VoIP to business customers include: less expensive moves, adds and changes; lower bandwidth costs; and reduced personnel costs, because it eliminates the need to manage two separate voice and data networks," said Eldon Mast, director of product marketing at Pac-West Telecomm, Inc. (Pac-West), one of the largest Competitive Local Exchange Carriers (CLECs) based in California, with operations in Nevada, Washington, Arizona and Oregon. "Because of the increasing ubiquity of IP data networks throughout organizations, as well as Web-based management portals, average station-move times have decreased significantly. Additionally, because the voice and data circuit channels share bandwidth, a site’s total bandwidth requirement can be reduced when compared to a traditional voice/data line to that same office location."

Pac-West recently announced that it signed a joint operating agreement with Sentient Group, Inc, a provider of fully-hosted, managed voice and data services for business communications. The two companies have committed to jointly developing opportunities for the application of VoIP solutions in small, medium and large enterprise markets.

In December 2003, Sprint, a global integrated communications provider serving more than 26 million customers in over 100 countries, announced an agreement with Time Warner Cable to provide local service. The agreement makes it possible for Time Warner to offer VoIP-based telephone service to cable subscribers in 17 markets, although none of those markets are currently in Nevada.

Smaller telecoms are equally ahead of the curve. In fact, Cheri Hickman, president of Hickman Telecom, was among the first local providers to realize the significance of VoIP technology. Hickman’s company is a North Las Vegas-based firm providing the business community with telephone systems, cabling, computer networking services and hardware. Based on increased interest in VoIP and related services, the company recently formed a new Internet telephony division.

"When I saw VoIP in use, I was immediately impressed, and I realized that a smaller business would benefit just as much as a larger one with multiple locations," said Hickman. "With this technology, a company’s outside reps or people who work at home can take an IP phone with them, so if a customer calls into the company’s main number, it is immediately transferred to the employee’s IP phone, and the caller will never know."

With this technology, a small business can offer the same level of communication and accessibility as a larger business. In fact, Hickman Telecom recently installed a complete VoIP system to a two-person company that has both employees based out of their homes. "They can use this system to transmit information back and forth with ease," said Hickman. "And anyone calling in would never know it is a small business."

Hickman said the system also includes "follow-me" technology, which enables a business or individual to designate four phone numbers – home wireline, pager, cellular, etc. – to "follow" if a call comes in. If a caller dials in and the subscriber is not at home, the call is automatically forwarded to the next designated number. It means fewer lost calls.

But as attractive as VoIP is, it raises some interesting questions and concerns, including issues about federal regulations. Will regulations inundate the technology with taxes and surcharges, making the service too costly? "Because VoIP is different from traditional telephone service, policy makers at the federal level need to establish an appropriate framework for VoIP," said Dan Jacobsen, executive director of regulatory for SBC Nevada. SBC is one of the world’s leading data, voice and Internet service providers, offering a full range of voice, data, networking and e-business services. "We think it is crucial that when VoIP calls ride over various carriers’ facilities, each carrier needs to be compensated. If this does not occur, VoIP pricing will not be rational."

Pricing, at least for the average customer or business owner, is a hot issue. In fact, many Americans are using their wireless phones as their primary phones – some doing away with wirelines or "land lines" entirely. According to a study released by the Yankee Group, a global communications and networking research and consulting firm, an estimated 12 percent of adults ages 18 to 24 have already given up their wirelines entirely. The study further reveals that another 28 percent will follow suit over the next five years.

But the people at Sprint don’t appear to be concerned. In fact, it seems the company is almost embracing this new trend. "With its local, long distance and wireless assets, Sprint is the best-positioned company in the telecommunications industry to benefit, either from those who elect to remain wireline customers or the growing trend of Americans who are cutting the cord," said Detra Page, media relations manager for Sprint. "Sprint has a large customer base of tech-savvy young adults – innovators who are abandoning their land lines altogether."

At SBC, Jacobsen, too, does not seem overly concerned. In fact, he believes that both services – wireline and wireless – are complementary. "SBC is focused on integrating technologies and providing convenient and efficient services for customers. Clearly, some customers are deciding to use wireless as their only telecommunications. However, we believe most customers use a combination of wireline and wireless service," he said.

As a result, SBC is focused on developing new solutions to meet every need, and introducing new products, such as the company’s Fast Forward device, which forwards wireless calls to a wireline number and doesn’t count against one’s wireless minutes. "The bottom line is that wireline phones are reliable, always on and don’t have the coverage challenges that can happen with wireless phones," said Jacobsen. "That reliability can be important during times of emergency. However, we believe that for most customers, both services are complementary and consumers should consider keeping both wireless and wireline services for their communication needs."

With consumers relying more heavily on their wireless phones, the Federal Communication Commission’s (FCC) wireless local number portability (LNP) rules seem to be a welcome relief. Under these new rules, customers may switch wireless carriers within the same demographic area and keep their existing phone numbers. According to the FCC, in addition from switching from one wireless carrier to another, customers (in most cases) will also be able to switch from a wireline to a wireless carrier and vice versa, and still keep their phone numbers.

While the LNP is good news for consumers, many in the telecommunications industry wonder if customers will switch frequently from carrier to carrier as they perpetually search for the best deal. "Sprint expects that LNP may impact competition, since customers will be able to move from one carrier to another," said Page. "We believe that delivering customer satisfaction with outstanding service and industry-leading applications and devices will ensure we attract and keep Sprint customers. Wireless companies have faced each other in a highly competitive market for years, and consumers have seen lower prices, innovative services and better features as a result. The FCC’s move sets the stage to make consumer choice and the competitive environment even stronger."

With so many options available to the customer, some of the larger providers may be in a position to benefit because they can provide a variety of services, known as bundling, and send the customer just one monthly bill – local, long-distance, wireless, etc. But is it more cost-effective for the consumer to shop around for the best deals instead?

"SBC’s customers have been telling us for years that they would like a total package that allows them to address their communication needs with the simplicity of one call and on one bill," said Jacobsen. "We believe we have some of the industry’s best variety of bundles and packages that are designed to deliver choice, convenience and value, and are backed by a commitment to ‘right-size’ customers with services and products that meet their needs and reward them with savings for consolidating their communications with SBC. There is a significant upside opportunity for customers when they purchase services in bundles and packages, and we’ve only scratched the surface."

From his perspective, Mast said shopping around for retail products and services almost always results in a better deal and/or better. "Pac-West has found that many small- to medium-sized business owners in California and Nevada are willing to pay a premium price for a well-managed voice and highly reliable high-speed data service."

Page said Sprint customers appreciate the convenience of receiving one bill and having one contact for all their telecommunications needs. "Sprint customers receive volume discounts – a real benefit realized by purchasing all their services from one provider," she said.

With so many providers offering a plethora of services, one can only wonder what increased competition will do the market. According to Page, there are approximately 60 CLECs actively competing in Nevada, many of them faring very well. But this bodes well for the consumer. "Competition results in lower prices, innovative services and better features," Page said.

Mast said the industry’s problems of the past two or three years, which saw a CLEC "shakeout" caused by what he describes as overconfident carriers without solid business plans, has appeared to level out. "As capital markets slowed their spending during the most recent recession, CLECs were forced to meet traditional business metrics and demonstrate a focused path to profit," he said. "Those companies that focused on building networks, rather than serving customers, were quick to fold as investors focused on near-term profitability.

While Mast predicts some additional shakeout, he still expects revenues to grow for operators based on sound business principles. "Some analysts forecast total CLEC revenues of more than $50 billion by 2006," he said.