Ma Bell’s Breakup Creates Boom in Telecommunications Field : Industry’s Confusion Spawns New Breed of Expert Consultants

When the Insurance Office of America in El Toro outgrew its $90,000 telephone system, telecommunications director Scott White didn’t contact the phone company. He called a consultant.

Advanced Network Design of Garden Grove helped White find a larger system. The consulting firm also redesigned Insurance Office of America’s toll-free 800 network, reducing its phone bills by nearly 20%.

“We’re in insurance; to us, phones are everything,” said White, whose company spends up to $50,000 a year on its telephone bills. White said he was used to receiving sales pitches every week “from phone companies I’d never even heard of,” but the solicitations only confused him.

“We never knew if we were getting the best rates, or even if the bill was right,” he said. “We just paid it.”

White was hardly alone. Four years after the breakup of the Bell System, “confusion is still there today,” said Pete Markese, Orange County director of sales for U.S. Sprint, a long-distance provider. “The majority of businesses don’t understand all their options.”

That confusion has spawned a new field of specialization. Corporations are creating telecommunications departments, universities are offering degrees in telecommunications management and telecommunications consultants are hanging out shingles by the score.

The upheaval began with a 1968 ruling by the Federal Communications Commission allowing customers to purchase telephone sets and other equipment made by companies other than American Telephone & Telegraph. The ruling effectively ended AT&T;’s monopoly on telephone hardware.

Separate Equipment Sales

In 1980, another FCC ruling forced AT&T; to separate equipment sales from its network services. Because it prevented AT&T; from using revenues from other operations to subsidize its equipment business, the order allowed rival equipment makers to flood the market.

Finally, in 1984, AT&T;’s long-distance operations and local services were separated as part of a major antitrust settlement. Ma Bell was no longer a one-stop shop for telecommunications needs.

A new, stripped-down AT&T; was created, and its local phone service systems were regrouped into seven regional holding companies, including Pacific Telesis, parent of California’s largest phone company, Pacific Bell.

“Before you just called AT&T;, and we took care of the whole order,” said Linda Kaidin, regional manager for AT&T;’s consultant liaison program.

Now, customers must coordinate with equipment vendors and local phone companies, then decipher and select from services offered by more than 200 long-distance carriers in California alone.

The proliferation of equipment and service choices has created a growing market for telecommunications consultants and network designers, such as Advanced Network Design.

Before 1984, the Garden Grove consulting firm simply advised companies on equipment purchases. But after the AT&T; divestiture, it began shifting its emphasis to helping customers choose the best combination of long-distance services.

As part of its network design consulting, Advanced Network Design analyzes six months of phone bills and interviews users about the destination, time and purpose of calls.

The firm uses proprietary computer software to identify cost-effective long-distance options for its customers, who have average monthly telephone bills of $15,000.

Recommends Package

Advanced Network Design then recommends a telecommunications package that it promises will save the company at least as much as its consulting fee within nine months.

“Most companies have no staff that are telecommunications experts,” said Ken Sluder, vice president of Advanced Network Design. “We fill that void.”

The firm, which is opening a marketing and client service center in La Mirada, recorded $1.8 million in sales last year and expects revenue to grow 60% during 1988, President Dave Wiegand said.

White, the Insurance Office of America executive who contacted Advanced Network Design, said training personnel to do the same analysis would have cost five times as much as hiring the consulting firm.

The company achieved significant savings by adding a less expensive Southern California 800 line, rather than relying on a statewide toll-free line, since most of its in-state calls come from the Southland.

“We didn’t even know we could do that,” White said. “And the phone company wasn’t about to tell us.”

Kaidin, the AT&T; liaison manager, said she deals with almost 100 consultants in Orange County. The program, which has grown from a staff of three when created in 1983 to 29 today, offers consultants seminars, equipment and service manuals, and toll-free access to a technician-staffed telemarketing center in New Jersey.

Since clients accept a consultant’s recommendation 85% of the time, “consultants make a significant impact on our revenue,” Kaidin said. “Our sales people out there visiting 30 customers could take a long time to get the message across. I could tell a consultant something, and he’ll tell his 30 clients--it’s a much quicker avenue to our client base.”

Kaidin said most telecommunications consulting firms have one to five employees. Four years ago there were fewer than 100 consultants in Southern California, but Kaidin now works with close to 400 and discovers more every week.

“Most consultants have told us divestiture has brought them more business than they can handle,” she said.

U.S. Sprint’s Markese provides monthly rate updates to these “key influencers” for free. Sometimes even the smallest consulting firms are “contractually tied to millions of dollars in telecommunications revenue,” he said.

Important Contacts

As a result, telecommunications consultants have become increasingly important contacts for Sprint and other carriers that are trying to compete with AT&T;, which dominates the $50-billion long-distance industry in America with a market share of more than 80%.

“In 1984, we were seeing two to three new faces every month,” Markese said. “You turn around and (ex-Sprint salespeople) are in the Yellow Pages” as consultants, he said.

According to Dr. Jagdish Sheth, founder and director of the Center for Telecommunications Management at the University of Southern California, about 40% of consultants are former phone company or government telecommunications personnel.

While consultants may be the answer for medium-size firms in need of telecommunications assistance, larger companies have been building up their internal telecommunications staffs during the last decade.

Sheth said that in many cases, those staffs have ballooned from 10 or so people “into the hundreds” and now include technicians for equipment repairs and programmers for software changes.

All 650 members of the International Communications Assn.--companies with annual phone bills exceeding $1 million--have in-house telecommunications management teams, according to Leo Reilly, an ICA board member and telecommunications director at USC.

After significant staff increases in the mid-1970s, these departments now vary in size from six to 500 people, he said. At USC, the telecommunications staff has doubled over the last five years to nearly 30.

At Mattel Toys in Hawthorne, telecommunications manager Ron Wagner oversees telephones and data networks linking seven U.S. branches to offices in 30 foreign countries.

Repairs Are Immediate

The Hawthorne headquarters alone generates a monthly phone bill of about $70,000, said Wagner, who believes that divestiture has saved his company money because it can now tailor its long-distance services to its specific needs. And with its own technicians, repairs are immediate, he said.

Wagner plans to install a $70,000 software system in April that will automatically route outgoing calls through the least expensive service. The software package doubles as a management tool, providing detailed records including time, length and destination of each call.

Mattel pays $340,000 annually for satellite data links to Hong Kong and Leicester, England. By adding voice communications to that network at no extra cost this year, Wagner expects Mattel’s phone bills to shrink by $42,000 a month.

Corporations are recognizing that information technology can be much more than just an overhead expense.

AST Research, a manufacturer of IBM-compatible personal computers and related products, hired its first telecommunications manager last August to assume responsibility for telephone services at its Irvine headquarters and 10 field offices across the country.

Relied on Others

Before Georgeann Lovett filled the post, AST would rely on recommendations from colleagues in other firms or simply stick with AT&T; when choosing telephone services. “The bills weren’t even being saved in an orderly fashion,” Lovett said.

Lovett’s staff of five is beginning to analyze traffic and routes to design a cost-effective network.

Another outgrowth of telephone industry deregulation has been the creation of university degrees in telecommunications management.

Until about five years ago, corporations would hire former phone company employees as network engineers because there was no formal training offered for telecommunications professionals, USC’s Reilly said.

But corporations can no longer wait five or six years to train someone because the industry is evolving too quickly, he said.

Launched in 1985, Sheth’s center at USC is one of 12 offering telecommunications management certification in the country. The center is inaugurating a master’s degree program this year, with 10 years of telecommunications experience as a qualifying requirement.

Sheth believes that more small and medium-size companies are investing in the development of their own telecommunications staffs because “hiring consultants on a continuing basis is pretty expensive.”

While Sheth expects large corporations to continue building their telecommunications departments for the rest of the decade, he predicts that they will begin cutting back in the 1990s, preferring to subcontract to consultants for specific projects.