The following text is copyright 1998 by Network World, permission is hearby given for reproduction, as long as attribution is given and this notice is included.

Pity the poor telco

By Scott Bradner

What's a poor PTT to do?

The world from the post, telegraph and telephone administration's (a
k a government-owned telecommunications monopoly) point of view
is undergoing a lightning fast change. Used to no competition and
decade-long planning cycles, many of the world's PTTs on Jan. 1
were suddenly put in the position of having to earn their customers
rather than have them captive and beholden by the right and might of
the law.

The change is a result of the World Trade Organization's
(www.wto.org) General Agreement on Trade in Service. This
agreement opened almost all telecommunications markets to
competition at the start of this year . . . well, at least in theory.

Some of the competition may take a while to develop (sort of like the
instant competition that showed up in the U.S. local telephone market
after the passage of the Telecommunications Act of 1996). But not all
of the PTTs can be complacent and lethargic in their response to the
rules changes.

For example, with three companies competing for international phone
business, Israel now has some of the lowest international calling rates
in the world. The rates are even lower than those in the U.S. This
must have been quite a shock to the old guard monopoly.

The German PTT, Deutsche Telekom (DT) (www.dtag.de), also is an
interesting case study. DT is the largest telecommunications provider
in Europe and the third largest in the world, at least according to the
carrier. DT is responding to the rules changes in a number of ways,
some positive and some not.

The carrier has been cutting employees, down 15% from 1993,
following a "socially conscious workforce reduction programme.''
DT has been making significant price reductions in its services,
including a 45% rate cut for calls to North America.

DT has service offerings in a number of nontelephone areas, including
cable TV and Internet connectivity. As we are seeing in the U.S., it
does not hurt to be big in the telecommunications business and DT is
big.

DT even formed its own venture capital subsidiary known as
T-Venture (www.t-venture.de) to invest in high-tech
telecommunications and information technology companies.

The carrier also is a significant investor in the IP telephony company
VocalTec Communications, Ltd. (www.vocaltec.com) just in case
this Internet thing starts to have an impact on normal telephone usage.

At the same time, DT has proposed to charge its customers a
"processing fee'' of as much as $52 if they want to switch to another
telephone service provider. This does not make DT's competitors all
that happy, and the German government may still force the fee to be
lower. Yes, there is still some place for government control in this age
of competition.

Unfortunately, DT's ability to react to the emerging competitive world
is the exception and not the rule. Just take a look at the U.S. regional
telephone companies for an alternative approach.

Disclaimer: The change process at Harvard is "deliberate,'' thus the
above support for change is my own opinion.