Change is the Name of the Telecom Game

"Welcome to the new MCI. Everything you think you know about MCI is probably past tense." Those are the opening words of a section of MCI Communications Corp.'s World Wide Web home page, but the sentiments are applicable to much of the fast-changing communications industry.

Data. Voice. Fax. Pager. Cable TV. They're all coming together, technologically. The technological union, known by the shorthand label "convergence," has been slower to take root than many would have forecast five years ago, but it's still proceeding.

"Customers are excited about the possibilities, but the products are not ready yet," says Frank Lalley, chairperson of the Interagency Management Council. Instead, the infrastructure is being laid. Telephone companies are replacing their analog systems with ones that convert voices into a stream of digital bits. Simultaneously, television broadcasters have gotten their marching orders from the Federal Communications Commission and will be sending out digital signals for new high-definition digital TV sets.

Meanwhile, the computer is becoming more like a television set and more like a telephone. "The network is the computer" is the mantra of Sun Microsystems CEO Scott McNealy. That vision seemed extreme when first enunciated, but today it's looking realistic. Today's digital media, from compact discs to the Internet, commonly hold and transport sounds, data, images or some combination of these data types.

The convergence of technologies is leading to a convergence of companies. They're merging and acquiring each other at the speed of their high-end products.

This spring, for example, telephone companies Nynex and Bell Atlantic were close to winning regulatory approval for their union. SBC Communications Inc. (formerly Southwestern Bell) and Pacific Telesis Group completed their merger. MCI was on track to merge with British Telecommunications (BT) in the fall. Already a partner with NBC, Microsoft was allying with MCI and BT. A possible merger between online services providers America Online and Compuserve made headlines. 3Com, a leader in network connections such as hubs and switches, was acquiring US Robotics, a modem maker. AT&T got down to business without its NCR computer division and without the hardware-oriented units it spun off as Lucent Technologies. And those were just the big names.

This ferment was not limited to the communications sector of the information technology industry, of course. Throughout corporate America, the sands seemed to be shifting as companies formed unexpected partnerships and strategic alliances became the rage. But the upheaval was especially pronounced in communications.

For almost a century, the nation has developed and sustained a tax, financial and regulatory infrastructure based on separation of communications media. Newspaper publishers, for example, cannot own television stations and cable systems in the same markets where they publish newspapers. For the last decade, long-distance companies could not deliver local telephone service, and vice versa. Now all those distinctions are melting away. "The technology is eating away at the infrastructure" of business and regulation, says Federal Telecommunications Service Commissioner Robert Woods.

It's a time of great uncertainty. "You've got the lions locked up in separate cages, and now we're going to open the gates. No one really knows what's going to happen," Woods says.

The beleaguered federal executive is in particular need of a road map showing a route through the changing contracting environment. Just as the technology and the industry started to undergo rapid change, so too did the rules of federal buying. While the General Services Administration has kept its grip on contracting for bulk voice and data transmission services, agencies such as the National Institutes of Health undertook to compete with GSA's computer schedule contracts by setting up large commodity buys open to all agencies.

For professionals, convergence of technologies and their providers can't come too soon. People are running out of space on their business cards to list separate telephone numbers for their home, office, fax and pager, plus an e-mail address and home page address. It's not just a pipe dream to expect that one day you'll have a single access number (or perhaps two, to separate your personal communications from your government ones).

When someone calls your number, an intelligent telephone system will track you down wherever you may be to receive a call. The system will identify the kind of communique being sent. It will route your faxes and your e-mail to online mailboxes for retrieval at your convenience, and your videoconference calls to your desktop PC.

Before that happy day, managing all these converging communications poses a challenge for everyone. But Woods has some advice for his federal colleagues whose jobs don't directly involve communications and computers: Leave the networking to FTS.

He's recommending that his fellow federal executives recognize the financial and operational risks they're exposed to if they develop and operate their own communications systems. "We think it's exciting-but so is going over Niagara in a barrel," he says.

Woods calls this time of upheaval a business opportunity for other government agencies. They can focus on their core competencies and missions-he names no names, but refers to defense, housing, the environment and so on-and begin to regard communications as a commodity. "I see agencies every day who try to do everything," and don't do it well, he says.

If agencies want their own communications systems, Woods says, they should take a long look at the maintenance and operations issues. His example: About 10 percent of a telephone switch needs to be modified or upgraded every year. At the end of a decade, you've either replaced the whole thing, except for the exterior frame, or else you need "a forklift upgrade" that's expensive and disruptive. "Why would you get into that?" he asks, pointing out that even at FTS, 95 percent of work is done by contractors.

His words come at a time when some may be looking at the post-FTS 2000 procurement as an opportunity to escape from the FTS fold. Agencies are required to get their long-haul telecommunications services through the current FTS 2000 contracts, which expire in December 1998, but that won't be the case for the next generation of FTS, now labeled FTS 2001.

That procurement has gotten caught up in the dogfight among long-distance and local telephone companies in the wake of the 1996 Telecommunications Act. After repeated delays, FTS released the final request for proposal for FTS 2001 at the beginning of May. Woods says he is aiming for contract award around February 1998.

The FTS 2001 contracts will provide more services and competition than predecessors. Agencies won't be assigned to a single contractor, as they are now. Woods says the government can benefit from the competitive ferment. "We think there's a lot of room for price improvement, especially in local services," he says.

FTS already is planning the transition to the next set of contracts. The changeover won't be easy, says Lalley. "Planning for transition is like preparing for a root canal," he says. "No matter how much we prepare, we still expect it to be a painful experience."

Lalley says VA is hoping for more interoperability among agencies' networks in FTS 2001. VA communicates extensively with the departments of Defense, Treasury, Labor and Education, and the Social Security Administration. With the all-digital network that Woods expects to materialize in FTS 2001, interoperability should be less of a problem governmentwide.

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