5/15/98 NY Times. Despite Merger Mania, Phone Companies Lag in Internet Services
[Just think if the RBOCs decide to compete....]
By MATT RICHTEL
nytimes.com
When it comes to the Internet, the industry scuttlebutt is that the
Baby Bells have dropped the ball.
The proposed $62 billion merger between SBC Communications Inc.
and Ameritech -- brethren from the breakup of AT&T 14 years ago --
highlights the spreading influence of the Bells in local phone markets.
Indirectly, it also underscores where the companies have been absent: they have made meager inroads in the Internet access arena.
The numbers seem to bear out the contention
of industry analysts. Presuming the merger
goes through, the four regional Bell operating
companies together provide 135.5 million
telephone access lines (U.S. West - 16 million;
Bell Atlantic - 40 million; SBC/Ameritech - 56.3 million; BellSouth -
23.2 million). However, together they connect fewer than 1 million
consumers and business to the Internet.
"They've been distracted by regulatory agencies, distracted by long
distance and cable companies, distracted by international forays," said
Abhi Chaki, an analyst with Jupiter Communications in New York.
"The Internet has not been a priority for them, but it definitely should
be."
What makes these circumstances glaring, according to Chaki and other
analysts, is that local phone companies seem well suited to offer Internet
access. They already have high brand recognition, they understand
telecommunications networks and they have an ongoing relationship
with millions of customers.
Officials at the Baby Bell companies do not concede that they have
been slow on the uptake. "We got into this business in 1997 and we've
been in this market for over a year now," said Jim Ducay, vice president
of sales and marketing for Ameritech Interactive Media Services, the
Internet arm of Ameritech Corp. "Before that, the Internet was driven
by content providers," like America Online.
Larry Plumb, a spokesman for Bell Atlantic, which started offering
Internet access in 1996, said, "We look at this as a long baseball game
and we figured maybe we got in in the second inning. We think we have
the financial wherewithal to be a big player."[Well, say hello to Worldcom, Qwest and Level 3....]
Last Tuesday, the same day as the announcement of the merger, Pacific
Bell Internet Services (owned by SBC) and Southwestern Bell Internet
Services announced that together, they have 300,000 Internet
customers. That represents a 28 percent growth rate since January of
this year and 333 percent since the start of 1997, according to the
companies.
Meanwhile, the battle cry among the baby Bells is that they are looking forward, and some of them insist they have a natural advantage in the
form of Digital Subscriber Line technology. DSL is a technology which
can be used to modify traditional copper wire -- which the telephone
companies already have in place -- to transmit much greater volumes of
data. It carries data at 256 Kilibits per second, which is almost eight
times faster than conventional 33.6 K modems. The phone companies
contend they have much of the technology in place to deploy DSL, and
a handful of related technologies, such as ADSL, Asymetric Data
Subscriber Line.
However, the phone companies are still struggling with how to keep the data from deteriorating over long distances. Further, while there has been much talk about DSL, there has been little action. For one thing, telephone companies have to install equipment in some older locations to make the lines DSL capable. The number of DSL users is fewer than 10,000, according to some industry sources.
The Bells insist that is about to change. Ameritech, for example, says it will have services that use DSL accessible in 70 percent of its market within 3 years; US West claims it will offer DSL in 40 cities by June, according to Joe Bartlett, associate director of Internet Research for the Yankee Group. Bell Atlantic plans to deploy DSL technology in the third quarter of 1998, a company spokesman said. The service can cost twice as much as typical Internet access -- but, in addition to being faster, it is always connected to the Internet, so there is no need to dial in.
"This is our competitive response to cable modems," said Plumb, the spokesman for Bell Atlantic.
Bartlett remains skeptical, and he thinks time is running out for phone companies to catch up. "If they continually ignore the market, they'll have to come in and steal customers, which is much tougher than getting them the first time," Bartlett said.
Presently, the biggest player in the Internet access market is America
Online, which has 11 million subscribers, according to Jupiter
Communications. Jupiter reports that the next biggest players are the
Microsoft Network, with 1.85 million members, AOL-owned
CompuServe, which has 1.4 million subscribers; and long distance
carrier AT&T, with 1.1 million subscribers.
There are growing rewards to be reaped. Revenue from data-related
services -- such as video conferencing, telemedicine, and Internet
access -- is rising 30 to 40 percent a year, according Bartlett. He said
that figure compares to only a 10 percent annual increase in revenue
from voice related services.
The Bells have their defenders too, who point out that while the Internet
market is growing, it still pales in comparison to the revenue generated
by local phone service. Dan Taylor, managing director of
telecommunications for Boston-based Aberdeen Group Inc., said the
Internet is only one small piece of potential revenue, and one the phone
companies can readily attain when they are ready to jump in. "For
them," Taylor said, "it's a trivial task."
But DSL notwithstanding, the Bells themselves claim they face some
regulatory obstacles that make it difficult for them to compete in the
Internet access market. For one, anti-monopoly laws preclude them
from carrying voice or data traffic between their big metropolitan areas,
which are known as Local Access Transport Areas. The idea is to
prevent the Bells from competing as long distance carriers.
It also has the impact of forcing local telephone companies to buy bandwidth on another company's network -- something of a middleman -- when connecting customers to the Internet, according to Plumb, the spokesman for Bell Atlantic. The upshot, Plumb said, is that the Bells cannot presently create their own national Internet backbones.
Related Sites
Following are links to the external Web sites mentioned in this article. These
sites are not part of The New York Times on the Web, and The Times has no
control over their content or availability. When you have finished visiting any of
these sites, you will be able to return to this page by clicking on your Web
browser's "Back" button or icon until this page reappears.
SBC Communications Inc.
Ameritech
U.S. West
Bell Atlantic
BellSouth
Jupiter Communications
Yankee Group
America Online
Microsoft Network
CompuServe
Aberdeen Group
Matt Richtel at mrichtel@nytimes.com welcomes your comments
and suggestions.
Home | Sections | Contents | Search | Forums | Help
Copyright 1998 The New York Times Company
|
