Comments on the following Sprint ION story appreciated:
WSJ: Sprint Offers a Plan to Retool An Overloaded Phone System]
WESTWOOD, Kan. -- The telephone system -- a honeycomb of copper wires, wooden poles and electronic
switches -- has served its purpose for decades. But in the dawning age of the Internet, it is swiftly turning into a
relic, and the fix will cost billions, realigning the industry.
Sprint Corp. fired a big salvo in this new wire war Tuesday, announcing a radical -- and risky -- network
redesign that could alter the way communications services are delivered, what they cost and how you are billed
for them.
Sprint has spent $2 billion in the past few years quietly pursuing this project, code-named FastBreak. A decade
ago, Sprint one-upped bigger rivals by installing an all-fiber network, forcing competitors to follow suit. Today
it is betting that a new network can increase the company's call-handling capacity 17-fold, cut the costs of
long-distance calls by 70% and set new standards for service and billing.
Another 'Pin Drop'?
"FastBreak is our next 'pin drop,' " says Sprint Chairman William T. Esrey, alluding to the company's old
slogan that its fiber-optic network was so clear that you could hear a pin drop.
Here's the problem for the big telecom players: The dumb old dial tone can't accommodate today's digital-data
explosion. Existing networks devote too many resources to handling each phone call. This "circuit switch"
design is inefficient; when you pick up the phone and dial a number, a switch opens up a single, dedicated
circuit from your phone to the phone you are trying to reach -- and keeps it open until either side hangs up.
The design yields high-quality voice communications. But it is overburdened in handling data, particularly the
booming traffic from PC users who keep their phone lines open all day to surf the Internet. The open circuit
can't be used, meantime, for anything else, though it is large enough to handle other traffic.
Changes in Billing
Internet-design lines, by contrast, don't dedicate an entire circuit to one call. Instead, these systems break up all
kinds of traffic into manageable chunks of digital bits, sending them on many parallel avenues and recombining
them at their destination.
Rather than use the traditional system of switching centers, Sprint's new system employs components of the
Internet age -- high-speed switches, data-packet routers and optical fiber. It is scheduled to begin commercial
operation later this year.
Sprint calls its system the "Integrated On-demand Network" or ION. The system would measure and bill for
service based not on the number of minutes a person spends on the phone but on the number of digital bits the
customer transmits in a given month. Usage would be measured by a little box that acts like an electric meter
and is placed in a home or office.
The Marketing Challenge
"The Sprint system will eliminate the old circuit-switching on which the entire phone industry has been based
for more than 100 years," while it will still be compatible and able to communicate with the older networks,
says former Sprint executive Richard Smith, who now is chief executive of Bellcore, the old R&D arm of the
Bell system. "The world-wide implications of this for phone companies and their suppliers are enormous."
That is, if Sprint can make it work. The No. 3 long-distance carrier is stepping out on a limb. It must line up
agreements with many local carriers to ensure access to businesses and homes. It must persuade these
customers to shell out $200 for each gizmo that will act as a meter on the monthly traffic. Sprint also has to
communicate clearly the advantages of the system to customers who usually don't care how their system works
-- as long as it is as dependable and inexpensive as possible.
"The biggest hurdles are execution -- we're working with a number of key vendors -- and marketing," says
Sprint's chief executive, Mr. Esrey. "Will people understand the service? Can we communicate it effectively?"
Sprint will see plenty of competition. AT&T Corp., WorldCom Inc. and the Baby Bells are racing to upgrade
their networks for data at a cost of billions of dollars. But those companies appear to be focusing on improving
existing networks, while Sprint is proposing scrapping the old design for an entirely new system.
ION's enormous transmission power would be delivered much like a utility delivers electricity, connecting
existing phone lines in a business or home to the Sprint network -- and bypassing the local phone companies'
facilities. The hookup would be akin to a huge pipe able to carry traffic that now requires many phone lines.
Multiple phones and PCs could be operated simultaneously in much the same way electric customers can run an
air conditioner, television and lamps all at once; customers would simply toggle back and forth among different
uses by punching the phone's keypad.
Customers would, in essence, always be on-line through this live connection to the Sprint system. With this
kind of power, Sprint officials say, customers could surf the Net at speeds up to 100 times as fast as
conventional data modems, send e-mail, transmit video and, oh yes, make multiple phone calls -- all on the
same wire at the same time.
Moreover, Sprint says businesses would pay only for what they use instead of having to purchase their own
dedicated high-volume lines that often go unused for hours. Sprint's own costs would also fall substantially.
"On the voice side, the savings is huge," Mr. Esrey says.
The cost to deliver a long-distance voice call "will easily drop by more than 70% and perhaps to as little as 10%
of what it costs today," he says. That should allow Sprint to transmit a full-motion video call for less than it
now costs to carry a long-distance call, he adds.
Sprint began installing higher-capacity fiber-optic gear and testing new technologies and software about five
years ago. Then, 18 months ago, Mr. Esrey ordered that a team of top engineers be assembled to accelerate the
company's move toward a new network.
The order came as the telecom business is undergoing huge changes. New laws have opened markets for
competition while customers are clamoring for better data transmission, packaged services and simplified
billing. Soon the Bells will invade Sprint's turf, offering their own packages of long-distance services. Sprint
needs a counterstrategy -- at the same time it is building a $10 billion national wireless system.
Many telecom giants have been slow to face the challenge. And new networkers, such as Denver-based Qwest
Communications International Inc., have leapfrogged past the incumbents with smarter designs compatible with
the Internet. These systems route calls and information in the same way -- as digital bits of computer code,
zapped at the speed of light. The bits are placed into electronic envelopes called packets, and the freight is
delivered on fiber-optic lines.
The new design handles traffic more cheaply than the old circuit-switch set-up, and costs fall even farther
because the network can avoid the access fees that long-distance companies typically pay to local phone
companies for routing calls.
Already, rates are plummeting on certain services. Faxes can be sent via the Internet, undercutting regular phone
charges. Sprint's once-trendsetting flat-rate charge of 10 cents a minute on long-distance calls now looks
expensive next to Qwest's 7.5 cents a minute and ICG Communications Inc.'s 5.9 cents a minute via the
Internet.
Sprint executives decided that simply marketing me-too telecom services, particularly against the Bells, would
be ludicrous -- especially when Sprint had to spend a fortune revamping its network for the data age. AT&T lost
billions reselling Bell local service, and MCI's similar effort helped kill its plan to merge with British
Telecommunications PLC.
"MCI had been executing under the old phone model," putting in its own lines and switches against the Bells,
notes Kevin Brauer, president of Sprint's National Integrated Services. "We saw that and said ... 'Look what's
happening to them.' "
'Collapse' the System
In March 1997, Sprint's engineers recommended that the brass "close the book entirely" on building traditional
switching networks. Instead, says Mr. Brauer, the new network could give customers any-distance
communications billed by the bit, not by the distance of the call. Rather than operate a "multiplicity" of phone
and data networks, Sprint should "collapse" everything it runs into a single efficient system, the engineers
advised.
Two months later, Mr. Esrey told Mr. Brauer to assemble a team of Sprint's top technical and operations
executives. The former president of Sprint Business, Mr. Brauer was now senior executive of Growth
Initiatives. "We sweated writing press releases that wouldn't make it sound like Kevin was being demoted to
some staff ... role without having to say what he was really up to," recalls Sprint's public-relations director Bill
White.
For three months they worked in a nondescript building with blacked-out windows in a suburb near its
headquarters in a Kansas City, Kan., suburb. Mr. Brauer's team tapped the company's telecom suppliers,
Northern Telecom Ltd. and Lucent Technologies Inc., for feedback. "We asked the suppliers 'Are we ahead of
our time?' and they came back with, 'Gosh, this is big. It will take a lot of time,' " Mr. Brauer recalls, adding
that some Sprint veterans didn't welcome the move, either.
Cisco Systems Inc. plugged in quickly. The kingpin of Internet networking, Cisco told Sprint, "That's the way
the world is going," Mr. Brauer says. "That was a very positive experience for us. It galvanized us."
Sprint's project is certain to rattle the $250 billion telecom equipment and software industry. In choosing Cisco
as the primary supplier and design coordinator of the network, Sprint has pushed aside traditional telecom
suppliers. For software to keep the system running with top reliability, Sprint is turning to the independent
R&D powerhouse Bellcore.
Sprint, meanwhile, has canceled an order for new multimillion-dollar Nortel digital circuit switches. Instead, the
company seeks to build a network based on high-powered ATM (asynchronous transfer mode) switches from
Nortel and others. These machines can accept massive streams of bits from all kinds of networks and send each
bit to its proper destination as a phone call, Internet message or video signal.
Speed of Light
Those big switches link to Cisco routers and software, which direct digital traffic. Potent "wave-division
multiplexing" systems enable Sprint to transmit bits on individual colors of the light spectrum, boosting
carrying capacity to 34 million simultaneous phone conversations from two million today, and expanding the
capacity of Sprint's fiber backbone and its 169 fiber-optic rings that encircle many of the country's largest
cities.
At the local level, Sprint hopes to bypass the phone companies -- and their access fees -- by leasing space in the
phone companies' switching centers and installing its own connecting frame. (It isn't yet clear how much Sprint
will have to pay for each customer line.) This would let Sprint directly connect to a subscriber's copper wire,
setting up a link between its own network and the meter at home or in the office.
That approach will require the cooperation of the Bells, which must provide Sprint with access to their
customers. Mr. Esrey has been nailing down agreements with local carriers to connect customer lines directly to
Sprint's system, and he plans to announce the roster of providers shortly.
The new service will be sold in stages: to large corporations by later this year, general availability to businesses
by mid-1999, and to consumers by late 1999. The cost of the service hasn't been determined. But heavy users
are the primary targets -- "the kind of consumer who now spends, say $30 to $40 a month on long-distance or
$100 to $125 a month for everything including voice calls and Internet access," says a senior Sprint executive.
Radio Shack, which sells Sprint wireless services, will market ION through its 7,000 stores. Those who spend
a few bucks a month on long distance will still get their traditional service from Sprint, the executive says.
Several major business customers have signed up for ION, say Sprint executives. These include Coastal States
Management; Ernst & Young LLP; Hallmark; Silicon Graphics; Sysco Corp.; and Tandy Corp. (which is Radio
Shack's parent). "This will allow us to combine all of our traffic -- voice, data and video -- into one path," says
Larry Hardin, Sysco's director of operations & communications. The giant Houston food distributor deals with
other major carriers, he says, but none "have approached me with something this revolutionary."
Compared with Sprint's "pin drop" campaign, this network will be a "bomb drop," says Gartner Group analyst
Kenneth McGee, one of the few outsiders who has seen the plan and tried the service. "This is the most
profound change in networking that I've seen in more than a decade."
Sprint executives say FastBreak is critical if the company is to become a truly global carrier. Despite a
strengthening core business that generated $15 billion in revenue last year, Sprint is widely regarded as raider
bait. Bigger phone companies are combining, and GTE Corp. or one of the big Bells could buy Sprint to aid
their expansions. While the French and German national phone companies each own 10% of Sprint, Mr. Esrey
says the rest of the company isn't for sale. Still, he has fueled such talk, perhaps inadvertently, by complaining
publicly that the stock price, at nearly $72, is undervalued by at least $25 a share.
Let others rush into megamergers, says Mr. Esrey with a dismissive wave of his right hand. "This is the most
important move our company has ever made. FastBreak sets us apart." |
