New Horizons In Communications

The following article is reprinted with the permission of Nation's Business magazine. Nation's Business serves as a resource to the owners and top managers of small businesses (fewer than 100 employees) by providing practical, how-to information about running and growing a business. To subscribe to Nation's Business, call 1-800-210-8149.

TECHNOLOGY

New Horizons In Communications

Small firms stand to reap the benefits of cost-reducing competition among the providers of rapidly emerging information technologies.

By Tim McCollum

To get to Lou Ann Hammond's automobile-finding service, you can take the superhighway--the information superhighway.

Hammond's four-person company, Car-List Inc., in San Francisco, uses computers and high speed telecommunications links to serve car buyers who want to find the vehicles they seek at prices they're willing to pay without the hassle of shopping in person.

Under the system of links, computer terminals in 15 credit unions throughout California give customers access to Car-List's database of new and used cars, providing an important convenience to shoppers. The database contains current information about prices, features, and the availability of vehicles at selected dealerships and among individual sellers statewide.

Hammond views Car-List's three-year-old arrangement with the credit unions as a natural progression. Her company began 11 years ago with a used-car listing service that could be tapped into with a phone call. This latest service simply brings car shopping and financing together in a convenient setting.

The Car-List database computer and the computers at the credit unions are linked with the latest in telecommunications networking technology, ISDN, which stands for integrated services digital network.

ISDN gives people the equivalent of two phone lines by allowing them to access data and voice calls simultaneously. With phone equipment designed for the task--yet with conventional telephone lines--the user can connect to digital networks at four to five times the speed of the fastest current analog computer modems.

This technology, which is just beginning to be widely deployed, may eventually replace analog modems. Hammond hopes that telecommunications technology ultimately will help her expand her business nationwide. Toward that end, she established a home page on the Internet's World Wide Web component last year. Each day the page hosts more than 15,000 visitors and receives about 50 requests for informational brochures.

The Web site's success, however, will depend not on the number of prospective buyers it attracts, Hammond says, but on the number of car sellers from outside California that she can add to her database.

Over the past several years, providers of telecommunications and information technology have promised to deliver to business people revolutionary ways to communicate with the buying public--ways that seamlessly blend telecommunications, computing, entertainment, and information services.

Now that Congress has passed the Telecommunications Act of 1996--the first major overhaul of the laws governing telecommunications in more than 60 years-- new telecommunications technologies may become available faster, more universally, and at a lower cost to customers.

Signed into law by President Clinton in February, the act tears down many barriers between different telecommunications providers, and it promotes competition in everything from local and long-distance telephone service to cable television.

Telecommunications analysts forecast that the biggest benefit of the new telecommunications law for small business owners will be a new ability to buy packages of telecommunications services--local, long-distance, and wireless calling as well as paging, voice mail, and Internet access, for example--from one company at one discounted price on one invoice.

Even though the Federal Communications Commission has not yet established the rules governing telecommunications competition, AT&T, MCI, Sprint, and several of the regional phone companies have begun to package services, many of them aimed at small businesses. ``The opportunity for one-stop shopping will be very appealing for small businesses,'' says Richard E. Wiley, a partner with the Washington, D.C., law firm of Wiley, Rein & Fielding and a former FCC chairman. ``Some small businesses would just like one company to come in and do it all [for] one price.''

But pervasive competition won't happen overnight. Industry analysts such as David Goodtree, of Forrester Research, in Cambridge, Mass., say the full effects of telecommunications reform probably won't be felt until 1997 at the earliest.

Nonetheless, small-business owners should start learning about, and making plans for, the coming changes. Indeed, some of those promised changes are beginning to arrive. They include ISDN, wireless communications services, and wider use of the Internet. And, like Car-List, many small companies have been among the first to employ new technologies to enhance their businesses.

ISDN, for example, facilitates voice, data, and video transmissions over a single copper line, thus giving Car-List and other small firms communication capabilities rivaling those of large corporations. Another new development that could have a major impact on small businesses, personal communications services (PCS) technology, is beginning to compete successfully with cellular telephone services in the Baltimore-Washington corridor, the first area where PCS has been offered. PCS networks in other areas are expected to begin operating this fall.

PCS appears similar to conventional cellular service, but it combines voice and messaging capabilities that permit communication over a digital network through the use of small, lightweight, hand-held telephones or handsets.

Companies--some in fields outside telecommunications--have bid more than $17 billion in two FCC auctions for licenses to provide PCS in various parts of the country.

All regions were covered in the bidding. Companies are also enhancing their ability to communicate by using satellite networks and the Internet. Satellite networks provide video conferencing, messaging, and data-communications capabilities, for example. And the Internet allows users to communicate electronically with anyone regardless of location for the cost of a local phone call.

``Smaller businesses are adopting communications technology at a much quicker rate than they ever did before and probably faster than business in general,'' says Mark Kutner, president of the small-business services division of Bell Atlantic, the Philadelphia-based phone company for the mid-Atlantic region. Communications services, Kutner says, ``become productivity tools for small businesses and enable them to act like larger businesses.''

ISDN's Promise And Performance

To see the promise of ISDN technology, look at Dr. Woodrow Kessler's business-- providing remote diagnostic equipment and services for fellow physicians.

Kessler, a pioneer in tele-medicine for more than 20 years, took part in AT&T's first tests of the use of live video to diagnose patients, at Temple University School of Medicine, in Philadelphia. The technology wasn't practical for widespread use, however, until ISDN came along, he says.

``When we realized the ISDN technology could afford us the opportunity to see things in full motion, we jumped on it.'' Kessler's Tele-Diagnostics Inc., in Media, Pa., sells tele-medicine equipment that enables doctors to diagnose patients or consult with specialists in other locations while simultaneously creating a video record of each session. So far, TeleDiagnostics has hooked up more than 25 locations in Pennsylvania and Maryland, including doctors' offices, hospitals, and some patients' homes. Each installation costs about $200 a month. That covers the ISDN line and terminal adapters-- which are ISDN ``modems''--supplied by Bell Atlantic, as well as the required software, computer, camera, and high-resolution monitor.

Although ISDN could make applications such as tele-medicine and desktop video-conferencing realistic for mainstream businesses, telephone companies thus far have been slow to deploy the technology. Ripmeester & Brown Associates, a market-research firm in Gaithersburg, Md., estimates that just 13.3 percent of telephone access lines will have ISDN capability by the end of 1996, though it projects that number will approach 50 percent by 2000. The major phone companies say broader capability is coming soon, partly because activities such as Internet access, video-conferencing, retail credit verification, and work-at-home programs require high speed data transfer.

ISDN is becoming more affordable. Regional telephone companies such as Ameritech, Bell Atlantic, and Pacific Bell are rolling out low-cost ISDN programs aimed at small businesses. For example, Ameritech recently began charging small-business owners $120 for installation, plus a $40 monthly fee, in a test-marketing program in Champaign, Ill.

Outlook For Wireless Technology

As hot as high-speed data communications via wire have become, wireless communications may ultimately become more widely used and have newer, more innovative applications sooner because of advancing technologies and an increasingly competitive marketplace. Leading the way in this area are voice phones and wireless messaging.

Advocates of personal communications services say the technology will drive down the cost of wireless communications by adding as many as three new competitors to each market. They are expected to price PCS at lower rates than cellular phone service and are not expected to lock customers into the long-term contracts that are common in the cellular marketplace. Instead, the customer's biggest investment will be the PCS phone itself, which now costs $100 to $200. PCS's technological advantage over cellular is that it is digital, whereas most cellular communication is analog. In current analog systems, such as local phone and cellular networks, signals are transmitted as sounds. With digital technology, these sounds are converted into computer data--a series of ones and zeros--and are transmitted over the network; at their destination they are converted back to sounds.

This means that a PCS network is less prone to the dropped calls that occur over cellular networks and that sound quality is often better. In addition, PCS networks can carry data. This enables users to receive both voice and screen-displayed messages on their handsets.

Early reviews of PCS indicate that the technology may become very popular very fast. It has certainly made a believer of Brooks Moore, president of Big Shot Productions, a video-production company in Baltimore.

Big Shot recently switched to the Sprint Spectrum PCS service offered by Sprint and American Personal Communications, in Bethesda, Md., after using cellular phones for 10 years.

Moore says the PCS phones have enabled him and Big Shot's five salespeople to communicate better with customers and the main office. The group spends much of its time out of the office on sales calls, and the PCS phones allow them to make and receive calls wherever they go.

The phones also have built-in answering machine and paging capabilities. Each line costs Big Shot $14.95 a month plus 20 cents a minute for calls. ``It saves money for the company because we integrated the pager and the cell phone into one item'' rather than having to purchase them separately, says Moore.

Moore also likes the improved reception and built-in security made possible by the digital network to which his PCS phone connects. So far, he says, the biggest limiting factor of PCS is that--for now--he can use his phones only within his local area. That should change as more PCS networks come on line.

Cellular Providers Press On

Despite the spread of PCS technology, cellular-service providers aren't ceding the market. Last year, cellular companies signed up a record 9.4 million new subscribers, bringing the total to 33.8 million, according to the Cellular Telecommunications Industry Association, in Washington, D.C. Cellular-service providers are also preparing to go digital. That, coupled with greater customer awareness of cellular technology, may keep it at the forefront.

Cellular is no stranger to competition either. Most markets have two cellular providers offering services plus a number of resellers who pay a discounted rate for bulk air time over one of the cellular networks and then sell that time to subscribers. Each reseller has an exclusive agreement to sell time on a particular network, however, so customers are still locked into one network.

Cellular customer Steven Hopper has found an alternative. Hopper, president of Pratt Plumbing, Heating, and Air Conditioning, in Montvale, N.J., buys his cellular service from First Comm, a reseller that offers customers in upstate New Jersey a choice between competing cellular networks. Since First Comm buys its air time from other resellers, it is able to offer a variety of plans and prices.

``It would take me a lot of time to become educated about which plan was best,'' says Hopper, who prefers to get experts' recommendations. Pratt Plumbing will save $600 this year on its cellular service, he says.

Mike Pfeffer, First Comm's president, says customers such as Hopper will have even more choices once PCS is available in their areas. That's welcome news for small-business owners when it comes to obtaining new services, but making decisions about telecommunications-service providers of all kinds is likely to become more complicated.

Changes In Local Phone Service

For the first time, small businesses and most other customers will soon be able to choose among ``local'' telephone companies rather than having to do business with a single local provider. As a result, local telephone and long-distance companies have been strengthening their small-business-services divisions in recent months.

This customer-driven focus has allowed employee-communications consultant Janet Rechtman to bring together communication technologies for her firm, Deeley Rechtman Communications Inc., in Atlanta. Rechtman considers herself a heavy user of telephone services, for both business and personal matters. She uses a cellular phone to keep in touch with customers and the company's 11 employees.

Deeley Rechtman has contracted with its local carrier, BellSouth, to set up its voice mail system. But instead of installing equipment in the firm's office to handle voice mail, BellSouth maintains the system on its telephone network.

Rechtman says it's important for her firm to keep up with telecommunications services that can help its business, but that's not easy to accomplish without a dependable source of expertise. ``When you're a small business and you're covered up with work,'' she says, ``it's very hard to find time to make rational decisions about these things.''

The companies that succeed in a competitive marketplace will be those that help business owners such as Rechtman take advantage of both existing and new technologies. Analysts such as Forrester Research's Goodtree say business owners will be besieged with offers of competing packages and price plans.

It was hard enough for them to figure out the difference between competing long-distance providers. Now they will have to factor in their all-important local phone access as well as some services that weren't available to them before. Even so, small firms may come away the big winners if they're shrewd enough to strike good deals.

``The carriers know that the biggest fight of their lives is coming,'' says Goodtree.

Telecommunications companies, in their drive to sign businesses to long-term agreements now, before the real competition begins, will likely offer incentives such as renewal bonuses and extra services, he says. Small companies, Goodtree advises, should make certain that service contracts contain the option of changing the deal once a competitor enters the local market.

``Knowing that the carriers are hungry today,'' says Goodtree, ``a small-business person can leverage that to get deals that provide flexibility and the maximum discounts now.''

Some Of The Choices Facing Small Firms

The four-month-old Telecommunications Act of 1996 was designed by Congress to unleash the powerful forces of competition on the telecommunications marketplace, thereby providing purchasers of cable television and local and long-distance telephone services with greater convenience, more choices, and lower costs.

``I think [the statute is] going to be very pro-small business,'' says S. Ross Brown, managing partner in the San Francisco office of the executive-search firm Egon Zehnder International and former CEO of the international subsidiary of Pacific Telesis Group. (Pacific Telesis includes Pacific Bell, which provides local phone service in California and Nevada.) He says small firms will prove to be ``a clear niche that either the local phone companies, the cable companies, or the long-distance companies will rush to fill.''

But telephone and cable competition isn't likely to gear up fully until 1997, Brown says, in part because so much work involving regulations related to the law still must be done in Washington.

Congress left most aspects of implementing the law to the Federal Communications Commission. These details include developing rules and regulations to govern everything from local telephone service competition to cable ownership to participation among small telecommunications companies. And once the rules are finalized, the FCC must coordinate these regulations with those established by state public-utility commissions.

Nevertheless, when the dust surrounding the new law settles, small-business owners will be faced with more choices. Here's what to expect as we move farther from the days of the rotary phone:

Local Service

Options for small firms in choosing local-access telephone service will include:

• The firm's current local-access telephone company.
• Any of the other regional operating companies--there are seven--spawned by the 1984 breakup of the Bell telephone system.
• Long-distance companies such as AT&T, MCI, and Sprint.
• Cable operators.
• Competitive access providers such as Intelcom Group, in Edmonton, Alberta, and MFS Communications Co., in Omaha, Neb. Both compete with local phone companies for large-business customers and are not required to provide residential service. Such companies currently provide local telephone access that allows business customers to connect to long-distance networks at rates typically lower than those of local phone companies.
• Possibly, electric or other utility companies.

The Outlook For Rates

Since 1991, 31 states--including California, Illinois, and New York-- have passed laws allowing some local phone competition.

Business rates are expected to decrease over time as a result of growing competition resulting from the new law and because phone companies are expected to stop using revenues from business rates to subsidize low-cost residential service.

Historically, rates on residential customers have been capped to ensure affordable universal service. To make up the revenue lost because of the caps, phone companies have charged businesses more for a phone line--in some instances more than twice what residential customers pay.

The FCC and state utility commissions are considering rate plans that would require all access providers to contribute to a ``universal service'' fund to subsidize the higher costs of supplying phone service in rural areas. The fund would be drawn largely from fees paid by urban customers.

Large-business customers in urban areas will be the first to benefit from increased competition because they are the easiest, most profitable to serve. But small companies that take the initiative to shop for deals also stand to benefit, especially if they are willing to lock themselves into long-term arrangements.

Long-Distance Service

The regional Bell phone companies can begin offering long-distance service to customers outside their local service areas immediately. Once the FCC and state regulators determine that facilities-based local-phone-service competition exists in an area, the area's regional phone company will be allowed to offer its own customers long-distance service.

And while the regional Bell operating companies will try to get their existing local-access customers to switch from AT&T, MCI, and Sprint, those long-distance carriers, which have been honing their competitive skills for over a decade, will be going after local customers as well.

Rates are expected to go down as a result of increased competition and because long-distance companies no longer will have to pay a surcharge to support universal phone service as part of the fee imposed on them by local phone companies for connecting long-distance calls to their local networks.

Cable TV

The telecommunications law lifts the caps on all cable-television rates by 1999 and immediately deregulates rates for small cable systems--those with fewer than 50,000 subscribers. The caps were enacted by Congress in 1992.

Under the new law, local telephone companies can provide video service and acquire cable operators outside their service region. Phone companies cannot buy cable systems in their local service area, with the exception of rural markets, but phone and cable companies can own up to 10 percent of one another.

Consumer groups say cable rates may increase as much as $7 a month. But analysts say rates are expected to stabilize as a result of competition from local phone companies and from direct-broadcast satellite.

Many cable companies are upgrading their systems to provide two-way communications capabilities for telephone, data, and interactive services such as home shopping and video-on-demand.

Small firms may benefit from using cable networks for their data needs. Cable modems, now beginning to enter the market, promise to transfer data at 10 times the speed of ISDN (integrated services digital network), a technology that itself is up to five times faster than the analog modems commonly used for linking computers.

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