Regulatory Changes

The U.S. Telecommunications Act of 1996 was the death knell of the "monopoly is a good thing for telecom" philosophy. Many new rules were introduced to jump-start competition. Other nations are following suit at varying rates. Monopoly is out and deregulation is in. Some of the expected results over the next few years include:

• Regulatory convergence. Too many regulating bodies confuse and slow the intended growth of free markets. The United States has long been hampered by a struggle between state regulations, the FCC, and the courts. Expect a painful but slowly accelerating rationalization of regulation, perhaps leading to more effective, rather than merely theoretical, competition at the local level.

• Relaxation of barriers to entry. The regulators have had the paradoxical task of introducing more regulations (such as forcing the ILECs to wholesale services to CLECs) in order to ultimately increase competition so that fewer regulations are required in the long run. Depending on the extent to which this strategy works, more telecommunications providers can enter the market, resulting in lower prices.

• Relaxation of local service regulations. The history of cellular service provides insight into this potential trend. The FCC licensed the players and then kicked them out of the nest — no rate controls, unbundling requirements, or mandated resale. The result was lower prices and even competition for local wire line services. The case for local regulatory supervision is being slowly eroded.

• Universal service offerings (USO) will become broader. Traditionally, USO has equated to the practice of slightly overcharging in the cities to subsidize simple telephone service in the countryside. As other services, such as broadband Internet access, become de rigueur for businesses and even individuals, some expansion of the urban tax is likely. While this may slightly increase taxes paid by many corporations, it also provides more opportunities to relocate in rural areas that may have lower labor rates, since because essential communications services will be available. The downside to this "Robin Hood" approach is that the calculation of the appropriate amount of the tax is difficult.

Outsourcing

Outsourcing options range from simple call accounting to complete responsibility for telecommunications (staffing, provisioning, negotiating with carriers, and efficiency studies). QuantumShift, for example, offers to become the telecommunications function of its customers. By negotiating with carriers, understanding the details of cost savings, and managing assets, the high-end service provider can presumably offer a better total package than end customers can obtain for themselves. All the usual pros and cons of outsourcing apply:

• Pros:

  • The provider is specialized in telecommunications and cost management, and thus develops expertise.

  • Costs are controlled by leveraging relationships with other providers (e.g., AT&T, MCI, Avaya).

  • Outsource staff have a career path in their specialty, whereas within the client organization telecom staff have limited upward movement opportunities.

  • The provider can leverage processes learned across multiple clients.

  • The provider may make specialized software and hardware available so that the client avoids some up-front capital expense.

  • Reporting, cost distribution, and call accounting are well developed and usually provided via Web browser screens.

• Cons:

  • The interests of the customer and the provider may not exactly match.

  • There is some loss of control over the process.

  • Technology enhancements could take a back seat to well-defined, transaction-oriented charges. In other words, if the entire contract is written so that the service provider is paid solely on a defined transaction basis (interstate minutes, number of T1s, etc.), there could be a tendency to maintain the status quo. Codicils should be put in place that maintain incentives to continually review new technology and implement as appropriate.