Introduction: Today's Industry Structure; Wireline carriers--Technology

When the Telecommunications Act of 1996 was enacted, Congress touted its actions as bringing a new era to telecommunications. According to the speeches and press releases, the Act would usher in a new age of competition in telecommunications. The historic methods of regulation would be exchanged for the allegedly more responsive and dynamic stimulus of the "marketplace." The cornerstone of the act were the rules local and long distance carriers to enter each others markets. Several years after the adoption of the act, entry into new lines of business continues to be subject to court order, regulatory review, and legislative oversight.

For most of the twentieth century, the telecommunications industry and the lawmakers have been embroiled in a nearly continuous debate on the nature of regulation of the telecommunications industry. And the issues continue. Hardly any telecommunications manager has the luxury of making a technical decision based purely on technological merit and price. The role of the government is always close at hand, in the form of a regulatory constraint, a "transition rule" or a court review. This course is about those government and regulatory factors and how they influence the decisions telecommunications managers make.
 

TLMN 602—Course Outline and Objectives

The specific objectives of the course will be to acquaint you with the basic principles which underlie law and regulation when applied to communications. Evolved over a century and a half, regulatory law has developed standards and models which apply in various cases in specific ways. We will look at basic theories of economic regulation and the government entities which have responsibility for implementing the regulations.

Second, we will look at how these regulations, coupled with technology, shape the telecommunications industry. Government action, for example, first stimulated the development of the Bell System, then divided it among so-called "competitive" long distance and equipment businesses and "monopoly" local exchange businesses at the 1984 divestiture. The 1996 Act has stimulated a consolidation among the local exchange carriers—the seven Regional Bell Operating Companies have become four, and may become still fewer. In the meantime, the convergence of telecommunications, cable, and computing technologies has altered market economics. Long distance carriers, seeking to enter locl exchanges, are buying cable franchises and wireless licenses to go "the last mile" to the customer’s premises. We will look at how these factors combine to shape the industry.

Third, we will examine and discuss how these issues affect your organization. Technology and law will influence the strategic decisions your organization makes, whether public or private sector, because of the constraints and opportunities they create.

Finally, we will examine the differences and similarities among the U.S. and other telecommunications environments. For most of this century, the U.S. was virtually alone in having a private carrier provide telecommunications services. For most of the rest of the world, telecommunications was a government monopoly, usually run by the post office to subsidize inexpensive mail service. But technological change and innovation, coupled with the success of the American experience stimulated many governments to privatize their telephone systems and to liberalize the rules for entry into their markets.
 

And, as technological capabilities have improved, so has the nature of telecommunications service. Evolving from a wireline, voice grade system, modern telecommunications encompasses a variety of media and a variety of applications. The dramatic growth of the Internet has created profound influences on the nature of telecommunications which, at best, were only vaguely understood and marginally addressed by lawmakers at the time of passage of the 1996 Act. To enable you to meet the course objectives outlined above, we will systematically review the history and current state of wireline technology, regulation, policy and law, the growth of new technologies such as network services, data communications, and cable communications; international communications; the Internet; and wireless services.

 

Basic Industry Structure
 

Slide 3 illustrates a simple voice call completion from a residential user to a business from Maryland to New York. This call could be to ask a question, order goods, talk with a friend, or for whatever other reason.

First, the caller picks up the handset and hears a dial tone
 
 
 
 
 
 
 
 
 
 
 
 

.Next the number of the terminating end are "dialed" by punching in the correct sequence. This "dialing" stimulates the switch at the local central office to identify the call as a long distance call and to "trunk" it to the caller’s designated long distance carrier.
 
 
 
 
 
 
 
 
 
 

The Long distance carrier transfers the call from one "Point of Presence" or long distance toll switch to another, then to the local central office at the terminating end.
 
 
 
 
 
 
 
 
 
 
 
 

This switch directs the call to the user at the terminating end.
 
 
 
 
 
 
 
 
 
 
 
 
 
 

A business customer often has another switch in the connection, a Private Branch Exchange or PBX, which routes the call internally.
 
 
 
 
 
 
 
 
 
 
 
 

To the two end users, the call is instantaneous, interactive, and of high quality. Yet the call must go through several switches, among several carriers, and over a variety of media to be completed. All of these parts are transparent to the end users.

From just after the beginning of the 20^th century until 1984, this process was provided, end to end, by the Bell System or by one of several other rate regulated carriers such as General Telephone, United, or Central. There were also about 150 small local carriers, primarily in rural areas organized either as independent companies or as rural cooperatives. Network standards for engineering and interconnection were largely set by the Bell System as the "dominant carrier." The other carriers built to that standard to ensure access for their customers to Bell’s customers.
 
 
 
 
 

But technological change stimulated a rethinking of the system. By 1984, alternative providers were available to supply equipment, long distance service, and certain enhanced services. Since the Bell System divestiture that year, various competing providers are available for most of the route of that call.
 

At the originating end, the customer has a choice among perhaps ten thousand equipment suppliers worldwide. In the local loop, the choices remain more restricted. The 1996 Act provides for competition in the local loop, but for the most part the local exchange carriers (LECs) remain in monopoly control of their local markets. There are important exceptions, which we will discuss when we get to the Act itself.

The interexchange carriers (IXCs) have a highly competitive environment. Dominated by the three largest carriers, AT&T, Sprint and Worldcom/MCI, there are another 1500 long distance providers available. Many of these are "resellers", carriers with no long distance facilities of their own who buy blocks of long distance time wholesale from the three large carriers and then resell it to customers and somewhat lower rates.

Switches come from a variety of sources. The large switches in this diagram, at the central office and the POP are manufactured by one of only a handful of firms able to produce this highly sophisticated form of computer globally. Providers include Lucent, Nortel (Northern Telecom), Ericsson, Siemens, and NEC. A larger number of providers are able to supply PBXs.

As the call is transferred, it may go across various media, both wired and wireless. The route from home to Central Office is most likely twisted copper pairs. The trunk from Central Office to POP may be copper, but is more likely optical fiber. The medium between POPs may be wireless or wired and could be a fiberglass line, a microwave transmission, a satellite bounce, or some other medium of transmission.

As services are enhanced, different media become the means of providing competitive entry. With the local loop dominated by the LEC, alternative services must find alternative ways to provide services. Much attention is being paid to wireless, particularly cellular services, to provide alternate access, to cable for providing broader bandwidth access, and even to 110 volt electric utility lines.

Finally, the users I this case supply their own content. That is, they decide what to talk about. If this call were a data transmission, someone would need to supply the data to be transmitted.

 They would then be the "content provider."
 
 
 
 
 
 
 
 
 
 

Basic Telecommunications Technology

When the hand set is raised and a connection established to the central office, the network must convert the human voice into signals to transmit and receive across the distance between the two end users. This signal, which begins as you probably recall from high school, as a series of vibrations in the air. These vibrations cause similar vibrations in the transmitter, which converts them into electro-mechanical impulses.

In turn, these pulses are digitized from the analog signal. The analog signal is usually represented by a sine wave, Digitizing the signal—converting it into binary pulses of electricity or light, allows the network to do more with it, while using fewer resources. (The text explains the physics of this process in some detail.)

Digitizing also allows for the spaces on the network to work more efficiently. Since the voice call requires a closed circuit from end to end and since there are many simultaneous callers, the network engineers have developed a number a number of ways to put more calls on less space. This can be accomplished by filling the voids between transmissions, or by compressing the signal or both.

The ability to move vast amounts of information across a medium of fixed size is increasingly important. If you think of the network as a water pipe, you know that only so many gallons can move through the pipe at a given time. You probably did "word problems" in algebra trying to calculate the water coming in from a four inch pipe and flowing out of a two inch pipe and how long it would take. But the phone system allows for adjustments in the rate of flow. Compression and light waves are two of the ways the network can add volume and increase speed to work more efficiently.

The network is designed to maximize efficiency among all users. It may be configured in a star pattern, a ring, a mesh, or bus. (the text will define and display these terms.)

Finally, technology drives new applications, capacity and potential for telecommunications. The development of satellite communications and cellular and the potential created by digitized signaling are stimulating still further developments. Personal Communications Systems, digital cellular, and digital television are a few of the rapidly emerging technologies becoming available now.
 
 
 
 
 
 
 
 

It is a dynamic time in the telecommunications industry. In November, 1998, the U.S. Department of Commerce identified information technology in general as the world’s largest industry at over two trillion dollars globally per year. How much money is that? Well, it is about twice the debt of the U.S. or four times what the government spends each year. And the industry has survived economic failures or downturns in southeast Asia, Russia, and elsewhere. Even with economic downturn, information technology is the key enabler for countries to do business with the world. So these countries continue to invest heavily in information technology despite other economic woes. And telecommunications is the key to connecting any individual business or company or country with the rest of the world.