World eyes US telecom sophistication
Open competition in telecommunications has given America a lead, while foreign rivals try to liberalize
PITTSBURGH — ASK a telecommunications executive about America's competitiveness problem, and you will get a blank stare: ``What competitiveness problem?''
Unlike major parts of American industry during the 1970s and early '80s, telecommunications companies in the United States have led their foreign counterparts for as long as anyone can remember.
Their secret? Competition. By freeing up the long-distance telephone business, the US has unleashed fiercely competitive companies ready to take on the world.
``Competition is extremely healthy as long as it's open and fair,'' says Paul Wondrasch, AT&T Corporation's senior vice president of international business.
``We're in real good shape, thank you,'' adds Seth Blumenfeld, president of MCI International, a division of MCI Communications Corporation. ``True competition ... puts us in the forefront of global telecommunications services.''
This competitive enthusiasm runs all the way down the line. Tiny MFS Communications in Omaha, Neb., has installed advanced-telecommunications networks in London and Frankfurt, Germany. It plans to open up six other major European centers by the end of the year. ``We think we have a tremendous advantage coming into continental Europe this year,'' says Royce Holland, the company's president. That's not bad for a company 1/500th the size of AT&T.
AT&T has revamped since it lost its monopoly 10 years ago. In that period, the company has:
* Slashed the payroll in traditional telecommunications from 373,000 to 230,000.
* Bought the NCR computer company.
* Taken over McCaw Cellular Communications Inc., the nation's largest cellular-telephone carrier.
* Expanded overseas. In 1984, AT&T had 100 employees outside the US; today, it has more than 53,000.
These steps have paid off. Even though the company has lowered its long-distance rates 60 percent since 1984, its revenues have continued their slow ascent from $60.3 billion to $64.9 billion last year, a quarter of them from overseas.
Other countries are closely watching these aggressive moves and starting to liberalize their own telecommunications monopolies. These countries have little choice. As monopolies, their telephone companies are having trouble keeping up. When McKinsey & Co., a management consulting firm, measured the industry's overall productivity in 1992, it found that the US led Japan and its major European rivals by 20 percentage points to 50 percentage points.
In Japan, Ministry of Posts and Telecommunications officials admit that their country is falling behind the US in the melding of computer and telecommunications networks. In Europe, except for Britain and the Nordic countries, phone companies are still old-style monopolies. The European Union is supposed to liberalize telecommunications in 1998. But US executives are divided on whether it will happen by that date.
Pressures are building for these countries to liberalize. Large corporations are clamoring for the kind of service and reliability that the US companies can provide.
MFS, for example, calculates that its reliability is so good that its customers' phone systems in Frankfurt will not be down for more than five minutes a year. That compares favorably with the typical local US carrier with, perhaps, up to 26 hours of downtime a year - still a very good record. In Germany, annual downtime for a local line can average one week.
MCI customers can use virtual private networks, which means they can dial five digits and reach any of their offices in the US and Canada. Europeans have nothing like it.
So it's little wonder foreign companies are eager to form alliances with their US counterparts. Last month, the US government approved a plan for British Telecom to spend $4.3 billion to acquire 20 percent of MCI and set up a joint venture. Deutsche Telekom and France Telecom hope to swing their own $4.2 billion deal for a 20 percent stake in Sprint.
These companies not only gain an entry into a huge market (the US has roughly one-fourth of all the world's telephone subscribers); they can also tap their partners' knowledge of how to operate a company in a competitive market.
``In the last 15 years, since competition has been the norm in our industry, the whole industry has gained tremendous skills and insights that the rest of the world currently lacks,'' says Philip Walker, Sprint's vice president for international affairs. Several foreign monopolies have asked Sprint to lend its expertise in pricing and other competitive issues.
For all the movement toward competition, telecommunications companies worldwide are still heavily regulated. The companies are too big and their services too important for governments to completely disentangle themselves.
In the telecommunications equipment industry, for example, the US government is turning up the competitive heat. In May, it lobbied the Saudi government to get a $4 billion equipment order for AT&T. ``Other countries have always done that,'' says AT&T's Mr. Wondrasch, who praises the Clinton administration's efforts. ``We're just trying to get a little balance here.''
Competition will also become more muddled as the largest telecommunications players team up to provide service to the world's largest multinational companies. ``No one telecom company can do it all,'' says Mr. Walker of Sprint. ``There's a strong trend toward the development of global alliances and partnerships.''
``It's going to be a very diplomatic balancing act,'' adds MCI's Mr. Blumenfeld. The largest telecoms will cooperate to serve their largest multinational clients. And they'll compete fiercely to serve the customers that Ma Bell, Papa Telekom, and the other monopolies once had to themselves.