Fierce Competition and Demand Engender Grow or Die Mentality

April 2000
By Maryann Lawlor
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Customer service becomes a key deciding factor as consumers are offered more provider options.

Telecommunication technologies allow people to reach out and touch someone in ways that were unimaginable just a few years ago. No longer restricted to voice-only transmissions, consumers are using the metal and fiber veins that run throughout the world to send data, images and even multimedia presentations worldwide. Companies that develop the technology and services that facilitate these connections are watching opportunities blossom. More importantly, they are fighting hard to stay ahead of a game in which ignoring a chance to provide in-demand services means handing your competitor the advantage.

In this environment, many experts believe service will be the discriminating factor in a company’s success. The customer now has the ability to comparison shop for a comprehensive service package with the click of a mouse button. Technology is making service a commodity, and making alliances to facilitate competitive one-stop-shopping is the name of the new game.

After the divestiture of AT&T in 1984, the seven resulting regional Bell operating companies eagerly began offering customers in their geographic areas expanded services. During the time since the original Baby Bells were born, some have reorganized or formed alliances to provide new offerings. Today, the race to capture a substantial piece of the telecommunications marketplace has Bell Atlantic Corporation, New York, positioning itself to meet consumers’ local, long-distance and high-speed data access demands.

To accomplish this goal, the company has been pursuing a merger with GTE since mid-1998, expanding its long-distance market share, revving up its infrastructure with asymmetric digital subscriber line technology, and exploring new applications for wireless communications. To ensure that its efforts do not contribute to widening the digital divide—a term coined to describe the societal ramification technology can have for those unable to afford access—Bell Atlantic is deploying its network broadly to allow equal access to the technology that people need to keep up, its officials say.

While leading companies in the defense industry merged largely because of a shrinking market, telecommunications firms are combining their strengths because of growing customer expectations and market opportunities. The Bell Atlantic/GTE merger is viewed as a merger of equals rather than a horizontal merger between competitors or a merger of adjacent regional Bell companies.

The U.S. Justice Department and shareowners of both companies approved the merger in May 1999. Final approval from the Federal Communications Commission is expected this spring. The merger is so important to both companies that they continue to take whatever steps are necessary to gain approval, their officials note. One move made early this year involved restructuring the GTE Internetworking business by transferring the Internet backbone and related data business to a corporation that is owned and controlled by third-party public shareholders and operated independently of the merged Bell Atlantic-GTE.

“At the end of the merger, we think we’ll be a better company,” Bruce S. Gordon, group president, enterprise business, Bell Atlantic, says. “We will be in the best possible position to service customers with a broader range of services, including full-service local, regional and long-distance deployment, and we’ll be able to deploy the technology better.”

In anticipation of the completion of the merger, the companies have designated the new organization’s leaders. Gordon will hold the position of president of retail markets with responsibility for consumer and general business customers. Charles R. Lee, GTE’s chairman and chief executive officer, and Ivan Seidenberg, Bell Atlantic’s chairman and chief executive officer, will be co-chief executive officers of the new company.

Once complete, the merger will form a company that will be the nation’s largest local exchange carrier with approximately 60 million access lines and more than 12 million domestic and 4 million international wireless customers, company officials say. According to Seidenberg, the new organization will create one of a small number of facilities-based national and global operators that can offer end-to-end connectivity to global customers. He labels this the “sweet spot” of the communications industry.

The GTE endeavor has not been Bell Atlantic’s only merger activity recently. Late last year, the Justice Department approved the combination of the U.S. wireless operations of Bell Atlantic and Vodafone AirTouch PLC, United Kingdom. When this alliance is added to the merger with GTE, the new business will be the largest U.S. wireless company, serving more than 21 million wireless telephones and 3.5 million paging customers, company officials say.

The approval was conditioned upon the resolution of overlapping wireless properties. To address Justice Department concerns, Bell Atlantic and GTE traded wireless networks in 13 states with AllTel Corporation, eliminating potential overlaps. Transactions between the companies are expected to be complete by the middle of this year.

According to Barbara L. Connor, president, federal systems, Bell Atlantic, Washington, D.C., the combination of GTE and Bell Atlantic will create a powerhouse competitor. “In this game today, real estate is everything. If you have the size and scale and scope, you basically have everything. It is a race to and for the market. There is a need on the part of consumers, both commercial and government, for a one-stop shop, so integration is key. Information providers are trying to do this,” Connor says.

Gordon agrees. “All of us are companies that want to succeed, and customers are demanding bandwidth speed. Speed is important. The only way that we can win those customers is to give them what they want. If we don’t give them what they want, they go somewhere else,” he offers.

Connor and Gordon concur that some of the most demanding customers are those in the U.S. federal government. However, Bell Atlantic has built a strong relationship with federal agencies and recently was awarded the Washington Interagency Telecommunications System (WITS2001) contract by the General Services Administration. The single-award contract will provide an array of telecommunications services to customers in the national capital region and is valued at up to $1.4 billion over a term of four years plus four one-year options. Many federal agencies currently receive these types of services from Bell Atlantic Federal through the existing WITS contract awarded in 1989.

The new contract differs from its predecessor in that it adds a Bell Atlantic Federal-developed Windows-based system that will streamline how agencies fulfill their communications needs. Companies on the contract team include Advanced Logic Systems Incorporated, Lucent Technologies, PriceWaterhouseCoopers, Robbins-Gioia Incorporated, Sigcom and Sprint.

The company’s work with the U.S. government ultimately benefits the commercial customer. “For the most part, the government has the most advanced technology—ATM [asynchronous transfer mode], DSL[digital subscriber line]. In DSL, the government is about 18 months ahead of the commercial sector,” Connor explains.

According to Gordon, meeting government requirements helps the company stay ahead. “In federal services, we’re sitting down and working with customers that are more demanding than any others we know. As they have the demands, we respond. Then we apply the lessons learned to the needs of others in the commercial sector,” he says.

Through the Internet, consumers now have easy access to information—data that is teaching customers about new items and services that they want and need. Gordon suggests that this increased knowledge is contributing to customer requirements changing every two months.

To respond to this phenomenon, Bell Atlantic makes customer service a top priority. Connor explains that the company’s directors’ annual bonuses depend on several factors, but two key items stand out: meeting financial targets and providing exceptional customer service. “The division must maintain a 90 percent satisfaction rating. That means receiving either a 4 or 5 out of a scale of 5—with 3 being satisfactory—90 percent of the time,” she explains. The firm conducts customer surveys to obtain this information.

With its arrival into the long-distance arena, Bell Atlantic is about to gain thousands of new customers to satisfy. Although the company is already authorized to provide long-distance service in 32 states outside of its region, the Federal Communications Commission approved the company’s entrance into this business segment in New York state last December. The New York Public Service Commission also endorsed the move.

This is the first time a regional Bell company has been allowed to offer long-distance service within its local region, and Connor says this honor brought with it some tough hurdles. “Everyone was watching because it’s the first. There is an element of precedence in New York,” she explains.

However, because of the work they put into obtaining an approval, the firm could reap substantial financial benefits. As a stand-alone business, long-distance service is worth $20 billion across Bell Atlantic’s region. In New York alone, the potential exists for $7 billion in business. Although the company, which provides local service to 6.6 million households in New York, is starting at a zero long-distance market share, it expects to have one million long-distance customers by the end of this year. “It’s not just about long distance. It’s about crossing a lot of boundaries,” Connor states.

With the New York challenge behind it, Gordon says the company plans to pursue offering long-distance service throughout its 13-state region. The firm is now preparing to pursue approval in the next largest states of Pennsylvania, Massachusetts and New Jersey, he says. The goal is a 25 to 30 percent market share across its region within five years.

Another important telecommunications sector for Bell Atlantic is the Internet. It affects what services and products the company delivers to customers as well as how the firm conducts business. “Customers want to use the Internet to monitor things like the status of transactions. So, we use it as an enabler. Customers are also using the Internet for internal processes, so we develop products for companies to use in business applications. This is not optional. The Internet is a fundamental part of business. Either you stay in it and stay in the game, or you get out of it and get out of the game,” Gordon offers.

According to Connor, the firm is focusing on the widespread deployment of DSL. It began work on this technology in the early 1990s and in 1998 was awarded a U.S. patent for rate-adaptive DSL, a technology that makes it possible to change the rate of a DSL transmission on-the-fly. Info-speed DSL, Bell Atlantic’s brand name for asymmetric digital subscriber line technology, provides Internet access at speeds that are 11 to 126 times faster than a 56-kilobit-per-second modem.

While some of the company’s technology is bringing data to consumers faster, other efforts are aimed at delivering it directly into the consumer’s hand. Earlier this year, Bell Atlantic Mobile announced that the Motorola StarTAC 7860W would be the third digital wireless telephone available for use with its World Wide Web access service. Customers can surf the Web, send and receive e-mail, access real-time stock market analysis and quotes, and set up customized personal Web pages.

Bell Atlantic Mobile is also reaching out to a new community of users. Software from Bell Labs, the research and development arm of Lucent Technologies, will enable people with hearing and speech disabilities to make digital cellular telephone calls using text-telephone (TTY) devices plugged into wireless handsets. Today, people with special needs are unable to use wireless technology because existing equipment cannot accurately pass the specially encoded audio tones produced by TTY devices. However, with upgraded software in both the network and in the digital handset, TTY users will experience essentially error-free digital transmission.

Lucent is making the patents and technology available royalty free to wireless service providers and manufacturers of TTY equipment, subject to certain conditions. Bell Atlantic Mobile plans to introduce the new technology into the marketplace during the second half of next year.

According to Connor, Bell Atlantic’s future is highly dependent on the merger with GTE and the speed at which local markets are opened to the company’s long-distance services. Gordon believes there is another factor that has already come into play—the speed at which both technology and the marketplace are changing. “The pace of change has picked up substantially. We know that we have to be vigilant of the landscape. It’s better to keep up than to try to catch up,” he says.

In an effort to monitor the technological revolution, Gordon recently hired a person who lives near the Silicon Valley area of California to keep abreast of what is going on there. “We want to make sure we know what’s coming before it’s already here,” he states.