How Telecommunications Changed the World

how much do telecommunications earn and how to hyphenate telecommunications and how telecommunication is related to the internet
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1 Telecommunications Services, Regulation, and Standardization Kornel Terplan Consultant and Industry Professor Floris G. H. van den Broek Level 3 Communications 1.1 Trends in Telecommunications Marc Hendrickx Telecommunications Services • Telecommunications Service International Network Services Offerings for Business Use • An Enterprise Model for Organizing Telecommunications Companies • Growth Rolf de Vegt Strategies for Telecommunications Operators Renaissance Worldwide 1.2 Regulation Regulation Instruments from a Legal Perspective • A Model for Roger Wery Assessing Regulation in a Country • The World Trade Renaissance Worldwide Organization Agreement on Basic Telecommunications Willem F. Korthals Altes Services and Related Regulations in the U.S. • Regulation in Non-WTO Countries: Overview of Telecommunications Law School Professor Regulation in Africa • Satellite Technology and Regulation • Charles M. Oliver Regulation of Wireless Telecommunications in the U.S. • Kelley, Drye & Warren LLP International Wireless Telecommunications Regulation • Universal Service Regulations in the U.S. and the European Raymond U. Akwule Union • Number Portability George Mason University 1.3 Standardization Telecommunications and Information Systems Standards • In Rob Frieden the Trenches of the Browser Wars: Standards in the Real World Pennsylvania State University Pamela Riley 1.1 Trends in Telecommunications AirTouch Communications Chuck Cosson Kornel Terplan AirTouch Communications Changes in telecommunications are impacting all types of user Al Hammond group, which include business users, traveling users, small and Santa Clara University home offices, and residential users. The acceptance rate of telecom- munications and information services is accelerating significantly. Wouter Franx Voice services needed approximately 50 years to reach a very high Lucent Technologies teledensity; television needed just 15 years to change the culture and lives of many families; the Internet and its related services have Maarten Looijen been penetrating and changing business practices and private com- Delft University of Technology munications over the last 2 to 3 years. David Allen Trends in the telecommunication industry are analyzed from Information Economics and Policy the following perspectives: Magazine • Growth of the global telecommunications market • Increasing network complexity © 2000 by CRC Press LLC • Deregulation and privatization • Communication convergence • Customer orientation Growth of the Global Telecommunications Market Explosive expansion driven by internal growth and acquisition is forcing telecommunications providers to increase the productivity of their current support systems. Growth and acquisition mean that the number of subscribers grows for existing services, new services are provisioned on existing intrastructures, and completely new services on new infrastructures are deployed or acquired. Several support systems vendors have worked to capitalize on this opportunity with solutions that reduce complexity. These support systems vendors do not usually replace existing systems, but add functionality to accommodate new services, such as: • Internet, intranets, and extranet • Special data services on top of voice networks • Wireless services and fixed wireless services • Cable and video services • Voice services on top of data networks Adding functionalities that interoperate with each other opens new business opportunities for support systems vendors. The coming years will experience a bitter competition between circuit- and packet- switched services. Tradition, stability, and quality of existing services will compete against new technol- ogies with easier maintenance and reduced operating expenses. The transition from circuit-switched to packet-switched technologies may take decades. Increasing Network Complexity As a result of customer expectations, the time-to-market of new services is extremely short. Incumbent and new telecommunications service providers do not have the time to build all new infrastructure, but combine existing and new infrastructures, such as copper, fiber, and wireless. They deploy emerging services on the basis of a mixture of infrastructures as an overlay. New services use emerged and emerging technologies, such as: • Emerged technologies: voice networks, ISDN, circuit switching, packet switching, message switch- ing, frame relay, Fast Ethernet, Fast Token Ring, and FDDI/CDDI. • Emerging technologies: ATM, mobile and wireless, SMDS, Sonet/SDH, cable, xDSL, and B-ISDN. Each of these technologies has its own support system solutions. The only elements in Public Switched Telephone Networks (PSTN) that should be managed are the switches themselves. On average, the ratio of managed elements to subscriber lines is around 1:10,000. The advent of distributed, software-based switching and transmission has created a large number of additional managed elements, about one for each 500 subscriber lines. Moreover, multiple elements per subscriber in digital loop carrier systems, digital cellular networks, or hybrid fiber/coax systems may cause an explosion in terms of managed elements. As a result, the size of configuration databases and event messages generated by more intelligent network elements have grown exponentially over the last 20 years. Growth in the number of network elements has been accompanied by an increase in the complexity of items to be managed. Sonet/SDH, ATM, and digital wireless are highly complex, with a high degree of interdependence among network elements. This in turn makes service activation and fault isolation a challenge, especially as the number of service providers increases. As networks shift from lower-speed, dedicated-rate, and inflexible services to mobile, fully configurable, bandwidth-on-demand, and high- speed services, support systems must adapt to this new situation. © 2000 by CRC Press LLC When services are offered in combination, support systems should be modified, re-engineered, and connected to each other. This opens new business opportunities for support systems vendors. The introduction of standards for support systems is accelerating the demand for third-party support systems. Legacy systems are primarily proprietary systems not integrated across functional areas. Service providers depend upon custom development by internal development staff and outside integrators to connect various support systems. The introduction of technology standards, such as Telecommunication Management Network (TMN), Distributed Communication Object Model (DCOM), Common Object Request Broker Architecture (COBRA), Telecommunications Information Networking Architecture (TINA), and Web-Based Enterprise Management (WBEM) have begun to gain critical support by new support systems vendors. The implementation of standard gateways enables interaction between newer client/server solutions and existing legacy systems, easing interoperability among all support systems. In particular, TMN may help to streamline support system processes and to position support systems. Deregulation and Privatization Telecommunications service competition began in the 1980s in the U.S., led by MCI with three operating support systems playing a key role. The AT&T divestiture in 1984 marked a major breakthrough. The second significant milestone was the Telecom Act of 1996. As telecom deregulation continues, with Regional Bell Operating Companies (RBOCs) actively pursuing the long-distance market and long- distance carriers moving into local services, major support systems re-engineering efforts are expected. Under the pressure of the European Commission (EC), Europe is in the process of deregulation and privatization. It is a much slower process than in the U.S., because multiple countries are involved with their own agenda. Interoperability of support systems is more difficult than in the U.S.; but at the same time, it offers opportunities for support systems vendors. It is assumed that Asia/Pacific, South America, Eastern Europe, and Africa will follow this deregulation and privatization trend. Competition is everywhere — long distance, local exchange, ISP, cable, and wireless. In many cases, support systems are the differentiators. The best opportunities are seen with Competitive Local Exchange Carriers (CLECs). Support systems requirements vary quite substantially from carrier to carrier. As a result, CLECs support system strategies are ranging from internal development, to outsourcing, to systems integrators, and to third-party software/service providers. CLECs could be small or medium sized, with or without facilities. In all cases, they must interoperate with Incumbent Local Exchange Carriers (ILECs) by opening the support systems to permit access by CLECs in various phases of provisioning and order processing and service activation. Key issues are: • Local Number Portability (LNP): This allows customers to retain their telephone numbers even if they change service providers. It is not only the telephone number that is important; customers also typically want to retain access to advanced features they have come to expect from an intelligent network. • Extranets connecting support systems of ILECs and CLECs: ILECs are required to provide access to information on five classes of support systems. They are preordering, ordering, provisioning, repair, and maintenance. • Directory services: Real-time service processing requires additional customer-related data. The expanded directory role includes end-user authorization and authentication. It also includes the real-time allocation of network resources according to a user’s class of service and other policy- based variables. Directory Enabled Networks (DEN) promise to increase momentum for directory services by bringing physical infrastructures under the directory umbrella and tackling the stan- dardization of directory information. • Fraud management: Offering multiple services that are accessible by user-friendly interfaces increases the risks of penetration. Service providers agree that up to 5% of their revenues is lost as a result of fraud. Real-time surveillance systems combined with customer analysis features of billing systems may help reduce fraud risks to a reasonable minimum. © 2000 by CRC Press LLC • Usage-based billing: Time- or pulse-based billing has been very successful for decades in voice- related environments. As data-related services dominate the communications infrastructures, customers are expected to be billed on the basis of resources they have actually used. In data environments, resources are shared between multiple applications and multiple customers. Incumbent service providers have turned to advanced support systems to differentiate their long- distance or local-exchange services from each other. After a substantial investment in custom systems over the last few years, many incumbents have begun to focus on upgrading their support systems with best-of-breed technologies. Many of them try to augment older systems to add more flexibility while sustaining traditional levels of performance and reliability. This creates additional complexity and requires that new management solutions designed for advanced equipment also work with older technologies. As a result, “umbrella-types” of support systems are in demand, opening new opportunities for support system vendors with integration capabilities. To remain competitive, incumbent carriers need to deliver an increasingly larger number of new products and services. This has created a mixture of equipment, software, and services within many carriers. Innovation and re-engineering on behalf of the incumbent carriers include: • Better customer care: Based on CalI Detail Record (CDRs) and other resource utilization-related data, unsophisticated customer analysis can be accomplished. It includes discovering trends in customer behavior, traffic patterns, reasons for frauds, and service-related items. • Convergent billing: The customer may expect to receive one bill for all services, such as voice, data, video, and Internet. The minimal requirement is to receive multiple bills with electronic staples. • Rapid provisioning of new services: Based on additional support systems, provisioning can be expedited by better interfaces and more accurate data. • Service differentiation: Still using the same infrastructures, new services can be created and deployed. Carefully defining the value-added nature of new services will lead to customer differ- entiation. • Offering new services, such as Internet access, xDSL, VPN, and VoIP: Incumbent service providers are expected to react rapidly to new communication needs, including a offering Internet access for reasonable payment, and deployment of xDSL, VPNS, and VoIP. In each of these cases, either the deployment of new support systems or the customization of existing support systems is required. In both cases, additional market opportunities open for support systems vendors. Communication Convergence Advanced technology coupled with deregulation is driving communications convergence. Customers prefer to get all types of services, such as long distance and local voice, data/Internet, cable/video, wireless access, from the same service provider. Voice is expected to support both local and long distance, requiring it to play an LEC and IEX role at the same time. Data are gaining importance for both local and long distance, and usually includes Internet access. Data are supposed to reach voice volumes within 5 years, requiring total rebuilding of circuit-switching technology. Cable is expected to accommodate voice and data in addition to video. Wireless includes all kinds of mobile services and satellites that support voice, video, and data. Deregulation was intended to encourage competition through proliferation of new entrants. Looking to gain share, carriers are entering each other's market, blurring traditional lines between services, geographic coverage, and communication platforms. Aggressive new carriers have moved rapidly to establish nationwide service networks, consolidating local, long-distance, Internet, wireless, and cable services under one umbrella. Incumbent carriers are trailing this way of convergence. The U.S. shows an © 2000 by CRC Press LLC excellent example of this convergence; the big eight carriers cover most end markets. These carriers are AT&T, Bell Atlantic, BellSouth, GTE, SBS, Sprint, US West, and WorldCom. But they still leave room for hundreds of point products, mostly best-of-breed telecommunications products and services. In partic- ular, the number of Internet service providers (ISPs) is growing significantly. Also, other providers with or without facilities are gaining momentum in city areas or by offering services to special business communities. Communication convergence necessitates the deployment of next generation support systems. Relying on advanced technologies, client/server, or Web-based support systems enable convergence carriers to offer their customers higher total value through new, innovative products and services; superior customer service; and customized pricing and billing. At the same time, support systems guarantee profitability by increasing effectiveness of processes by automating all routine processes and by supervising quality of services metrics. Customer Orientation Competition is driving telecommunications service providers to emphasize customer management. Driven by global competition, carriers are likely to focus on improving the total value of their services — quality, support, and price — as a means to retain customers. Many of these improvements will come from advanced support systems. Besides improving the customer interface — e.g., offering Web access — granular data available with new support systems can be utilized to retain key customers and reduce the amount of customer churn. Over the longer range, further differentiation is expected. High-margin customers may receive special treatment, average customers just average services — similarly to other industries. Customer Network Management (CNM) incorporates a class of support systems that enable end users to view, troubleshoot, reconfigure, and generate reports securely on their subscribed telecommunication services. CNM provides strategic links to the customer and allows service providers to differentiate their offerings further. Support systems vendors are expected to offer the following: • Performance: Extraction of the information from the network without slowing overall network processing. • Customization: Packaging information so that customers can receive an appropriate level of detail, in a way they can understand. • Security: Delivery of the information to the customer in a cost-effective and secure manner so that customers see only relevant information about their portion of the network. It is expected that Web technology will be used to deliver this service. CNM represents a modest source of incremental growth for support systems suppliers. Certain support services can also be outsourced. The customers may not know where the support services come from. Today's outsourced solutions are service bureaus. They may outsource all or part of the carrier support systems. In the latter case, the vendor relies upon remote access to the carrier’s existing solution to deliver incremental functionality. For most emerging carriers, the benefits of outsourcing outweigh the negatives. The Telecommunications Handbook addresses most of these trends and goes into depth on the following subjects: • Evolution and future of voice-related services • Evolution and future of data-related services • Challenges in the wireless environment • Use of the Internet for business applications • Architecting and deploying intranets and extranets © 2000 by CRC Press LLC • Administration and management of telecommunications systems, networks, and services • Estimating future telecommunications technologies and their impact on user communities 1.1.1 Telecommunications Services Floris G. H. van den Broek 1.1.1.1 History of Telecommunications Services Offerings Telecommunications, “communicating over a distance,” has existed for thousands of years, in the form of smoke signals by the Indians or light communication by various groups, which later developed into lighthouses to communicate with ships several hundred years ago, resulting in the optical telegraph. The real step forward in bridging a distance of more than a few miles was the invention of electricity-based telecommunications services by Samuel Morse in 1838. He invented the telegraph, a device that uses electrical signals, transported over a copper wire. He developed the Morse alphabet as a standard way of expressing our language in electric signals. Later, the telegraph was fitted to use radio waves for trans- mission. The telephone made it possible to communicate with normal voice and was invented by Alexander Graham Bell in 1879. The principle of operation of the telephone changed little between 1879 and today, but the technology for transmitting the electromagnetic signals from the telephone has changed drastically. Initial communications were based on overhead wires, that all connected to a manually operated exchange, introduced in most countries around 1900. The first electromechanical switches appeared in 1930s. They replaced the telephone switch operators and allowed dialing a number by the subscriber himself. However, it took until the 1960s in most Western countries for all the manually operated switches to be replaced by automatic switches, and some countries in the world still rely on manually switched networks today. Since 1966, when the first telecommunications satellite was launched, telecommunications between continents grew enormously and international transmission of television images was made possible. 1.1.1.2 Introduction of Multiple Suppliers Historically, the telecommunications services offering in countries was a task of the government. The government operated a ministry or public body that would be responsible for offering telecommunica- tions services. The services were seen as utilities to be provided to everyone at the same price, usually regardless of where the user resided. There were also technical reasons to keep the complete network in hands of one party. The technical solutions had not been found to account for use of a “bottleneck resource,” such as the infrastructure, by more than one party. The offering of services consisted of a limited number of services that the government deemed necessary and beneficial for the users in the country. The government also controlled the quality of the services offered. If services were offered by a state-owned company, requirements were placed on the company. These one-supplier environments still created problems. In some countries, where that situation still exists, the examination of a telecommunications services offering in that country is then an easy task, as only one information source is needed. In the early 1980s, some governments started changing that situation and multiple suppliers emerged in some countries in the 1980s and 1990s. In the U.S., (one of the first countries to open for multiple suppliers) a series of lawsuits led to the decision of Judge Greene to open the U.S. market for long- distance telecommunications services on January 1, 1984. In February 1996, the market for local tele- communications services was opened. In other countries, the dates for introduction of multiple suppliers vary, and in many countries there is still only one supplier. More information on this is available in Section 1.2 on Regulation. 1.1.1.3 Categorizing Services Telecommunications services can be characterized in different ways. Distinctions that are often used are public vs. private services, data vs. voice services and wireline vs. wireless services. © 2000 by CRC Press LLC FIGURE 1.1 Private networks, public networks, and their primary management organization. OSI Layer Typical party in the market Examples of services of telecom services for the service value level End-user Layer 5-7 (e.g., email, phone answering service, Value-Added Services (VAS) internet access) Value Added Service provider or reseller Layer 2-4 Basic Data Transfer Services (BDTS) (e.g., Public Switched Telephone Network (PSTN), leased line services) Telecom operator (e.g., dark optical fiber service Layer 1 Infrastructure Services (INFR) electromagnetic radio spectrum) Infrastructure operator FIGURE 1.2 The service value model. Figure 1.1 shows an overview of the relationship between public networks and private networks. Both public and private network services are commonly used by international organizations. The difference in essence stems from the ownership of and access to the network, which can be public (a body owns it and everyone has access to the same network) and private (only the party that leases or buys the network may access it). In practice, there are also services which are private, but are implemented on public facilities. In that case, the operator usually implements the technological measures on a public network to give the virtual private network user access to a seemingly private network. Service Value Levels Telecommunications services may be categorized in several levels, which we have called “service value levels.” However, multiple ways of denoting such levels exist. The main purpose for categorizing services in such a way is that regulation in many countries uses a similar distinction to categorize services and the rule that the provision of a certain category of services is open to competition. The service value model is depicted with examples in Figure 1.2. The service value model is related in this figure to another, more standardized model, which is the open systems interconnection (OSI) model. The OSI model is used more in technical descriptions and, in this introductory section, we will not address its details. The categorization in service value levels is adequate for most practical cases and is intuitively easy to understand. © 2000 by CRC Press LLC In reality, there may be multiple parties (and supplier–customer relationships) at each layer of the service value model. Also, some regulatory environments in countries use the term enhanced services, rather than value-added services. What exactly is meant by enhanced services depends on the country. Since the regulatory environments for enhanced services are often more relaxed than for basic data transfer services, there is an incentive for suppliers of telecommunications services to try to categorize as many services as possible in the enhanced services category. That way the regulation for providing that service would be much less strict. An example of such a loophole in the legislation is the use of different protocols, such as Internet Protocol, to send voice over a private line. The resulting voice- connection service looks exactly the same to the end users, but the transmission protocol is different. Some regulatory environments see the translation of a circuit-oriented connection into packets, giving each of the packets its own path for transport, as an enhancement and therefore call it (e.g., in the U.S.) “enhanced service.” 1.1.1.4 Examples of Services The service value model already shows several examples of services in the rightmost column. Some services are addressed here in more detail as they are often used in industry. First of all, the standard telephone service is addressed. A more precise name for that service is Public Switched Telephone Network (PSTN). The PSTN is the most extensive in the world and allows people with a telephone set to speak with each other. In recent years, the PSTN has also been used for transmission of faxes (images from paper converted into data) and data (via modems). But, in essence, the PSTN service still transmits sounds between PSTN connections in the world. These connections are highly standardized and various kinds of telephone sets can be used in almost all parts of the world. In the service value model, we regard PSTN as a basic data transfer service. Integrated Services Digital Network (ISDN) is a service that is less ubiquitous, and one that has become popular in recent years. The most important difference is that the circuit between the parties that are connected is digital rather than analog. It can therefore transmit more than just sounds and is much more efficient in transporting data signals. In one view it replaces the existing PSTN service, but in other views it adds a series of services to PSTN, which are quite different from anything that PSTN can offer. The new services are based on transport of data. Not only can data be transported very fast (basic rate ISDN is 144 kb/s), but data can also be sent while the ISDN circuits are in use, and therefore additional end-user services can be performed, such as call waiting, calling line identification, and transmittal of packet-oriented data (such as Internet traffic). Most regulatory environments still do not characterize ISDN as a value-added service and therefore it fits in the “basic data transfer service” category of our model. An example of a value-added service would be the virtual private network service, which connects users in different locations with each other, so that they seem to work in a “closed user group.” Working in a closed user group, they can call each other with short extension numbers and they can use different features of telephones, that are usually available for the users of phone extensions in businesses connected to a private branch exchange (PBX). There is also a “data version” of the virtual private network, which, just like that described in the voice example, forms a closed user group exchanging data. Other examples of basic data transfer services are the services meant for the transport of pure data, such as leased lines (supplying a permanent circuit) or packet-switched service (supplying transport of packets of information). An example of an infrastructure service is dark fiber service. This service is not yet widely offered, but gives operators the capability of completely controlling the transmission technology on both ends of a fiber and also reaches efficiencies by using types of equipment that make maximum use of the fibers. Figure 1.3 shows an example of actual supplier–customer relationships, mapped on the service value model. Chosen is an example of a multiple country situation, to make it clear that operators can operate across borders. Infrastructure operators are most often active across international borders, as they have, for a long time, formed an actual bottleneck for communication and had to supply service across borders © 2000 by CRC Press LLC FIGURE 1.3 Example of supplier-customer relationships mapped on the service value model. as a mandate by their governments. Infrastructure operators are at the bottom of the service value model for the actual owner and manager of the border, crossing links. Some value-added service providers try to become “international” by offering “managed services,” e.g., at the value-added services level, such as the value-added service provider (d) that operates in both country A and country B and therefore maintains relationships with both infrastructure operators (g) and (h). The service value model here helps to understand the relationships between the parties that enable the operation of the international network. In Figure 1.3, both the end-customer organization (the multinational organization, b) and value-added service provider operate across international borders. Standardization of Services Telecommunications services can be categorized by their use (e.g., video services, voice services, and data services). The function of the service is sometimes even used to describe the service, but that can lead to various misinterpretations. Telephone service, for instance, is a term that is often used, but when looking at different countries and networks, many services can be identified that could be named telephone service. This includes telephone service with a certain technical interface between the telephone (an often- used type of terminal) and the central office location of the provider of the services. Telephone services could be provided using, for instance, an ISDN network, or a TCP/IP network. Some services are standardized and named such that a wide audience knows what the service is exactly and may use it with standardized equipment and peripherals that connect well with the networks. More on standardization follows in Section 1.3 of the Handbook. 1.1.1.5 Quality of Service Quality of service is an important aspect of a telecommunications service. Quality of service Cole, 1991; Frieden, 1996 was measured the very first time that networks were made available, but as there was often only a single supplier in the country, quality of service was measured and reported to the government organization responsible for the network, and that was it. Of course, there were certain quality of service levels that were required in many countries, because of the importance of the network for, e.g., emergency calls. During the 1980s and 1990s, a more detailed system for measuring quality of service was established TCP/IP = Transaction Control Protocol/Internet Protocol. © 2000 by CRC Press LLC in many countries. Quality of service is now measured with “performance indicators,” that each cover a particular aspect of quality of service. For example, a few common performance indicators for PSTN services are system response time or speed of dial tone, the number of trouble reports compared with the number of users per month, and call completion. The indicators differ according to the type of service. The overviews of Frieden 1996 and Cole 1991 show that, 3 to 4 years after a change in the regulatory environment that resulted in more competitors for each of the telecommunications services, there was a measurable improvement in quality of service. Today, quality of service is an important aspect of a telecommunications service and is used in marketing the service, just like price and other aspects of the service. 1.1.1.6 Current Developments in Telecommunications Services Currently, telecommunications services are evolving rapidly. The demand for data-oriented services, such as TCP/IP, is showing a fast growth, and voice services (also growing at a steady pace) is becoming more and more ubiquitous. The demand for data services is also shifting from circuit-oriented services, such as leased lines, to packet-oriented services, such as TCP/IP or frame relay service, which make better use of the available network capacity and provide for the transmission of big chunks of data in relatively short time frames. As competition among providers of telecommunications services intensifies, customers demand more quality of service and lower prices. To supply these, service providers use a standardized basic data transfer service, such as TCP/IP, and establish only one worldwide network with this basic data transfer service and then provide various value-added services using the common basic data transfer service. This avoids use of multiple networks, which each has to be managed individually and can therefore be more costly than the management of one integrated network. Sections 1.1.2 through 1.1.4 give an overview of how end-user telecommunications services are created by an operator and how that operator can create these services most efficiently and effectively to fulfill the needs of the users. References Cole, B.G., After the Breakup, Assessing the New Post-AT&T Divestiture Era, Columbia University Press, New York, 1991. Frieden, R., International Telecommunications Handbook, Artech House, Norwood, MA, 1996. 1.1.2 Telecommunications Service Offerings for Business Use — What Does It Take to be a Credible Service Provider? Marc Hendrickx 1.1.2.1 Introduction This section is intended to provide a brief introductory overview of some of the key factors to be taken into consideration when assuming the role of a telecommunications service provider in today’s world. The section puts particular emphasis on corporate data network services for the larger multinational organizations, such as private multinational companies. At first, the business drivers of prospective customers are analyzed, which are subsequently translated into customer networking needs. Subsequently, we infer strategic principles for a telecommunication services provider aiming to satisfy the identified customer needs. The principles finally are linked to guidelines to construct a suitable offer to the customer and corresponding service provider operating model. The performance indicator “quality of service” in the study of Cole 1991 is expressed in “transmission quality, average PSTN dial tone delay, percentage of service orders completed on-time, percentage of calls completed, customer perception surveys” p. 261. © 2000 by CRC Press LLC 1.1.2.2 Telecommunication Services as an Organizational Resource 1.1.2.2.1 The Professional Telecommunication End-User Perspective Although all professional organizations, profit or not-for-profit, aim for creation of sufficient stakeholder value, in order to maintain their success, they particularly need to be able to continuously distinguish themselves toward their customers. The customer in this respect may materialize into someone with whom the sales transaction is formally closed (the buyer) or into someone who consumes a service from the product bought (the end user). The position is taken here that the customer’s end user is the final decision maker on whether the service derived from the product delivers the required benefit. Professional organizations that have taken distinctive positions in the last decade have narrowed their focus to delivering superior value toward end users according to three well-known value disciplines: operational excellence, customer intimacy, and product leadership Treacy and Wiersema, 1993. Superior customer value is achieved by organizations that are able to push the boundaries of one value discipline while meeting the standards of their professional sector in the other two. Key to this is the effective alignment of the organization’s entire operating model to serve the chosen value discipline strategy. What are the primary actions that need to be taken to this extent and how can telecommunications be an effective enabler? The following items have been observed during recent surveys by OVUM among their panel members: • Improving business processes • Improving customer service • Cost reduction and control • Creating a competitive advantage Improving Business Processes Changing working practices (increases in teleworking and remote working) and buying practices (con- sumers are more willing to make purchases remotely) force organizations to generate value quickly and be accessible all day, every day. This on its turn has led to an increased usage of business process re- engineering to reduce the time from request to order fulfillment and the use of telecommunications to reduce organizational complexity. The deployment of new processes essentially identifies the need for improved communications along the workflow. Telecommunications enables faster transportation of documents, allows on-line access to business critical information irrespective of storage place, and brings the work to the person. It thus facilitates teams of people that are either geographically dispersed, or are working as virtual teams in so-called knowledge communities. Improving Customer Service Through telecommunications, customers can be given workstation access to their supplier which may provide them with an increased level of convenience and service. The idea here is to reduce customer hassle to do business with suppliers. The workstation may range from a Touch-Tone™ telephone set to a dedicated computer terminal. Examples are electronic information dissemination (e.g., product port- folio information, order tracking, invoice queries) and electronic transactions (e.g., cash management, ordering of goods, telephone subscriber line removal). Cost Reduction and Control Traditional management information systems use an organization’s accounting system that generates monthly reports on paper. Nowadays, organization’s decision makers want information on a more regular basis and on-demand. To this extent, corporate information warehouses are being built that capture information as often as needed at its sources (production lines, points of sale, etc.). Another area where telecommunications is seen to enable cost control and reduction is inventory management. In fact, OVUM, company literature, 1996. © 2000 by CRC Press LLC organizations that practice state-of-the-art, just-in-time operations rely heavily on telecommunications to obtain information to monitor and match demand for goods. Competitive Edge Telecommunications has been a critical enabler for many organizations to gain a competitive edge among their competitors. An example we already have seen above is electronic supplier access, which may at the same time secure an existing customer base and open inroads to new customers. Another example is the ability to differentiate a commodity product through speed of service, information by-products, and ease of access. But telecommunications can also facilitate new products or services through leverage on an existing installed technical facility. A large computer manufacturer that offers remote assistance through a call center may diversify using the same customer information and technical facility to start a telemar- keting business. 1.1.2.2.2 The Corporate Telecommunications Manager Perspective So far we have identified the generic business drivers from the end-user community, but now we need to perform the translation into corporate telecommunications network drivers. Within a customer’s organization, this translation role is often taken up by the corporate telecommunications manager. A recent survey of the Yankee Group identified the number one driver as geographic expansion, as orga- nizations move into new markets and countries to gain new customers and suppliers. This is followed by a need for cost management (business driver = cost reduction and control) and then generic issues that will ensure better management of the business leading to improved levels of productivity and customer satisfaction (business driver = organizational processes). Today’s corporate networks consist of many individual networks and different technologies, often with their own specialized staff and operating procedures. About 50% of existing traffic in corporate WANs is telephony, modem data, facsimile, and video applications. The remainder decomposes into 35 to 40% LAN Data and 10 to 15% IBM/SNA. What has resulted is an overall structure that is both inefficient and expensive to operate and that creates barriers to change. The traditional organizational network archi- tecture has become a performance and cost hassle or even a real bottleneck. In addition, a corporate telecom manager faces a strong demand from real-time desktop multimedia applications, leading to an increased demand for differentiated network performance and increased traffic load. Issues that are of particular concern to today’s telecom managers: • Network Management, a pivotal function and specifically within that availability and reliability. If the network is business critical it has to be there when it is needed and working to full capability. • Cost Management, essential in order to ensure that costs are in line with the benefits received. Today many organizations do not have a good measure of their telecommunications costs and the service performance delivered. • Skill Management, the need for suppliers to be able to provide complex networks and the ability to change network configurations in line with business needs, is linked to the supplier having the right skilled people supported by processes and tools. 1.1.2.3 Telecommunications Services as a Business Recalling the primary network drivers for our potential customers, identified above, how should a telecommunications service provider respond through incorporation of these drivers into its value prop- osition? Figure 1.4 captures the strategic responses to each of the drivers, which will be worked out in the next sections. 1.1.2.3.1 Business Process Improvement The implementation of business process improvements is leading to more and more virtual teams being created on a short-term basis, and often in different physical locations. We expect the organization to Yankee Group, company literature, 1996. © 2000 by CRC Press LLC Business Process Improvement Services and Capabilities Cost Management and Control Information Management Tools and Services Geographic Expansion Service Coverage FIGURE 1.4 Threefold challenge to a telecommunication service provider. invest heavily in voice-, call-, and information-processing systems to manage its workflow queues, originating from internal (field sales, production staff, etc.) and external calls (customers and suppliers) in the form of voice mail, E-mail, and fax. This development reinforces the importance of improved communications. A number of services and capabilities are developed specifically to aid either the remote worker or those on the move: • Linking Remote Workers — Internet services, virtual network services, frame relay, ISDN — Audio and video conferencing • Linking Workers “on the move” — Remote and mobile access to their corporate networks — Dial IP • Sales/customer service via call centers But at the same time there still remains continual demand for services that provide wide-area inter- connection between all kinds of “legacy” computer applications that operate along with proprietary protocols, such as IBM/SNA, DECnet, and AppleTalk. Hence, many of the larger corporations request total value-added (network) solutions that are able to handle these types of traffic. 1.1.2.3.2 Cost Management and Control Organizations expect their telecommunications service providers to contribute significantly to the ongoing enhancement of overall operating efficiency. This is where we see the bigger providers offering global purchasing schemes, tuning of maintenance levels, rapid change management services (within a day), and various kinds of operational lease arrangements. In addition, organizations want a more accurate quantitative view on the wide-area network cost drivers themselves. A number of information management tools and services are offered by today’s bigger telecommunications service providers to facilitate customers in their process of cost monitoring and network service productivity tracking. Some essential tracking tools include: • Monitoring of network status, performance, and quality through on-site equipment and through extensive reports on, for instance, network service levels and implementation progress; • Cost accounting through billing reports; • Service trends and usage monitoring through service utilization reports. More recent developments in this area focus on customization to specific business requirements, such as customer-defined service level agreements and enhanced interfaces to the service provider through Web-based reporting tools. © 2000 by CRC Press LLC 1.1.2.3.3 Geographic Expansion An organization that develops itself internationally and creates in-country footholds outside its home country typically extends its telecommunications network requirements correspondingly. Major factors determining the network (or traffic) evolution in such a case are the type of business growth (e.g., organic or acquisition), size of the foreign-country business, and autonomy of the foreign operation. The most common customer network or traffic evolution scenarios that follow are “few-legs-abroad” and “sub- hub-abroad,” the former consisting of a star-shaped network (or traffic) extension whereas the latter comes with one or more new networks deployed in the foreign country. A corporate customer expects a telecommunications service provider to have its network points of presence nearby its own sites to maximize service availability and to minimize cost. However, from a service provider’s point-of-view, economies of scale will generally decrease the closer its service access points move to the customer premises. Physical network access (e.g., by dedicated fiber, leased line, or ISDN) therefore often constitutes a major cost element to both service provider and customer, specifically in nonregulated or partly deregulated areas. But the advent of competing metropolitan area networks in major cities and business areas around the world will force access cost to go down. Apart from the physical network interfaces, customers will also have requirements for organizational interfaces with their service provider(s), such as for service ordering, implementation, billing, and inquiry. This network of management services may evolve quite differently. During the first stages of internationalization through autonomous organizational growth, an organization may wish to keep all of its providers’ interfaces at its headquarters. In case of internationalization through successive acquisitions, some of those interfaces may be required in more than one country, e.g., for account management and billing. 1.1.2.4 Organizing for Added Customer Value In developing its strategy, the telecommunications service provider first needs to decide: • Which solution packages it wants to create; • Which services it wants to create itself and which it needs to buy; • Which value discipline it wants to use for competitive differentiation. 1.1.2.4.1 Building a Telecommunications Solution The first fundamental choice is strongly dependent on the type(s) of customer network requirements the telecommunications service provider wants to address. The principal choices lie along three axes from which solution packages can be built (Figure 1.5): service elements, process elements, and network elements. The basic criterion is to what extent each of these elements is marketed to the direct benefit of the customer. Three of the most common types of solution packages have been shaded in the future: infrastructure services, network services, and value-added services. for instance, a public telecom operator (PTO) selling a leased line service typically delivers an infrastructure service if provisioning is limited to the electrical connection itself and some kind of help desk service that logs faults reported by the customer and ensures fault repair. The PTO could add more management value through proactive monitoring of more service param- eters, such as usage and performance. It could provide these measurements in the form of regular reports to the customer. It could also care for installation and maintenance of network equipment connected to the leased line on the customer premises, such as bridges or routers. In this way the PTO tasks itself to increasingly manage the wide-area network of the customer and hence starts delivering a network service or even a value-added service. The rather blurry line between network services and value-added Service is crossed if the PTO starts operating on customers’ proprietary systems and data. Value-added services are “visible” not only to the IT manager, but also to the end users of a telecommunications service provider’s customer. An example of the latter is an E-mail directory service or a fax store-and- forward service. © 2000 by CRC Press LLC FIGURE 1.5 Telecommunications solution elements and some key service families. 1.1.2.4.2 Telecommunications Solutions on the Market The next choice is to determine the service portfolio depth and broadness. The matrix in Figure 1.6 gives an impression of the wide range of telecommunications services and service packages offered by tele- communications service providers today. As we move from the bottom to the top of the services matrix, we see service providers adding more value to the information transported for their customers. Another characteristic of the matrix is that each service typically supports a service in the next layer. The bottom layer consists of the so-called infrastructure services such as the cables of a metropolitan cable TV network or frequency slots of a satellite transponder. The network services layer still shows signs of the old telecommunications market paradigm: the data communication world (left-hand side) vs. the telephony world (right-hand side). Yet, we also see signs of services integration on this layer with the advent of ATM services, Voice-Over Frame (VOF), and Voice-Over IP (VOIP) as key examples. The latter service is an important building block for Internet telephony service. Fast-growing services in this layer are frame relay and IP, whereas demand for X.25 packet switched declines, although it still accounts for a large installed base of wide-area networks. As stated before, network services are not generally visible to end users, but value-added services generally are. Examples are directory services offering navigation capabilities to various kinds of distrib- uted applications or global freephone services that offer number transparency in all countries. Internet VAS include Web site mirroring, digital signature services, encryption services for secure file transfer, or Internet telephony. Approaching the top of the figure, we move into horizontal applications like workflow management services (e.g., SAP, Baan) or industry segment–specific solutions like broker voice services combined with dealing-room applications oriented toward financial trade institutions. With the organization’s demand for multiservice flexibility and cost control, service-independent network services such as ATM or IP rapidly seize the market (Figure 1.7). These cell or packet-oriented services are seen to be a more effective means of information transport, be it telephony, E-mail, SNA, or video. Techniques such as IP tunneling or priority-class PVCs arrange for special treatment of each class of traffic. The explosive growth of IP-based public services (the Internet) fuels the demand from corporate end users for similar services in their private environment. The Gartner Group predicts that Internet connectivity will penetrate corporate user sites from 12% now to 40% in 2005 for the European Union, while the U.S. will see this penetration ratio grow from 25 to 70%. Sales staff in far-off places with no Gartner Group, company literature, 1997. © 2000 by CRC Press LLC Health Financial Retail Manufacturing Transport Entertainment Government Media Other Care Services Information Access Collaboration Workflow Electronic CTI Other Management Commerce and transfer and learning Security Remote LAN Inte- Audio Call Groupware Messaging Packages Management grated Conferencing Center Voice/ Data Other Directory Remote WAN Global Fax/ Internet VAS EDI CNSM IN Services Management Freephone telex Applic. IP VOIP Dial Internet Gateway Mobile Connectivity X.400 VNS Access IP Services Access (Intranet) VOF SNA MBS Frame Relay X.25 Dial X.25 ISDN PSTN Other ATM Leased Line SDH PDH ADSL Other Copper twisted pair Optical fibres Coax Cables Radio Micro Wave Satellite Other FIGURE 1.6 Today’s telecommunications services landscape. Health Financial Retail Manufacturing Transport Entertainment Government Media Other Care Services Workflow Electronic Information Access Collaboration CTI Other Management Commerce and transfer and learning Security Remote LAN Inte- Audio Call Groupware ISP Based Messaging Packages Management Conferencing Center grated Business Voice/ Data Other Directory Remote WAN Global Fax/ Internet VAS EDI CNSM IN TCP/IP- Services Management Freephone telex Applic. Based VAS IP VOIP Dial Internet Gateway Mobile Connectivity X.400 VNS Access IP Services Access (Intranet) VOF Traditional Telecom VAS Internet SNA Access ATM MBS Frame Relay X.25 Dial X.25 ISDN PSTN Other ATM Leased Line SDH PDH ADSL Other Copper twisted pair Optical fibres Coax Cables Radio Micro Wave Satellite Other FIGURE 1.7 Trends in the telecommunications services landscape. access to their corporate WAN in the neighborhood seek to use local ISPs (Internet service providers) as alternative means of access. As network sections that are publicly accessible are traversed, security becomes a major issue. But ease of network and service interconnectivity through a de facto standard suite of communication protocols drives the increasing amount of inter- and intracorporate data traffic to be carried by the TCP/IP service. 1.1.2.4.3 Building the Value Proposition Delivering telecommunication services means that the customer’s end user is a co-producer. Without his or her ongoing minute-by-minute cooperation, no service is delivered or produced and no value is created by the service provider’s activity. This perhaps simple and straightforward statement has important © 2000 by CRC Press LLC Infra- Network Value Added Applications Infra- Network Value Added Applications structure Services Services Horizontal Vertical structure Services Services Horizontal Vertical Competitive Differentiation Reputation, Credibility, Viability, Brand Product Geographic Service Quality Pricing Functionality Coverage Breadth of Service & Terms • Features • Reach • Future • Availability • Contract Reputation, Credibility, Viability, Brand • Interworking • Depth migration • MTTR • Discount • … • Support • … • … • … Sales Installation Network Repair & Billing Quality Maintenance • Pre/Post • Process • Performance • First Contact • Accuracy • Pro/Re-Active • Procedures • Coverage • Statusing • Timeliness • Vendor/Partner • Ready for Service • Service levels • Follow-up • Periodicity • Skills • Quality • … • Change cycle • … • … • … Service Management FIGURE 1.8 The telecommunications service differentiation pyramid. consequences in our present effort to construct the right value proposition to the customer, in which the aspects of service management play an important role. Let us first consider the basic elements of the telecommunications service value proposition, as the source of added customer value and thus of competitive differentiation in the telecommunications marketplace (Figure 1.8). Three groups of attributes, shaded in the figure, are seen to feed the proposition: the service product attributes and the service production attributes on the one hand, and the commercial attributes on the other. Taking a frame relay service as an example, the corresponding service product attributes will be commonly expressed in terms of committed information rate, bursting capabilities, geographic coverage of the service, and so on. Our marketing task here lies in the translation of the customer’s requirements into a set of attributes that generates the benefits expected. Service production attributes relate to the way the service is perceived by the customer throughout production. We first need to determine the points where customers will touch and interwork with our organizational processes and where they either see their performance expectations confirmed or denied. Typical touch points are the account manager, the implementation, and the help desk teams. Next we define the real-time measures of service quality for each customer touch point, in terms of perceivable values, such as ready-for-service or time-to-repair. These are the so-called Direct Measures of Quality (DMOQs). Finally we translate the DMOQs into internal equivalents (MOQs), alongside the required processes to deliver the attribute. This identification and translation task is at the heart of telecommu- nications service marketing, ranging from sales, implementation, repair and maintenance, and billing, to customer inquiry. 1.1.2.4.4 Building the Value Chain The final step is to define the way the value proposition is delivered to the customer. At this point, we need to start talking about telecommunications business assets that need to be organized in the most productive way to deliver to the customer the agreed value proposition. Figure 1.9 aims to identify the most essential tangible and intangible assets of a telecommunications value chain, which has been simplified for the Committed information rate refers to a minimum data throughput parameter, agreed and guaranteed on a per- customer basis. Bursting allows a customer to exceed the committed information rate, although without throughput guarantees. © 2000 by CRC Press LLC Customer Distributor Brand Package Service Platform Infrastructure FIGURE 1.9 Telecommunications asset staircase. purpose of this section. Each asset type can be financially valued and legally owned. And each asset builds upon a previous one to add value. Each asset is indispensable for making the value chain work. The infrastructure assets typically are network utilities such as switching, transport, and signaling that create the basic telecommunication network, although without customer interfaces. The platform asset generates the customer service and customer intelligence (e.g., directory, ordering, customer care, and billing applications) through which a marketable end-user service can be created (e.g., leased lines, ATM/CBR, frame relay, or EDI). The recipe (or market formula) according to which this end-user service is designed, operated, and sold to the customer is contained within the service asset, which is intangible: it is intellectual property. One or more services can be put into a commercial (such as price bundling, service level guarantee) or a technical (such as an integrated voice/data access service) package oriented toward selected customer segments. A brand is added to facilitate package distinction and represent commercial value in the market, before the package is delivered to a distributor function for sales to the targeted customer. In this model, the distributor takes the form of a sales agent, adding value as a customer interface from sales to delivery. But this value adding may be as limited as an automated order desk and as extensive as a fully fledged value-adding reseller that will nest another asset staircase. An example of the latter is a systems integrator that includes a network service like LAN-interconnect into a complete enterprise-wide ERP solution. The next step is to distribute the business roles with respect to each of the assets among the telecom- munications business partners: financing, ownership, marketing, and operation (Figure 1.10). The financ- ing role includes all activities to fund the owner, the marketer, and the operator, whereas “ownership” refers to legal ownership of the particular asset. These first two roles enable value creation by the marketer and the operator. The marketer defines the way (the formula) a particular asset is marketed and operated by the operator, the latter, for instance, being a distributor or service provider. All four roles contribute to value creation in the chain, their actual distribution among the parties depending on the trade-off between flexibility on the one hand and commitment on the other. Apart from pure business reasons, the government may impose additional criteria to the distribution of roles. Take the antitrust regulation as an example. A single partner such as incumbent operator KPN Telecom of the Netherlands is not allowed to own a vast majority of the country’s fixed telecommuni- cations infrastructure assets. Through this ruling, the Dutch regulator tries to prevent KPN Telecom from effectively playing all four roles with respect to the assets. Therefore, KPN Telecom decided to divest its cable TV network assets. Hypothetically, it could lease back the assets and could limit itself to the marketing and operator roles, provided that the new owner — a competitive consortium between France Telecom and Rabobank — would be prepared to restrict itself to a financial investor’s role. 1.1.2.4.5 Aligning the Value Chain Finally, sustainable success with the chosen value proposition on the market is strongly dependent on the effective alignment of corporate goals between the various financiers, owners, marketers, and oper- ators identified in the previous paragraph. None of the roles need necessarily be combined into a single © 2000 by CRC Press LLCBusiness Role Financier Owner Marketeer Operator Telecom Asset Partner D Partner D Partner D Partner D Distributor 1 2 3 4 Partner B etc. 1 Brand Package single partner’s sphere Service of control Platform Infrastructure FIGURE 1.10 A telecommunications asset governance model. FIGURE 1.11 Facilitating strategic alignment. business partner, many examples of which we see in the current marketplace. For instance, a legal owner of a frame relay service platform may wish to define the way the platform is operated and marketed, but may outsource actual operations to a third party. Still, strategic alignment on market formula and speed of decision making between the partners can be optimized if the number of decision-making parties is limited or if only a few parties have a dominating influence (the so-called channel captain position) Kotler, 1997. Strategic alignment can be facilitated or even enforced through various forms of business relationships, ranging from market contracting to legal merger (Figure 1.11) Elixmann and Hermann, 1997. Market contracting implies the lowest degree of commitment and the highest degree of flexibility between the partners, with obvious possibilities for opportunistic behavior. Legal merger on the other side limits opportunistic behavior through mutual capital investment, transfer of resources, and formal- ized cross-managerial communication on a strategic level. Nowadays, we see the major global telecom- munications alliances being governed by equity stake joint ventures or mergers, resulting in a jointly owned “service firm” that acts as the nucleus in the telecommunications service provider’s operation. This service firm fulfills at least the owner and marketer roles with respect to the platform, service, package, and brand assets (Figure 1.12). The infrastructure assets often are financed, owned, marketed, and operated by third parties, that is, PTOs or new operators, depending on the state of deregulation in a particular country. But there definitely is a trend toward more control of the infrastructure assets through ownership by the service firm or its shareholders. The distributors are contracted by the service firm, but may often also be owned by the same share- holders that own the service firm. These shareholders typically act as strategic investors in addition to their default financial investor role. This means that they influence, for instance, the market strategy of the service firm and its distributors. © 2000 by CRC Press LLCBusiness Role Financier Owner Marketeer Operator Telecom Asset Distributor Brand The jointly owned “Service Firm” Package controls the market formula and operation Service Platform Third parties, like PTOs, cable TV operators, etc. provide infrastructure services to the “Service Firm” Infrastructure FIGURE 1.12 Typical telecommunications asset governance among leading players. 1.1.2.5 Summary In our attempt to define some of the key factors that shape a telecommunications service provider addressing multinational companies as its prospective customers, we have first analyzed the main business drivers of the customers. We have seen that process re-engineering, improving customer service, cost control, and creating a competitive advantage are the top four drivers on the customer’s mind. Telecom- munications services prove to be a critical enabler with respect to the identified drivers, for which the corporate telecommunications manager in the customer’s organization plays a pivotal role. He or she has to derive the needs for the specific telecommunications services that support the business goals. In that respect, the manager represents the end-user community within the corporate customer’s environ- ment. Besides that, he or she is concerned with maintaining the right skills, cost, and performance to deliver the telecommunications services, regardless of whether these are in- or outsourced. Subsequently, we have inferred strategic principles for a telecommunications services provider aiming to satisfy the identified customer needs. Business process re-engineering is enabled by a state-of-the-art and robust telecommunications service provider’s service portfolio that matches the customer’s geo- graphic reach. Cost management and control are facilitated by information tools and management services that a service provider should deliver along with its core services. The principles finally are linked to guidelines to construct a suitable offer to the customer and corresponding service provider operating model. At first, telecommunications service providers need to make three decisions: (1) about the type of customers and corresponding network requirements they want to address, (2) a make-or-buy decision per network solution component offered, and (3) which value discipline to put emphasis on to keep a competitive advantage in the chosen customer segment. Building the value proposition for the customer and establishing a suitable price means realizing, first, that the customer (the end user) is a coproducer of the telecommunications service. Hence, we need to take account of both service product and production attributes, the former relating to feature functionality, the latter referring to the way the service is perceived by the customer during operation. In this respect, the make-or-buy decision and subsequent value system are important as the partners in the value chain to the customer need to have a minute-by-minute alignment on the way the service is to be produced. To facilitate the construction of such a value system, we have proposed a simple governance matrix based on two entries: telecommunications service assets and business partner roles. Six types of strategic assets have been identified: infrastructure, platform, service, package, brand, and distributor. Business partners governing these assets can assume any combination of four roles: financier, owner, marketer, and operator. The partners need to decide among themselves the distribution of their roles over the © 2000 by CRC Press LLC The shareholders of the “Service Firm” and/or distributors often act as strategic investors

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