Telecommunications Landscape in the

U.S.

Seoul National University

Samuel S. Chiu
samchiu@stanford.edu
July 11, 2007

1
 Interaction Diagram

National Objective
• Business development (domestic, regional, international)
• Competitiveness
• Citizen welfare

Policy
Standard
Standard
Other countries
Technology Telecom Environment
Standard policy

Standard

Individual
business strategy
2
A slide about the past

3
 A simplified view

Pocket Competitions
Technology Monopoly Small Exchanges,
Market Share Shift

Divesture of ATT:
Regulated Monopoly
22 Baby Bell + LD

A New World:
Alliance, M&A
What is Telecom?

4
 Patent Expired, Connecting Xchanges (LD)
Monopolizing Equipment,
Pocket Competitions
Technology Monopoly Small Exchanges
Market Share Shift

Advance in Transportation, Demand for LD,

Bell Behavior: equipment, Interconnect Practice
Franchise control. LD Network is expensive

Divesture of ATT:
22 Baby Bell + LD Regulated Monopoly

Duplication of Network not economical,

Universal Service, Bell’s obsession to control (Carter Phone)
MCI Challenge in LD, Cellular initiation
A New World:
De-regulation and Competition
Alliance, M&A
What is Telecom?
5
Present and future

6
A picture
worth
1000 words!

7
The current landscape

8
Source: NYT 1/28/05

9
Source: NYT, 3/7/06

10
 Latest

• Cingular bought ATT, but re-brand as ATT

11
 Triple Play

• Desires to provide one-stop shopping

• To increase customer stickiness
• Blurring line separating wireline and
wireless world
• A bit/ bite is a bit/ bite
• A look at the battle in the U.S.

12
 Net Neutrality in the thick of it

• “streamlining” television subscription

market, June 8, 2006
• House rejected a Net Neutrality
amendment
• Senate committee rejected similar
amendment on a tie vote
• Who is right about Net Neutrality?

13
 Battle for Consumer Wallet

• Cable providers and RBOCs are moving

towards integrated one-stop shop for
– Fixed + mobile
– Voice
– Data
– Video

14
 Battle for Consumer Wallet

RBOC Cable Provider

Video

IPTV Video
FTTH Broadcasting
Data

Hybrid
MVNO
Voice

Fixed Mobile Fixed Mobile

15
Buzz Word: Convergence
Integrated Features
DVR Programming
Video Mail and Calling

Video
Home Surveilance
Live Broadcasting
Push Email
Data

Message
Photo Sharing
Interactive Gaming
Unified Voice Mail
Voice

VoIP over WLAN

PTT
Fixed Mobile

16
 Revenue Potential

Revenue Projection ($B)

Video 2005 2010 2005 2010

69 90 0 3
Data

20 30 7 27
Voice

62 55 125 140

Fixed Mobile

17
 RBOC Cable Provider

Video
IPTV Video
FTTH Broadcasting

Data
Hybrid
MVNO

Voice Fixed Mobile Fixed Mobile

Revenue Projection ($B)
2005 2010 2005 2010
Video

69 90 0 3
Data

20 30 7 27
Voice

62 55 125 140

Fixed Mobile

18
 What is it all about?

• Technology push
• Demand pull
• Marketing ingenuity
• Devices, or contents and partnership
• Fashion
• Productivity gain
• Tetherless communication
• Invisible leash
• All of the above and more

19
 Where is the line?

• RBOC
• Cable
• Wireline
• Wireless

20
 The line blurs: Wireless & Wireline Voice Substitution
Wireless voice has exploded over the last 5 years, primarily at the
expense of wireline voice MOUs.

3,500,000 Wireless & Wireline Voice MOU Shift 100%

US Total Voice Minutes (M)

Wireless / Wireline MOU %

3,000,000

2,500,000
75%
Wireline LD MOU

2,000,000

50%
1,500,000

1,000,000 Wireline Local MOU

25%
Wireless LD MOU

500,000

Wireless Local MOU

0 0%
2000 2001 2002 2003 2004 2005 2006

21
Source: FCC, inCode analysis
 Food for thought
• An important aspect of change is that things
are different afterwards
• That which is currently taking place is not
impossible
• You do not catch up without catching up
• Markets are neutral: they are not magic
• The time to open your markets is when you
can win: if you can’t win, you won’t win
• When two countries are in a trade war and
one does not realize it – that country is
unlikely to win
22
 Useful web sites

• www.americasnetwork.com
• www.telecoms-mag.com
• www.teledotcom.com
• www.mediacentral.com
• www.comnews.com
• www.internettelephony.com

23
 Stakeholders
• Public service providers
• Private network operators
• System suppliers
• Telecom regulators
• Empowered end users
• Venture capital, private equity
• Municipalities

24
 End users as stakeholders

• The proliferation of a growing variety of

consumer item terminals with increasing
capabilities, as well as of home, office and
access networking products, empowers end
users as telecom stakeholders
• End user investment in telecom hardware
and software accounts for a major and
increasing portion of overall telecom
investment
25
Source: NYT, 6/5/07

Gadgets
for All
of You

26
Source: NYT, 10/26/06 VoiP Phones

The UT Starcom F1000 for Vonage The Netgear SPH101 for Skype
27
Source: The Economist, February 17th-23rd 2007 A cash call
Smart cards and mobile phones are quickly emerging
as ways to pay with electronic cash

28
Source: NYT, 3/8/07

Now, When You’re

on Hold, You Can
Choose the Music
The phone includes a one-gigabyte
MicroSD card and holds about
300 songs.
… also has a 1.3-megapixel camera,
weighs 3.7 ounces and is about
an inch thick.

29
Source: NYT, 1/10/07

Apple Introduces
Innovative Cellphone

30
Source: NYT, 6/27/07

Waiting for the Latest in Wizardry

31
Source: NYT, 4/5/07

IPhone Killer
(or Perhaps
a Worthy Rival)

32
Source: NYT, 1/8/07

A Personal Computer to Carry in a Pocket

33
Source: NYT, 3/29/07

Child Wants Cellphone;

Reception Is Mixed

34
Source: NYT, 12/6/06

High-Tech
Wherever
You Look

35
Private equity buyout examples

Source: NYT, June 20, 2003

Investor Group Buys Stake in Level 3

Communications
Source: NYT, April 18, 2005

Private Equity Firms Make a Bet on

Satellite Companies
Source: The Economist, February 23, 2006

Private equity and technology:

The great tech buy-out boom

36
 Specific buyout example
Source: Private Equity Firms Make a Bet on Satellite Companies, Ken Belson, NYT, 4/18/2005

“… private equity firms have taken big

stakes in satellite operators like PanAmSat,
Intelsat and … have paid only pennies on
the dollar for their stakes. ”
“Some industry analysts, however, are
skeptical that the equity firms will remain
around long enough to pay for replacement
satellites as they are needed, and for new
technologies to bolster demand.”
37
 And another example …
Source: The Economist, February 23, 2006

“Private-equity firms are raising huge amounts of

capital from profit-hungry investors. The credit
markets are in a generous mood, too. Strategic
corporate buyers are also returning to the
takeover market - France Telecom outbid private-
equity bidders for Spain's Amena mobile operator
last year, for example.
But all this is combining to push up prices to levels
at which it may be hard for private-equity firms to
sell their acquisitions profitably.”
38
 … and a more recent one …
Source: NYT, 5/22/07

The Alltel Corporation’s agreement to go private in a $27.5

billion deal, the largest leveraged buyout ever in the
telecommunications industry, is not sitting well with some
other private equity firms that were lined up to bid for the
company.
The agreement for Alltel, the wireless service provider, to
be acquired by a consortium including the Texas Pacific
Group and a unit of Goldman Sachs effectively short-
circuits the auction process, in which other groups had
hoped to participate. Among them were the Blackstone
Group, with Providence Equity Partners, and the Carlyle
Group, with Kohlberg Kravis Roberts & Company.

39
 How we arrived where we are

• Technological progress; foremost:

digital signal processing
optical fibers
mobile communications
Internet and Web
• De-monopolization and (de)regulation
• Market-driven competition and
globalization
40
 Regulator’s role:
Level the playing field
Source: The New Yorker, November 22, 2004

41
Implications:

• Telecommunications is usually a
winning game for big players
• Among big telecommunication
service providers, those who
connect the end user, e.g. the
“Baby Bells”, cable TV and
mobile service providers, enjoy
an inherent advantage
42
 Where are we going ?

• The future promises richer choices of end

user terminals, services and content in an
increasingly dynamic communications
business environment
• As always, the devil is in the detail
• But one basic trend is unlikely to change:
technology push is stronger than market
pull !
43
Source: http:/ / www.businessweek.com/ print/ magazine/ content/ 07_26/ b4040001.htm?chan= g

Telecom: Back From The Dead

All those YouTube videos and MySpace pages zipping
back and forth on the Net have revived the telecom
industry – and charged up the economy

The $900 billion industry looks far different than it did in 2000.
The balance of power has shifted toward Web upstarts such as
YouTube and MySpace that barely registered seven years ago.
The Bell phone companies, meanwhile have consolidated and
are furiously developing services they hope will let them
capitalize on the billions they’re investing to build speedy new
networks.
Most informative article!
44
Source: http:/ / www.businessweek.com/ print/ magazine/ content/ 07_26/ b4040001.htm?chan= g

Behind the Telecom Rebound

New technologies and online trends are grabbing new
customers and gobbling up bandwidth

45
Source: http:/ / www.businessweek.com/ print/ magazine/ content/ 07_26/ b4040001.htm?chan= g

Video
Internet traffic: 33%

46
Source: http:/ / www.businessweek.com/ print/ magazine/ content/ 07_26/ b4040001.htm?chan= g

Web Browsing
Internet traffic: 32%

47
Source: http:/ / www.businessweek.com/ print/ magazine/ content/ 07_26/ b4040001.htm?chan= g

Audio
Internet traffic: 6%

48
Source: http:/ / www.businessweek.com/ print/ magazine/ content/ 07_26/ b4040001.htm?chan= g

Newsgroups
Internet traffic: 5%

49
Source: http:/ / www.businessweek.com/ print/ magazine/ content/ 07_26/ b4040001.htm?chan= g

Internet Phones
Internet traffic: 1%

50
Source: http:/ / www.businessweek.com/ print/ magazine/ content/ 07_26/ b4040001.htm?chan= g

Online Games
Internet traffic: 1%

51
 Supporting our mobility:
Making a business case

• Goldman Sachs study: how portable

devices may take away some laptop
usage

52
 Blackberry ROI / TCO
• Surveyed 175 laptop users internally before and
after receipt of a Blackberry
• For 19% of them, laptop use discontinued
• 45% decreased their RAS usage dramatically
• TCO comparison
– Laptop = $9700/ user/ year
– Blackberry = $2000/ user/ year
– Therefore laptop support costs 5x that of the
Blackberry
• In addition PDA usage drops as Blackberry is
deployed regionally
Source: 2002 Goldman Sachs Internal Survey
53
Drop in Laptop Usage – After
Blackberry

Source: 2002 Goldman Sachs Internal Survey

54
Summary of Business Usage for Professionals

 Blackberry
 GPRS Tri-
Tri-band handheld will provide a “global” solution
 PIFs: 3.5 Server and Device coming
 Testing with carriers as they bring on service and devices
 Web and Cell Phone Based Browser Access
 Recommended as a cheaper BlackBerry alternative (e.g. Tokyo)
 3.5 stabilized to remain in maintenance mode
 VPN
 Applicable to “20%” who need to “work at home as if in the office”
e.g. support personnel and business critical users
 PIF: Tactical deployment in review
 Firmwide strategic effort continuing
 Remote Terminal Server
 Remaining “80%” of the user base that only need WAH apps
 RoI based on recovering laptops into pools
 PIF: Banker pilot and deployment in review
Source: 2002 Goldman Sachs Internal Survey
55
Mass market applications overview
Business customers Consumer customers
BT Openzone
BT Openzone (Total Broadband)
Today

Nintendo Wi-Fi
BT Fusion (Wi-Fi) Gaming

Office anywhere

New Cons.
Future opportunities

mobile
applications
Wi-Fi I nternet
Security
Wi-Fi Blackberry
Gaming & multi-
media players
I ndoor Wi-Fi Bridge
– Business Continuity
– Alarm monitoring
– Wi-Fi guest services

56
The search for new revenue sources

• From voice, land line, long distance

• To mobile voice
• To data, internet, audio, video
• Self generated contents to mass
(generally free) contents
• To bundling (to increase consumer
stickiness), the case for triple play
• To …..
57
 In search of new revenue sources

• Advertising: Google, location based,

targeted advertising, …
• Ubiquitous access to stuff
• WiFi deployment in major cities: what is
the revenue model?

58
 Partnership

• Content and conduit (one of your faculty,

Chris Oh)
• IPTV
• Who owns what, who has access to
customers, how to share revenue
• What is the current policy: the battle
between infrastructure owner, system
operators, content owners and search
engines
59
 Clean Slate Project

• NSF sponsors: starting the internet from

scratch
• Why?

60
What does the crystal ball say?

61
 What does the crystal ball say?

• The experts are usually wrong, but it does

not stop them from forecasting, nor does
it stop people from asking

62
 Thank you

• Discussions

63
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