by Utah Business Staff
this year’s telecom roundtable, we brought together a varied group of
industry players to discuss the most pertinent issues facing the
industry, including corporate mergers, Internet Service Provider
trends, and regulatory issues. Up-and-coming products such as the
Blackberry and other convergence devices, and the overall health of the
telecom industry were also discussed.
Participants: Pete Ashdown, XMission; Rick Barlow, Cricket
Communications; Ron Beck, AT&T; Shilo Case, Turner
Telecommunications; Chad Curtis, Nextel Communications; Jason Ellis,
Sprint Communications; Mark Geiselmayr, Integra Telecommunications;
John Guifford, Eschelon Telecommunications; Mike Hayter, Verizon
Wireless; Steve Proper, Comcast; Laura Scholl, Qwest Communications;
Scott Tenney, Comcast; Diania Turner, Turner Telecommunications; Kyle
Special Thanks to moderator Ted Smith and sponsor Holland & Hart.
What is the health of the telecom industry?
BECK: It would be difficult to argue that the industry has
been particularly healthy in the last 18 months. Our shareholders have
not seen performance that has matched other industries. At the same
time, we seem to be at a jumping-off point with opportunity for growth
as we shift from a retail relationship that many of us have had
together where we compete. There also is a change in the wholesale
relationship behind that. So we here are each other's biggest
competitors and biggest consumers. The result of that we are seeing in
some merger activity.
HAYTER: I agree. However, the wireless industry has been
experiencing tremendous growth. Verizon had a record last year and
finished up with a record quarter.
ASHDOWN: I was told by another local businessman that Utah
lags behind the economy by two years. So if the rest of the country is
recovering, we don't see it until two years later. That also applied to
the bubble bursting. We didn't see the effects of the tech bubble burst
until two years after it happened. We had a handful of companies that
went out of business immediately, but two years later we started to see
a flat line in growth, and now we are starting to see that growth take
off. We had a really good first quarter, so I think it's turning around.
Are mergers a sign of strength or weakness?
CURTIS: It's very forward-looking for the companies. They are
asking, ‘What do we need to do to compete in the industry in a year or
two years down the road.’ I think it's a sign of strength that they are
taking a look at their businesses and being proactive.
SCHOLL: I don't think you can treat all the industry
consolidation in the same way. Some of them may be consolidation for
bigger's sake as opposed to rationalization where the merger really
makes sense and synergies are created. We are going to have to wait and
BARLOW: I believe it's a sign of competitive pressure in the
telecom sector when mergers take place. Everyone is looking for
HAYTER: Consolidation was inevitable in the wireless industry.
It’s healthy from a macro perspective. But six or seven major carriers
in every market is not sustainable. There will still be four major
carriers in every market, so there is still going to be a lot of
choice. We're still going to see the competitive pressures in terms of
pricing, and it's going to force all of us into a position of advancing
new data services, offering new services that will benefit both
business and consumer customers.
TENNEY: Demand for residential broadband services has been really strong. It's a competitive market, but the market is growing so fast everybody is doing really well in that sector.
SCHOLL: There are certainly elements of the market that are
growing faster than others. We know, for instance, in Utah, there are a
lot more wireless connections than there are wireline
connections—something like 1.5 million wireless to about a million
Eighteen months ago we wondered whether corporate
America was ready to buy into the next level of technology. Has that
happened? As the economy continues to improve, do you see the corporate
world being more and more a buyer of services?
ASHDOWN: I think a big advantage right now is voiceover IP,
and a lot of companies are going to look toward voiceover IP and have
to change out their systems.
BECK: Capital expenditures are starting to loosen up inside
our corporation, which is good for the economy. With voiceover IP the
voice has become an application that runs over the IP network much as
many other applications will, including data, virtual private networks,
and the next generation is probably television.
CURTIS: You are also seeing this in the wireless industry. Somewhere
around 37 or 40 percent of our business customers are adding additional
data products like GPS or Blackberry or wireless Internet. I think the
businesses are willing to go to the next level if the technology proves
that it can benefit their lives and make it easier.
HAYTER: We are seeing growth with small, medium, and large businesses, as well as the government sector, looking to add data into the mobile wireless area—I want to differentiate from the fixed wireless.
TURNER: All of my companies are looking at voiceover IP to decrease costs and increase efficiency.
Laura, you mentioned that wireless is becoming bigger and bigger. Do you see more demand on the wireline side, however, as the economy improves?
SCHOLL: It's been pretty flat. We see
people substituting DSL for a second line. Instead of getting a
teenager line, they are buying wireless phones. The business side is
definitely still growing, although they are more interested in the more
advanced services. Qwest introduced its VoIP service late last year for
business and will have a residential one out this year. Clearly, that
is the direction things are headed.
GEISELMAYR: I don't see wireline growth in the business sector
as much as the residential. We may end up with is a handful of
competitors fighting for a market that is not growing as quickly as
some of the others.
What are the big up-and-coming services, for residential as well as business customers?
WILLIAMS: Everybody is upgrading their networks to replace
T-1s with VoIP, both between central offices and connecting our
customers to the central offices. So we don't see it necessarily in
terms of calls going out over the Internet, but using the IP technology
between central offices between switches on a private network, and that
will create tremendous efficiencies for all the carriers.
BARLOW: On the wireless side, voice is still king. There
hasn't been a killer app that has come out. We are enjoying great
success with ring tones and camera phones and whatnot, but the latest
data I've seen shows that of the average subscriber revenue today, only
$2.50 is coming from a data application. And voice usage is up over
four times from ten years ago. We are looking to add other services,
but at the end of the day people still just want to talk on their
wireless phones. That's where the bulk of the usage and revenue comes
TENNEY: We have switched voice now in about a third of our footprint, and next year we will launch VoIP services. And it won't go over the Internet. It will use the IP technology. The advantage is price and functionality.
TURNER: The picture phone is probably one of the greatest
inventions ever made. My customers are finding new ways to use them all
the time. I see the future in picture phones and that type of
technology being completely untapped at this time. Right now, a lot of
people think a picture phone is something where you can show the
spaghetti on the plate, and doesn't that smell good?
HAYTER: The picture phone has been a huge consumer hit. It's
been important in the business community. Though, we've had to be
sensitive to some businesses and especially government and not giving
up all of our non-picture phones because of security reasons. So we
still have had customers come to us and say, "Don't take away our
standard phones. We can't have picture phones in our business or our operations."
What percentage of the new wireless phones sales are picture phones?
HAYTER: I think it probably would be in the range of 70 to 80
percent. I don't have any specific numbers, but in the last six months
we've seen a huge increase in the number of picture phones and the
demand in the number of picture phones coming out from the various
BARLOW: Just to take that to a higher level of comparison,
there are more digital camera phones than there are standalone digital
cameras, much to the chagrin of Nikon and Pentax and those folks.
HAYTER: And the quality is getting better.
Pete, how does VoIP fit into Xmission’s business plan?
ASHDOWN: We view it as just an additional application. We
don't try to charge for voiceover IP service. Once voiceover IP becomes
more ubiquitous, telecom providers are going to find that voiceover IP
to voiceover IP is very difficult to charge for, and they are going to
start seeing a loss of revenue in that area.
BECK: Voiceover IP as a product itself
probably isn't sustainable. But all of us have it as part of our
portfolio because it is, again, a service, an application that will run
over the IP network.
What are some other developments in multi-purpose consumer devices?
HAYTER: The standalone Mp3 player, the standalone phone, and
the digital camera are now all coming together in one device, as well
as the PDA functionality that you had in other devices before. It's not
perfected yet, but it's making real progress.
In the late 1990s, companies built big fiber networks
across the country, resulting in over-capacity. With the expansion of
broadband, is the capacity still so huge it's going to take years and
years to fill? Will those companies ever get a return on their investments?
TURNER: I don't think so. I think we are going to go to a
wireless world. Everyone has been saying we are going to go paperless,
and it hasn't happened yet because we always need a hardcopy. But
wireless is really possible in so many applications.
Most of the high-speed Internet I've done has been through cable, been through satellite, things like that. So I think that in the future, to hardwire anything, people would go, ‘Why would you do that? Why
would you trench it? Why would you even go to that extreme, when
through microwave or satellite or something you can do the same thing?’
It's always been my perception, at least in terms of moving
massive amounts of data, fiber still is the technology that gets that
BECK: It really is. At the high-end of the market, fiber
access is still what our customers are buying from us. We continue to
deploy fiber. There has been really good business justification for it.
We'll move to the wireless access world as WiMax and other technologies
BARLOW: The customers have spoken, and they want mobility. If
they can get mobility for the same price and the same quality, anything
that is wireless is going to have an advantage over anything that is
hardwired to a fixed location.
SCHOLL: To add to that, companies want diversity. Wireless
still has its vulnerabilities, so most big companies have a good mix of
I do think that that capacity will get used. Think about what
we were doing 25 years ago when it was a big deal to have a 300 baud
modem. It's a matter of time, not a matter of whether.
ASHDOWN: There is no way I would replace our optical-based
connections with wireless. The optical cable has realized a capacity
increase over the years, so we haven't needed the extra capacity. I
think it's going to be a long time before they need to start trenching
HAYTER: Even the wireless companies depend
on fiber to transport a lot of the traffic. It's in that last mile that
mobile starts to really play a role in the overall network and the
We've all started to learn that you can't just throw out a
technology for technology's sake because it's faster, better, bigger.
We've got to provide some real solutions. We've got to show the
customer why it makes sense to invest.
What are the next big regulatory issues, either in the states or at the FCC level?
WILLIAMS: The impacts of the review are just being felt in
cost increases going into effect on March 11th. So any access to the
Arbuck network is going to be more expensive, and that will have a big
impact on the bottom line of the Celex's and pass it on to the
customer, or not. Beyond that, we are talking about entrance and access
into the Internet for voice.
You know, Vontage starts a call over the Internet, but
ultimately it ends up on the public switch telephone network. So there
is going to be a whole new round of regulation. Companies like Vontage
will have to be deeply effected by that.
SCHOLL: I would agree that access charge reform is going to be big.
BECK: The regulatory issues around the consolidation of the
industry are certainly key. We've had such a “Hatfield and McCoy"
relationship between the interexchange carriers and the local exchange
companies for a long time. While we've been battling in court over
issues, other industries, like wireless and the cable industry, are
spending good, earned income on advancing technologies. We've got to
get beyond spending so much money in regulatory matters so that we can
invest that money in technology, else we are not going to be able to provide the services that customers need.
What about universal service?
TURNER: They are going to find a way to add a universal
service fee to everything. You look at your phone bill, there are so
many fees on there now. And so the feds will find a way to add a
universal service fund fee to everything you do, even if they have to
add it to your power bill.
ASHDOWN: They are going to realize that it's hard to regulate
the Internet because it's like a chameleon. If you regulate one kind of
voiceover IP service, what happens to things like SKIP, which is
another type of voiceover IP service. If one thing gets regulated on
the Internet, it's going to disguise itself as something else that
isn't regulated and take the path of least resistance.
What is the role or the impact of the Internet on your business plans? Is it central or peripheral?
HAYTER: It's difficult to overstate the impact that the Internet has had on all of our businesses, including wireless. Certainly,
as we roll out higher speed data and broadband services, the Internet
is driving that. It is very much a central part of what is driving our
services and technology, now and over the next few years.
SCHOLL: It's another channel for consumers to get to your
business, to learn more about your products and services. That part of
it is huge. It's got a potential for every kind of business's operation
TURNER: I think the Internet is another unsung hero. Even
though we all use it, as with the picture phone I don't think we even
know how we can use it yet. We are going to discover in the next 10 to
15 years so many ways to use the Internet that we going to look back to
this meeting and go, ‘Can you believe we were still using it that way
BECK: The deep economic impact of the Internet has been the
speed at which product life cycles move, from invention to
What changes will ISPs see in the next two to three years?
ASHDOWN: A lot of businesses are seeing the value of
outsourcing things like their e-mail server. Instead of having an
on-staff IT person, they are seeing more value in going with an
Internet service provider and using their outsource service.
Colocation is another resource that a lot of businesses are
seeing value in. If they put in a colocation data center, then
they've got 24-hour power and a much higher level of reliability for
their customers to assess their Website. That's a realization a lot of
companies are coming to.
What are the consolidation trends in the ISP world?
ASHDOWN: In the late 1990s, early 2000, we were seeing a lot
more of the merging and the consolidation, but I think we are done with
that for the most part. The thing I'm seeing is that broadband
deployment continues to be popular and continues to be a trend
throughout business, whereas dial-up is all but dead. Nobody wants to
use dial-up anymore.
As far as regional providers go, I still think that the small
regional provider, like the small restaurant, has an advantage over the
conglomerates in that they can run circles around them in service. They
have local service and support, and a lot of people look for that when
they buy Internet services.
TENNEY: It's driven a lot of our growth over the last four
years, and I think helped us lay a platform to do voiceover IP. Longer
term, it's both an opportunity and a risk on the video side with IP
What changes do you see in marketing and pricing?
CURTIS: The wireless industry got away from bundling for quite
a while. It seems like we are almost trending back to that with
Blackberry, where you get your voice minutes and your e-mail for one
pool of minutes. You get a better rate if you bring it all together. I
think you are going to see some creative things with bundling.
HAYTER: We see more and more parents start to pay for phones
for their teenagers, and as you can start tracking teenagers with
phones and keeping them in touch for safety and other reasons, I think
there is opportunity in that area.
WILLIAMS: That's where GPS functionality will come in.
HAYTER: That's driving things like the fleet administration,
the vehicle locator services, that kind of thing that actually plays
into real value, on both a consumer as well as business level.
Are you still spending a lot of money to expand wireless coverage?
CURTIS: Yeah. With Nextel, particularly in Utah, we increased
our footprint probably by 50%, mostly to rural markets. If you are
driving out to recreational spots, you want to have continuous coverage
so you can do business while you are going to your recreation spots. So
there is a lot of capital improvement going there.
Is it difficult to put technology where you want it to provide the kind of customer service that you want?
PROPER: In my experience, it's a community-by-community issue.
Obviously, there is a need and an obligation for cities to manage
right-of-ways as best they can. On the other hand, we want to be able
to provide services and upgrade them where we can.
We've seen some instances where Utopian communities tried to
enact an ordinance requiring developers to put in excess conduits,
capacities, underground for, presumably, Utopia usage. As a private
entity, we have to go in and negotiate with those developers to get in
that same service area.
SCHOLL: Is it the proper role of government to compete with
private industry? I think the wireless carriers here would be as up in
arms as we were if all of a sudden there was a State of Utah wireless
network, subsidized by tax dollars.
Will we see more consolidation on the wireline side of the business?
BECK: There has to be, because at some point when a whole
industry is struggling to make profits and margins, players will have
to come and go. We certainly have seen a lot of that. The consolidation
that's taking place right now, I think, is a very natural and important
event between different groups. We've got to realign the battlefield
here and get innovation into the marketplace.
TENNEY: I think on the cable side,
consolidation will continue, too. Cablevision probably will be up for
sale in the next couple of years. Charter, it's unclear how long they
can make it.
BECK: Ultimately, a consumer and a business want a bundled
package. Right now they have to, in some cases, pick from each one of
us. But we are, again, each other's customers, so ultimately what we
will provide to the business customer is an access vehicle to the
network and a bundled offer for their applications. We used to be
partners, and so maybe we will be again. Who knows.
SCHOLL: I agree there will be additional
consolidation. I hope it's done in a rational way. I hope it's done
because there are synergies, because there are new efficiencies,
because it makes it easier to bundle and give consumers what they want
instead of size for size's sake.
Jason, you can offer a different perspective than others around this table as the head of Sprint Communications.
ELLIS: Back to some of the consumer experiences with wireless,
we are seeing a trend of consumers going to an all-in-one device.
Consumers are really interested in getting rid of the palm pilot and
the cellular phone—converging into one device.
Something that wasn't talked a lot about today was messaging.
In the youth market and probably to the mid-20s, we are seeing text
messages outpacing voice. A lot of probably your children send more
text messages than they make phone calls. And messaging is a big
service that will compete, and we are attaching messaging at least
one-to-one with every product we are selling right now.
We are excited about all the consolidation. For us, it's been
a consumer win. We were experiencing the major carriers competing on
price. More important is a major focus on the customer experience. The
carriers now have to focus on retaining customers, providing the
highest quality of customer service, and making sure that their
networks are reliable. All of which is a major win for the consumer, and for us being a distributor of the product for these guys, it's a win for us.
Will text messaging eventually have as much impact on the business community?
ELLIS: I think it will in an all-in-one converged device. I send as many text messages a day. It's
a really convenient way to not have to make a phone call. You can text
message multiple people with one distribution message. It is already a
part of the business community.
BECK: It's what we do on conference calls now.
HAYTER: It has its use. It depends on what
you need to do, and we are seeing more and more businesses adopt text
messaging for their communication needs but not for everything. But if
you need to get a one-to-many message out, it's a great way to do that
if you need to communicate shortly and quickly while you are in a
meeting. When I get contacted by my boss, he expects
a text message back very quickly to let him know if I'm in a meeting or
something else and let him know my availability. So it certainly drives
what we are doing internally in our business, and we are trying to help
the business community understand how they can find some efficiencies
by using it, as well.
But the biggest growth driver right now is definitely the
youth market. In fact, I think the world champion speed text message
sender lives in Utah County.
Is the youth market driving technological development for other markets?
ELLIS: What you see now are messaging devices, devices that
are built more as a messaging device than a voice device. T-Mobile has
the Sidekick. The Nokia Engage. There are even more that are just
gaming and text messaging devices. The youth market picks up on that.
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