Baby Bells Should Stick With Strengths : Telecommunications: They should focus on their cash cow and skip the cornucopia of unwanted services.
The local Bell telephone companies dangle before us a vision of a telecommunication cornucopia consisting of video telephones, access to all sorts of electronic information, home banking and shopping, and video on demand--all delivered over their optical fiber to the home. This Utopian vision ignores history.
AT&T;’s picturephone of the 1970s was a dismal failure, and more recent video telephones have bombed. Other than computer freaks, most consumers have little patience with electronic information services, as AT&T;, Knight-Ridder, Times Mirror, IBM and others have learned the hard way after spending hundreds of millions of dollars.
Banks have promoted electronic home-banking systems and learned that technology is not the solution to home banking, unless someone develops a home terminal that dispenses cash. The VCR is already in nearly every home and offers video on demand.
The management of the Bell companies cannot be ignorant of the history of failure of these past excursions. Why then are they tempting the public with a vision that is a litany of past failures? Do the Bell companies have any real overall plan or strategy? Are they out to monopolize the cable television and information services industries? The only certainty is that the Bell companies have more money than they seem to know what to do with, namely, a combined net income of $9.3 billion on combined revenues of $82.4 billion for 1992.
The Bell companies appear to be thrashing around, one day wanting entry to manufacturing, the next day information services and then entertainment television. This blunderbuss behavior might be a result of a new sense of freedom coming from the Bell companies’ divestiture after decades of bondage to AT&T.; It also might be the result of concern over new competitors scrambling to enter local service, particularly AT&T;, which is showing much interest in local markets, as demonstrated by the acquisition of McCaw Cellular.
It also might be simple capitalistic greed motivated by a plan to be freed from regulation so that the profits from monopoly services can be used to subsidize entry into competitive arenas, such as information services and video entertainment.
The missing voice in shaping the future of telecommunication is the desires and wishes of the public that the Bell companies serve. Most consumers have shown little interest in many of the new services of the electronic information age. The public is not marching around Bell headquarters buildings chanting, “We want fiber.” The public does, however, want reliable local telephone service at affordable prices, and so too do most businesses.
The Bell companies have invested heavily in upgrading their infrastructure to computer-controlled electronic switching machines, digital time-division multiplexing, fiber trunks between switching offices and advanced signaling systems. The challenge now is to use this advanced infrastructure to improve existing services, to deliver new telephone-based services to their customers and to decrease rates because of the increases in productivity.
The Federal Communications Commission should be concerned about the cost of telephone service and also about the recent increase in cable-television rates. Instead, the FCC has adopted a policy of attempting to stimulate competition between telephone and cable companies.
The announced merger of Bell Atlantic with TCI shows clearly that mergers--not competition--will characterize the new world of communication. The real problem is that no one seems to be concerned about the public-policy consequences and effects on the public of all this turmoil.
Nearly 90% of their total revenue and more than 90% of the net income of the Bell companies is generated by their local telephone companies. The challenge is to nourish and maintain this cash-cow core business through continued quality local telephone and telecommunication service. The recent move by Pacific Telesis to divest its cellular and other mobile services and concentrate on basic telephone services is right on target.
Meanwhile, such new ventures as manufacturing, entertainment, electronic information services and interactive broadband should be evaluated with an extremely critical eye. The Bell companies have little or no experience in these areas: They truly are Baby Bells in the woods and need to remember such sobering facts as AT&T;’s large losses from its ill-fated computer business, Warner’s past mistakes in interactive cable and IBM’s mistaken forays into communications. And when it comes to the entertainment business, the Bell companies most certainly have no experience, although their recent antics are indeed entertaining.
Rather than thrashing around the telecommunication china shop, the Bells need to focus their vision, realistically remembering that they cannot be all things to everybody. Otherwise, their vision of a telecommunication technological Utopia will become a financial nightmare.
