Last week Sprint followed the lead of its two primary competitors with an announcement that it would refocus its business on data and Internet services, and de-emphasize voice. The collapse in the traditional consumer long-distance business, and the resulting restructurings of AT&T and WorldCom, may require other shifts in business strategy for the long-haul carriers.
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Last week's announcement from Sprint (NYSE: FON) that the company would reorient its efforts towards data and Internet services, and away from voice, made it unanimous among the big-three U.S. long-distance companies: no one seems to want to carry voice calls any longer. As recently as six months ago, telecom carriers were at least publicly sticking by the story that their slow-growth voice businesses would provide the cash flow necessary for the huge capital expenditures they needed to make to upgrade their networks.
Why has this year been such a disaster for the long-distance carriers? Aside from the normal cutthroat competition among the so-called big three themselves, which brought us all those wonderful dinner-time phone calls from MCI not so many years ago, the carriers face a variety of new competitors. Incumbent local phone companies such as Verizon (NYSE: VZ) and SBC Communications (NYSE: SBC) have been signing up long-distance customers like gangbusters. And as wireless providers offer increasingly generous calling plans that include free long-distance, more people simply use their cell phones at home for long-distance calls. As a result, pricing has been brutal. One particularly illustrative example was offered by Bloomberg News recently, when they noted that "Four years ago, AT&T sold long-distance calls for 15 cents a minute. Rival Sprint Corp. now offers rates as low as 2 cents a minute." Cisco Systems' (Nasdaq: CSCO) CEO John Chambers has stated for some time that "voice will be free," meaning that telcos would have to offer voice for nothing, on top of other, higher-value services. The industry certainly seems to be heading in that direction. Bundled services
This raises plenty of questions about telecom carriers' business strategies. Some observers have concluded that AT&T's travails and subsequent restructuring, and WorldCom's issuance of a tracking stock, indicate that the strategy of bundling services -- offering combinations of local and long-distance voice, high-speed Internet, wireless, and even cable -- is failing or at least remains unproven. As one wire service article asserted, "AT&T and WorldCom's strategy of owning the assets required to fulfill all of consumers' and businesses' communications needs has failed." On the other hand, if voice is no longer a viable service to offer on its own, then bundling is inevitable: carriers have to offer multiple services or die a slow death. However, these two scenarios are not mutually exclusive. As market researchers the Gartner Group noted in a recent commentary, telecom carriers will probably continue to offer bundled services, but not necessarily to all customers. Long-haul carriers like WorldCom, for example, may simply target enterprise businesses and other heavy data users (such as government institutions), and forget about consumers. Meanwhile, if the Baby Bells continue increasing their long-distance reach, and make progress towards offering services nationwide, they may soon compete against each other in providing bundled services to consumers. Cable and satellite companies -- including AT&T's Broadband unit -- will likely remain wildcards. For telecom investors, the prospect of "free voice" may not be much fun in the short run, but at least we'll all benefit as consumers.
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