Semester Project

Phase I

Telecommunications

(Comments can be sent to jlj6@psu.edu)



Deregulation and its Effects

Throughout history, telecommunications has been a regulated sector in the US Economy. The main reason for regulation was that telecommunications was a natural monopoly and competition would not survive in the market. After the invention of the telephone by Alexander Graham Bell, the telecommunications equipment and service market went through various stages of competitiveness. By 1920, AT&T had a substantial majority of telephony exchanges and reported to State regulation. In 1934, Federal regulation was instituted under the 1934 Telecommunications Act. The Federal Communications Commission was created at this time. There were two antitrust cases brought against AT&T by the U.S. Department of Justice (DOJ). The first was in 1949 when the DOJ accused the Bell Operating Companies of only buying products from Western Electric, a part of the Bell System. The case was settled in 1956 when AT&T agreed not to enter the computer market. The next antitrust case started in 1974 when the DOJ alleged that (i.) AT&T's relationship with Western Electric was illegal and (ii) AT&T had a monopoly over the long distance telephone market. The case was settled and required AT&T to be broken up. Seven regional operating companies known as Regional Bell Operating Companies were formed with the breakup of AT&T(Economides, 1998).

The Telecommunications Act of 1996 opened up local and long distance telephone markets. The 1996 Act allowed consumers to choose their long distance carrier. The following are some of the benefits to the consumer:

All of these benefits can add up to substantial savings for the consumer as well as allowing more competition in the market (www.comparelongdistancerate.com). Through deregulation, consumers have more choices and more companies have entered the telecommunications market. With more competition, companies need unique products to gain market share. What new products provide economies of scope and scale to both the consumer and companies? Read more below on the evolving products in the telecommunications sector.

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Disruptive Technology

Definition of a disruptive technology from a website:

"It has to meet at least two of three criteria: Be ten times cheaper than any alternative, have ten times higher performance, and ten times higher functionality. All three is best"

Rick Rotondo, Director of Disruptive Technologies, MeshNetworks.

Clayton Christensen's definition of disruptive technologies does not come out and say that a disruptive technology has to save money, have better performance and more options but all of these seem to make a disruptive technology peak the consumer's interest. Christensen's states "...disruptive technologies underperform established products in mainstream markets. But they have other features that a few fringe (and generally new) customers value" (p. xv). Voice over Internet Protocol (VoIP) is the latest disruptive technology to come to the market as a solution for telephone communications in a company.

Traditionally most companies have their own private branch exchange (PBX) system. A PBX system switches calls between enterprise users on local lines while allowing all the users of the system to share a certain number of external phone lines. This saves costs by not requiring a line to each user to the telephone company's central office (searchNetworing.com). The enterprise owns and operates the PBX. Originally PBXs used analog technology but today they use digital technology.

With VoIP, phones connect to an Internet Protocol (IP) telephone data server through the same Category 5 cable that connects computers to data network servers. The IP phone server provides all the intelligence for the phone system such as extension numbers, individual preferences for speed-dialing and voice-mail handling. How VoIP works is it converts the analog voice signal to digital signal packets that are sent over the IP networks by using a series of software- and hardware-based codecs (COderDECoder). Codecs not only perform the analog to digital translation but they also compress the digital signals for rapid movement through the network. Once received, the packets are converted from to digital to analog voice signals (Cope, 2002).

 

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Advantages of VoIP

VoIP has been around for the last few years but until some of the problems such as security features, voice quality problems, service-level agreements and availability, had been worked out, most organizations were not interested in the technology (Johnson, 2002). But most of these issues have been reworked and organizations are more interested in VoIP as an enterprise solution. Dow Chemical is rolling out there DowNet, VoIP network, this Spring.

Some of the advantages of VoIP are (Cope, 2002; Bischoff, 2002; Marks, 2001):

"The IP network has more intelligence to route calls. It's easier to work around node failure or congestion." This statement was made by Brian Forbes, co-founder and vice president of business development for IP service delivery provider Netrake (Bischoff, 2002).

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Leaders

Deltathree was founded in 1996 and is a leading provider of proven, high-quality Internet telephony products, services and infrastructure for service providers worldwide. They provide the following VoIP products: PC-to-phone, phone-to-phone, and broadband phone solutions. Deltathree is at the forefront of the VoIP industry with innovative applications, research and development. One of their unique strengths is the pioneering work with the Session Initiation Protocol (SIP), an Internet Engineering Task Force standard that has been embraced by industry leaders.

Global Crossing Ltd. is a premier provider of state-of-the-art digital communications and networking services to global enterprises. It enables corporations and governments to link with partners, clients, suppliers, employees, and the global community using the internet IP infrastructure. Empowering them with an IP infrastructure that can support any voice, data, or multimedia application.

ITXC is amongst the 20 largest global wholesale telephone companies in the world. It operates one of the world's largest voice networks, ITXC.net(SM). The company sells long distance call transport to retail telephone companies and carries millions of international long distance minutes a day back and forth between 146 countries. ITXC uses the public Internet to transport calls, thereby affording its customers better profit margins and providing the company with a revolutionary cost structure. ITXC's patented intelligent routing technology provides carrier quality voice services on the Internet to customers worldwide.

Net2Phone provides services that enable users to make telephone calls and send faxes over the internet (referred to as Internet Telephony). Since its formation in 1996, Net2Phone has been a leading provider of voice and enhanced Internet communications services to individuals and businesses. Services they provide are low-cost, high quality phone calls using personal computers, traditional telephones, or Internet devices. Net2Phone is recognized worldwide as the first company to bridge the Internet with the public switched telephone network, Net2Phone routes millions of minutes daily over the Internet, saving consumers and businesses up to 90% off traditional long distance rates.

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Loser

RSL Communications, controlled by Ronald Lauder, son of Estee Lauder, provides telecom services to small and medium-sized businesses in more than 30 countries; half of its sales come from Europe. RSL has sold its stake in deltathree.com, an Internet protocol (IP) telephony provider. Chairman Lauder owns 28% of RSL and controls 57% of the voting stock. The company has begun insolvency proceedings.

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Conclusions

VoIP has the makings of being the next internet technology with a bang. Growth predictions can be seen from the following chart.

VoIP for the Masses (Bischoff, 2002)

Some estimates to support this growth are (Marks, 2001):

It was hard for me to determine who is going to be the leader in VoIP technology. The traditional telecommunications providers (e.g., AT&T Broadband, Sprint) are expending funds to be a leader in the market along with the smaller providers. Once there is a complete solution for enterprise that is reliable and inexpensive, I believe that more organizations will follow in the footsteps of Dow Chemical. For now, most companies are going to have to work on there Quality of Service (QoS) capabilities. QoS is defined as the idea that transmission rates, error rates, and other characteristics can be measured, improved, and, to some extent, guaranteed in advance (Search Networking). Once QoS are determined, more organizations will be willing to tryout VoIP as an enterprise solution.

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References

Economides, Nicholas, "US Telecommunications Today," Business Economics, April 1998.

Proquest sources:

Bischoff, Glenn, "Opening the VoIP floodgates," Telephony, Chicago, Feb 11, 2002, Vol. 242, Iss. 6, pg.42, 3 pgs.

Cope, James, "Voice over IP: It's ready!," Computerworld, Framingham, Jan 21, 2002, Vol. 36, Iss. 4, pg.36, 2 pgs.

Johnson, Mary Fran, "The VoIP vanguard," Computerworld, Framingham, Jan 28, 2002, Vol. 36, Iss. 5, pg. 20, 1 pg.

Marks, Susan, "A new voice frontier," Coloradobiz, Englewood, Dec 2001.

Web sources:

Hoover's

Morningstar

Marketguide

Search Networking

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