Topic: Death by Broadband Telephone

Written by Chris Titus, CFA

Language: English (business)
Level: Advanced-Intermediate and up

Warm Up Questions:

• Describe your current industry
  - Who are the different competitors?
  - Have there been many mergers/acquisitions recently?
  - Who are your customers? Businesses or individuals?
  - How do you attract customers, lowest prices or differentiation of services/products?

Vocabulary

• Broadband telephone
• Voice-over-Internet-Protocol (voIP)
• Landline (wireline)
• Landscape
• Technology leapfrogging 
• Bleeding customers 
• Revenue channel
• To cannibalize
• To recoup

Article Excerpt

Over the past fifteen years, the landscape for telephone service in the United States has changed significantly. The industry, once dominated by AT&T (a.k.a. ‘Ma Bell'), was broken apart by the government into seven companies.  The government claimed that AT&T had a monopoly over landline telephone service. The new telephone companies were called regional bell operating companies (RBOC's). Since that time, technological advances have brought about industry changes that have made the original break up seem like nothing more than a bump in the road.

The technological leapfrogging that began with the beeper led to a wireless revolution changing the way most people communicate today.  The industry was slow to react and began bleeding customers to independent wireless operators at an alarming rate.  In time, the RBOC's bought their competitors and consolidated the wireless industry.  They drove higher revenues through the sales of wireless apps.  Things were looking good.  A new revenue channel emerged with the explosion in the Internet.  However, this new technology soon brought about a cannibalistic feature - voIP.  Voice-over-Internet-Protocol travels over the same wires used for the Internet. As a result, customers began purchasing fewer long-distance plans and telephone companies started losing billions of dollars because they are now unable to recoup these lost sales. 

Questions

• Are you a very savvy (well informed) user of technology?
  - How do you and your families use technology?
• Who were the Regional Bell Operating Companies (RBOC's)?
  - How did they come to be?
• Why did the government break up AT&T?
• Describe the landscape of your country's telecommunications market.  
• How has the landscape changed over the past ten years?
  - Mergers, acquisitions, new technologies, changes in consumer behavior, and prices.
• Does your country have independent or nationalized telecommunications companies?
  - Are the prices for your telecommunications set by the government?
  
  

• Role Play: You are the CEO of Verizon (large U.S. telecommunications company).  Over the past ten years, Internet-related revenues have been growing very fast.  However, over the past two years, you have noticed that both Internet and wireline revenues are slowing.  You believe that the market for Internet services is saturated (full) and voIP is cannibalizing wireline sales.  
  
  
  • Develop a plan of action to drive sales higher in either wireline or Internet that will not affect the sales of any other segment of the company
  • Name four things to consider before taking any action
    
    Suggestions:
    - Cannibalization: Will your actions cannibalize sales from another part of the business?
    - Pricing: Will you lose sales if you raise prices? Will lower prices not be made up by higher volumes?
    - Technology: Will your actions confuse customers or prevent growth of a new technology?
    - Distribution: Are you able to properly distribute your idea, or will customers be disappointed by the product/service launch?
    - Competition: Is it already being done?  If so, what are the results?

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