Sprint Offers a Plan to Retool
An Overloaded Phone System
By JOHN J. KELLER
Staff Reporter of THE WALL STREET JOURNAL
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." |
