From: TELECOM Moderator <telecom@eecs.nwu.edu>
Newsgroups: comp.dcom.telecom
Subject: Retransmit == Insight 1/93: Telecom Winners & Losers
Date: Wed, 27 Jan 1993  00:30:00 EST
Reply-To: TELECOM Moderator <telecom@eecs.nwu.edu>
Organization: TELECOM Digest
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The item appearing below appeared in TELECOM Digest about a week ago,
and presumably went out to comp.dcom.telecom at the same time. Now it
appears it got lost in the shuffle somewhere. So you readers of the
Usenet group are seeing what the Digest readers got several days ago.
Sorry about that, and thanks to the original poster for catching the
problem.


PAT

  Date: Tue, 19 Jan 93 10:50:44 -0500
  From: matt lucas <matt@telestrat.com>
  Subject: Insight 1/93: Telecom Winners & Losers


This is the lead article in the January 1993 issue of {TeleStrategies
Insight.} I thought it would be of interest to readers of this
bulletin board. (Information about TeleStrategies, Inc. and
TeleStrategies Insight appears at the end of the article.)  Matt.


                 TELECOM WINNERS AND LOSERS IN 1993
       By Dr. Jerry Lucas, President, TeleStrategies, Inc., 
               and Publisher, TeleStrategies Insight

It's 1993, time for TeleStrategies' annual analysis of winners and
losers in the coming year. First, we'll review how we called them last
year (TeleStrategies Insight, January 1992) because it's fun to toot
your own horn when you're right. Then we'll cover what happened in
1992 that influenced our assessment for 1993. Finally, we'll tell you
what to expect this year if you like to pick winners rather than
losers.

TELESTRATEGIES' TOP TEN WINNERS AND LOSERS
1.  ATM/SONET
2.  Collocation
3.  PCS
4.  Cellular Technologies
5.  800 Number Portability
6.  Video Dial Tone
7.  IntraLATA Toll
8.  Screen Phones
9.  AIN
10. ISDN  

1. ATM/SONET
First, a quick technology refresher: Synchronous Optical Network
(SONET) is the standardization of optical fiber transport;
Asynchronous Transfer Mode (ATM) is the multiplexing and/or switching
access to SONET transport.

Last year at this time, the only ATM/SONET game was the RBOCs'
Switched Multimegabit Data Service (SMDS). We deemed it a loser and
that opinion remains unchanged. Why? SMDS doesn't create value for end
users. As planned, SMDS would deliver LAN connectivity to users via a
public packet network with 1.5 to 45 Mbps access. First, there is no
demand today for public (i.e., inter-company) LAN connectivity except
in the research and education market. If you are a player in R&E, you
get it for "free" via Internet. (See TeleStrategies Insight, November
1992).  Second, if you want switched, intra-company LAN-to-LAN
connectivity with 1.5 Mbps access, and you have to pay for it, you can
get it today with frame relay technology. Third, the only way to
justify 45 Mbps access today is interconnection to an interexchange
carrier where voice, data and video can be integrated to the IXC
serving center. In summary, if your view of how ATM/SONET will roll
out in 1993 is megabit per second, data only, access to a public ATM
switch (SMDS), you lose.

So what happened in 1992 to make ATM/SONET timely and a winner for
1993? The ATM Forum. In 1992 the computer/LAN people joined with the
router, T1 mux, DCS and CO vendors to push for CPE ATM standards
compatible with carrier SONET. The end result: it is now possible for
ATM CPE to interface with an ATM/SONET-based IXC. Look for the large
end user to see the first wave of ATM CPE products and compatible
private line carrier offerings by year end.

2. COLLOCATION
Last year we picked 1992 as the year the FCC would follow the New York
PSC's lead regarding CO collocation for the Alternative Local
Transport Service (ALTS) providers. The FCC did just that last summer
with the result that collocation for special private line access is
here. So, if you were an ALTS and took the risk to start up or fortify
your market position, as you already know, you were a winner in 1992.

What else happened in 1992 to affect collocation opportunities in
1993? Plenty. First, collocation has now been established as an
acceptable practice at the state PUC level. RBOC COs haven't been
destroyed by "incompetent" ALTS technicians when on site at the CO,
etc. Second, Senator Al Gore was elected Vice President. It is likely
that he will use his position to become the U.S.  "technology czar,"
putting special emphasis on his "baby," the National Research and
Education Network (NREN), the gigabit replacement for Internet (see
TeleStrategies Insight, June 1992).  Third, the RBOCs acknowledge they
lost the special access monopoly with collocation (a $3 billion
market). It's just a matter of time until switched access (a $20
billion market) is opened to competition, further eroding the RBOCs
position. In light of this a few RBOCs (or independents) have realized
that "if you can't beat them, join them."

What should you expect in 1993 regarding collocation opportunities?
First, a lot of hype about the telecom infrastructure creating jobs
(the Gore/NREN effect) followed by creative RBOC/state PUC initiatives
to attract new business. The bottom line for 1993: very special
collocation agreements between corporate networking customers and
RBOCs with the blessing of state PUCs. If the RBOCs are going to get
bypassed anyway, why shouldn't they get in on it themselves. The RBOCs
could win big politically with Washington, their state governments and
others by teaming with end users! Collocation offers endless
possibilities. Watch the creative ones in 1993.

3. PCS
Last year we said that there wouldn't be any new spectrum
reallocations for Personal Communications Services (PCS) and that the
FCC's Pioneer Preference system was the best way to go if you wanted
to start up now. We were right on both counts.

If you are exploring PCS opportunities in 1993, here's what happened
in 1992 that you should know about. (1) You can no longer file for a
Pioneer's Preference; (2) The FCC issued a Notice of Proposed Rule
Making for PCS frequency reallocation and was deluged with comments.
MCI's proposal drew significant attention. It calls for the creation
of three national consortia in which no one company would have a
controlling interest and no one would be allowed to hold both cellular
and PCS licenses in the same geographic area. (3) Last month Pacific
Bell blew it for RBOC PCS set-asides last when they announced their
"Divestiture II," which will split their cellular operations and
regulated local exchange operations into two separate companies.
Readers of TeleStrategies Insight (August 1991) shouldn't have been
surprised because we predicted a year and a half ago that an RBOC
would do exactly what Pacific Bell now says it will do.

If you aren't a cellular carrier or a PCS pioneer but want to get into
PCS in 1993, start by reading MCI's PCS consortia proposal to the FCC.
It's well thought out and has had a lot of input from industry
players. Start networking with these consortia because 1993 will be
open for filings. There will be no set-aside frequencies nor will
there be lotteries as with cellular.

4. CELLULAR TECHNOLOGY
Last year at this time, the hot topic in cellular was TDMA vs.  CDMA.
We called TDMA the definite winner for this year and we were right.
McCaw, Rogers Cantel and Southwestern Bell are implementing TDMA.
Others (Pacific Bell, NYNEX, U S WEST) who are publicly leaning toward
CDMA may have to go with TDMA just to meet the digital marketing hype
that's starting to float around.  Regarding 1993, what new technology
developments have arisen to create future opportunities? Packet data
via cellular. The significance of packet data via cellular is that the
air time costs drop (you pay by the data burst) and less power is
drawn from the batteries (giving you longer periods between
recharges).  The packet cellular systems tested in 1992 were made by
Cellular Data, Inc., and IBM (Cellplan II). Cellular carriers are
getting ready to roll out one or the other. In 1993, opportunities
abound for applications and distribution for low-cost, portable data
communications.

5. 800 NUMBER PORTABILITY
Number portability allows current 800 customers to move their 800
business to another IXC without changing their phone numbers; they can
divide their business based on call origination location, time of day
or by a random percentage allocation. No winners or losers were
predicted last year because 800 number portability wasn't scheduled to
happen until 1993.

Starting in May, 1993 or shortly thereafter, 800 number portability
will create new opportunities for:

IXCs who are lusting after AT&T's 800 customers. Even the smallest
IXCs will be able to participate because they can carry national 800
account originating traffic in their service area only.

THE MEDIA will bombard the U. S. with 800 advertisements. TV and print
media are in for a revenue windfall. Big bucks will be spent by AT&T,
MCI, Sprint and others on 800 service advertisements.

CONSUMERS will benefit because 800 number portability brings SS7
connectivity with it. This means almost all telephone calls will be
distance-insensitive regarding call set-up time.

POTENTIAL TOLL FRAUD VICTIMS will have less exposure. Almost all toll
fraud (that end users are liable for) originates with an 800 call to a
company's voice mail box or direct inward system access (DISA) line.
800 number portability gives users the ability to "red line." Here's
an example: the Bronx area of New York City is a hot bed of toll fraud
activity. Users will be able to block calls down to that NPA-NXX.

LECs performing centralized data base dips will not only be
compensated for IXC selection and more, but the SS7 infrastructure
will be in place to create other intelligent network services.

But what about AT&T? On the surface, 800 number portability looks like
a loser for them; they're going to lose 800 customers or at least part
of their customers' traffic. But there are some things AT&T can do to
mitigate the damage:

1. Fight for Deregulation -- Once 800 number portability goes into
effect, AT&T can make the case to the FCC that they no longer have the
advantage created in the pre-divestiture days when they were the only
800 game in town. This appears to be the last issue Judge Greene has
to resolve with AT&T. It is probable that AT&T's competitors will
bring up their international market or their calling card position,
but these arguments pale with respect to those of 800 number
portability. The question now is why should AT&T be regulated any
differently than MCI or Sprint?

2. AT&T Patents -- Three years ago in TeleStrategies Insight
(September/October 1989) we wrote an analysis of AT&T's patents and
potential strategies they could implement to generate billions in
revenues. In that article I predicted that within a year AT&T would go
after its competition, probably targeting MCI for violating its 800,
0+, VPN and other intelligent network call processing method patents.
Well, I was right and wrong. It took three years rather than one (We
had to wait for 800 number portability to be set in motion.). But AT&T
notified the FCC (on Thanksgiving eve) that MCI may be violating its
intelligent network patents with its Canadian long distance deal.
(Patent attorneys say the way you notify the world you're ready to go
to court is by using the word "may.")

Briefly, here's what's going on with AT&T patents. AT&T has patents
issued from 1979 to 1982 that appear to cover all intelligent
networking including the use of a database to process 800 calls (the
Weber patent). Under the terms and conditions of the divestiture
agreement (the MFJ), the RBOCs can use any AT&T patents issued through
January 1, 1989, but no one else can without a licensing agreement.
AT&T has notified the FCC that it will not claim infringement if a
carrier (IXC) purchases or interacts with the 800 portability
database. But, AT&T also states that there may be a Weber patent
violation if a carrier operates such a database in its own network.

The bottom line (another prediction): AT&T can and may choose to make
its competitors lives a patent litigation nightmare on everything from
enhanced 800 to personal communications services if they want to, and
I think they want to. At a minimum, any revenues AT&T loses in the 800
marketplace from number portability will be made up by patent license
royalty fees. Stay tuned in 1993.

6. VIDEO DIAL TONE
In October, 1991, the FCC issued a Notice of Proposed Rule Making on
video dial tone which they approved in July 1992. Here's some
background: the FCC informed the RBOCs they could provide video to the
home as common carriers, but they couldn't own more than 5 percent of
an information product or be a program packager (i.e., editor).
TeleStrategies' view of this opportunity is that the RBOCs should
forget going solo; instead, they should partner rather than compete
with the cable industry. Our 1993 assessment: video dial tone is a
loser for the RBOCs.

Who can win? Small entrepreneurs. Here's how: the RBOCs seem to want
the perception in the industry that they are video players.  Under
today's rules, they need video packagers as partners. The big cable
operators won't play, so you, as a private or wireless cable TV
operator or even a second cable operator in a market, can fill the
gaps. Structure a deal in which the RBOCs provide the fiber
infrastructure, and tariff or price it to you under the video dial
tone umbrella (You pay for service incrementally rather than pay the
fully allocated cost of infrastructure.). Of course, you have to give
them a buy-out option when they get permission to get into real cable
TV service. RBOCs need video players and small entrepreneurs can play
that role in 1993.

7. INTRALATA TOLL
Last year we said that nothing would happen in intraLATA toll
competition regarding 1+ presubscription. Well, we were right.  Only
one state (North Dakota) has moved ahead with it. This year won't be
much different. Although nearly 40 states permit 10XXX intraLATA
competition, the IXCs haven't touched it. Only MCI has mildly pushed
for 1+.

Why? The IXCs are not really ready to explain in a marketing campaign
to the general public what a LATA is, the state PUCs aren't
comfortable with the revenue loss the RBOCs would suffer and the RBOCs
(conveniently) aren't ready with their switches to handle 1+,
intraLATA presubscription. (They want to wait and have this done via
AIN -- see number 9 below.)

But who can win an intraLATA role? Resellers. The cost of a 100- mile
intraLATA toll call can typically cost two to three times that of a
coast-to-coast call or 25 cents to 50 cents more per minute. These
margins aren't "plump," they're obese. The good news is that a lot of
states permit intraLATA resale. Regardless, if you are a small
carrier, most states don't police intraLATA where customers have
direct access to your switch.

8. SCREEN PHONES
Last year we predicted that screen phones coupled with CLASS (Custom
Local Area Signalling Services) would be a marketplace winner in 1992.
We still believe they will be a winner, but screen phones only made it
to the market field-trial stage last year. The problem is finalization
of standards and Bellcore expects this to be completed this month.

In case you haven't been tracking this opportunity, a screen phone is
about 1.5 times the size of a regular phone; it has a display that
ranges from three to four lines of text to 4"x4". It has an additional
four control buttons and some have more soft key options. When coupled
with CLASS, you have a very powerful networking capability that
requires only the same skill level needed to operate your bank's ATM.

Who's going to win in 1993? LECs with CLASS service and equipment
vendors with simple screen terminals (like Northern Telecom's Display
Phone with a projected roll out price of less than $200).  Who's going
to lose? LECs without CLASS services and terminal vendors who make
their products too hard to use -- if an eight year old can't use it,
forget it.

9. AIN
Excitement remains for the Advanced Intelligent Network (AIN) concept,
particularly within the computer industry. Briefly, AIN permits new
service development to occur outside the CO's computer, thus speeding
up service delivery (months vs. years).  It permits the use of
high-power, low-cost workstations and many custom databases holding
end-user information.

AIN remains a great concept but the RBOCs aren't ready to pull it off.
It's going to take a massive investment, a vision of what business
they want to be in and joint venturing with current competitors (cable
TV, ALTS, cellular companies, etc.)

Who else is positioned for success in AIN? MCI, Sprint and AT&T.  All
have focused in on the future of telephony -- that means PCS and
personal phone numbers -- and all possess some unique resources to
pull it off.

MCI and AIN: MCI has focused on an infrastructure and has, relatively
speaking, outstanding operational support systems (OSS), including
billing. How do you think they pulled off the "Friends and Family"
program?! They have also emerged as an innovator structuring an
industry consensus for PCS licensing.  (Three national licenses held
by consortia, no one player dominates, no local spectrum license if
you operate a cellular system and demerits in the application process
for major, regulated LEC involvement in the consortium.) Also, they
are pushing early for end-user number portability. This is a viable
PCS/AIN approach.

Sprint and AIN: Sprint has it all in some areas regarding full
services -- long distance, cellular (the Centel merger) and local
(United) service. If they selectively go after AIN in markets where
they have all three forces, it's going to be a good PCS/AIN approach.

AT&T: AT&T has it all and more, too. It is the largest long distance
carrier, telecom manufacturer and has an option to control the largest
cellular carrier, McCaw. I'll bet AT&T is currently modifying its 4
and 5 ESS's to come up with a super AIN/PCS/cellular/cable TV
switching network. If they focus on AIN/PCS they, too will be uniquely
positioned. Also, you can expect to see AT&T protecting its
intelligent network patents in 1993 (I know I said that before.) and
you can't get into AIN without violating their string of patents if
they stand up to tests in the courts. After the advent of 800 number
portability, AT&T will have dropped a lot of monopoly baggage, so stay
tuned.  Finally, there's one thing that will be facing all three major
IXCs -- numbers. Once numbering issues are resolved (See
TeleStrategies Insight, December 1992) and PCS spectrum is freed up,
the industry will be ready to integrate PCS technology with AIN.

In summary regarding AIN, 1993 should be spent molding AIN as PCS. If
you don't have that focus, forget it. You will lose.

10. ISDN
Since our first and last conference on ISDN in December, 1986,
TeleStrategies has consistently pegged this service as a loser.  So no
annual assessment of winners and losers would be complete without a
discussion of ISDN.

The only thing wrong with our categorizing ISDN as a loser is that CO
switch manufacturers have made a bundle using ISDN hype to sell
switches and software upgrades. Also, exhibit-based trade show
producers have made a bundle from renting floor space to the RBOCs for
their giant booths. (To these vendors, ISDN means I See Dollars Now.)

OK -- for the thousandth time -- why is ISDN a loser? It provides no
near-term customer benefits. Sure, it's elegant and there are market
niches such as digital networking to Europe, DoD encrypted voice, etc.
But there is no "silver bullet" application to justify the cost.
Residential users or small business users can expect to invest
thousands of dollars to start up with ISDN (if they have to start from
scratch, i.e., they don't already own a $10,000 high-end workstation).
And what could you get today with ISDN? Nothing! To these folks, ISDN
means It Still Does Nothing or It Sends Data Nowhere. Regarding big
business, private T-1 networks is where the action is today and
ATM/SONET will be the focus of 1993 planning. Again ISDN makes no
sense in this environment of intra-company data. Regarding
inter-company data applications, the only significant market today is
Internet access, and again (See #1 -- ATM/SONET) users expect "free"
service. So if you want to spend three years or more of your career
waiting for something to happen in ISDN, you've found a winner.
Otherwise, ISDN is a loser.

All of us at TeleStrategies wish you and yours a happy, healthy and
prosperous 1993. Get out there and pick or stay with a winner!

If you have comments about this article, please contact Lynn Stern,
Editor of TeleStrategies Insight, by email (lynn@telestrat.com) or by
phone (703-734-7050).

About TeleStrategies, Inc. and TeleStrategies Insight

Founded in 1980 by Dr. Jerry Lucas, TeleStrategies, Inc. is the
leading producer of telecommunications industry conferences, seminars
and trade shows in the U.S. Every year the company sponsors
approximately 60 programs, which attract decision makers from every
segment of the telecommunications industry.

TeleStrategies Insight is the company's monthly newsletter on
telecommunications industry directions and opportunities. For a FREE
subscription and/or a current conference schedule, send an email to
insight@telestrat.com or call TeleStrategies at (703-734-7050).