Transcript Chapter 7

Chapter 7
Legislative and
Industry Trends
Introduction
 The computer and
telecommunications industries
employ millions of people worldwide
 Changes in technology are rapidly
changing the faces of these
industries and effecting managers,
employees, and customers
The Semiconductor
Industry
 Worldwide demand tops $200 billion
 The top 10 suppliers account for
nearly half the total market
 Greater than 80% of the market is
controlled by firms based in the U.S.
and Japan
The World’s Largest
Semiconductor Suppliers
The Computer Industry
 A dynamic industry with continual
changes
Hardware Suppliers
 A diverse group of products ranging from
notebooks to supercomputers, storage,
and printers
 Server sales amounted to $60 billion in
2000
 Supercomputer sales are accelerating as
corporations need higher levels of
computing power to deliver services
The Software Business
 Continues to grow with 2001 sales of
$195 billion
 Employment in the U.S. in the packaged
software business is 336,000
 The industry leader is Microsoft with
domination of the desktop operating
system and application package markets
Industry Dynamics
 The industry is characterized by
multinational corporations in multiple
overlapping strategic alliances and
partnerships
 Regulation of the industry by government,
intense competition, and consumer
demand are continually impacting these
industries
Information
Infrastructure
 The US telecommunications market
for equipment and services in 2003
is projected to exceed $700 billion
 Two factors drive this demand:
 Transmission bandwidth
 Switching capacity
Telecommunications
Regulation
 In the US, telecom firms are regulated
by local, state, and national government
 Major national legislation has included:
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Communications Act of 1934
Cable Communications Policy Act of 1984
Communications Satellite Act of 1962
The 1956 Consent Decree with AT&T
Modified Final Judgment of 1982
The Telecommunications Act of 1996
The Divestiture of AT&T
 AT&T was a monopoly provider of
telephone service in the US
 Over time, the government required a
progressive opening of infrastructure to
competitors
 In 1982, AT&T was split into seven
independent Regional Bell Operating
Companies (RBOCs)
The Breakup of AT&T
 Many startup firms entered the market
 Cable companies began to offer voice
service
 Phone companies attempted to offer
video
 RBOCs began to join with cable
companies in a regional focus to
reestablish monopolies on
communications
1996
Telecommunications Act
 A wide reaching act aimed at fostering an
open market in communications based on
aggressive competition
 It covered cable, broadcast, and
telephone providers
 It fostered competition between RBOCs
and Incumbent Local Exchange Carriers
(ILECs)
1996
Telecommunications Act
 The Act increased the oversight of the
FCC with numerous ruling and
judgments
 The FCC set rates and formula for
reimbursement in order to “level the
playing field”
 Unfortunately, this meddling created
disincentives for investment and a
confusing landscape for investors
FCC Actions
 The Act granted the FCC broad new powers
 They created 80 major regulations in the first
4 years
 The FCC has put in place rules that subsidize
some users at the expense of others
 These rule have created a confusing
environment resulting in massive litigation
Implementation Realities
 Local wireline competition is minimal
 Long distance competition is robust, but
startups are unable to compete against
established players
 Established long distance companies
are under extreme financial stress with
WorldCom, Sprint, and MCI all in or
near bankruptcy
Privatization Around the
Globe
 69 members of the WTO opened their
markets to competition
 Governments sold off telephone assets
to investors
 Competition brought new capital flows
from around the world, modernizing and
expanding the telecommunications
infrastructure
Industry
Transformations
 With changes in the regulatory
landscape, the industry underwent
dramatic transformations,
consolidation, mergers, joint
partnerships, bust and bankruptcy,
divestitures, and a sector depression
Local Service Providers
Industry Consolidation
 Bell Atlantic, NYNEX, Verizon, and
GTE
 1997 - Bell Atlantic and NYNEX
merged to control 30% of the US local
lines – Entity renamed Verizon
 1998 – Verizon and GTE merged to
form the largest phone company in the
US
 100 million lines throughout the US
Industry Consolidation
 SBC, Pacific Telesis, SNET,
Ameritech
 1997 – SBC merged with Pacific
Telesis
 1998 – SBC bought SNET
 1999 – Merged with Ameritech
 59.5 million lines in 13 states
Industry Consolidation
 BellSouth
 Focused on international expansion
controlling 6.2 million customers in 10
Latin American countries in 2000
Industry Consolidation
 US West, Qwest, Time Warner, Frontier
 US West pursued a cable strategy buying
Wometco Cable, Georgia Cable Holdings,
and 25% of Time Warner Cable
 In 1997 it bought Continental Cablevision
 Qwest bought US West and divested parts
to Global Crossing
 Global Crossing filed for bankruptcy, and
Qwest is in shaky financial shape
Local and Long
Distance
 The MFJ created local and long
distance areas of service; these
areas were called LATAs
 RBOCs could provide inter-LATA
service if they could prove (with the
FCC’s 14-point checklist) that
effective competition existed in the
local market
Traditional Long
Distance Providers
 With increased competition, profits
decreased as pricing power eroded
 Providers attempted to differentiate
themselves by entering other markets
such as data (WorldCom) or wireless
(Sprint)
 These moves required enormous
amounts of capital expenses and huge
debt burdens
Long Distance
Competition
 AT&T started in a dominant position, but
pursued a cable strategy wasting capital
 WorldCom acquired MCI, but in the
succeeding years began to
misrepresent its finances, and filed for
bankruptcy
 Sprint created a wireless network, but is
currently in financial difficulty due to its
highly leveraged balance sheet
Cellular and Wireless
 Consolidation of the parent wireline
companies is producing needed
consolidation in wireless companies
 Consolidation is more difficult in the
wireless sector because not only do the
geographic service areas need to work,
but the cellular technologies of the two
companies need to be similar (TDMA,
GSM, or CDMA)
Major U.S. Wireless
Operators
International Wireless
 People in many countries worldwide are
exchanging wireline phones for wireless
 In 2002, there were more than 1 billion
wireless subscribers
 Ericsson predicts 1.6 billion global
subscribers by 2005 as China and other
third world countries begin to build out a
cellular infrastructure
Leading Global Wireless
Operators
Satellite Cellular
 At one time this was thought to be the
next frontier with cell sites in orbit
 Eight companies attempted to build an
orbital system
 To date none of these have been
successful, and investor capital has dried
up, closing this cellular mode for the
foreseeable future
Global Telecom
 Privatization in the 1990s has begun to
radically reshape the global marketplace
 As emerging economies grow, the
demand for voice and data services will
continue to expand
 These markets are immature, and will
require huge capital outlays to develop
The World’s Largest
Phone Companies
The Fall of the
Monopoly System
 The current phone system in the US
has its roots in the Bell System
 Over the past two decades, enormous
changes have reshaped the industry
 Stresses from regulators, customers,
competitors, technology and financial
markets have radically transformed the
face of the playing field
Implications
 The IT industry is undergoing rapid changes
that are profoundly affecting managers at all
levels and in all segments of business
 The dynamic nature of the
telecommunications landscape will offer bold
and innovative management the tools and
technology to deliver competitive products
and service; it will also punish those unable
or unwilling to adapt