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. plans to fire a big salvo in this new wire war Tuesday when it
announces 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." |
