Change Rocks Phone Industry Deregulation Sets Stage For Sweeping Overhaul

One thing was clear this week at Telecom 95: Deregulation is slowly forcing change on the old world of telephone monopolies and they are having to fall into line to satisfy their own competitive ambitions.

That in turn is shattering decades-old cozy relationships and squeezing the large margins that equipment makers have been used to banking on.

“The old is fading faster than the arrival of the new,” said George Verghese, an analyst with Deutsche Morgan Grenfell.

That’s bringing growing pains to an industry that was not very long ago considered mature, consisting only of companies that made it possible for people to talk with each other on phones.

At the quadrennial telecommunications conference, companies showed off emerging broadband and mobile technologies that will make it possible for sound, visuals and data to be transmitted through high-speed conduits and radio waves for “anytime, anywhere” communications.

Satellite groups such as Globalstar and Iridium talked about launching low earth-orbiting satellites starting next year to begin offering global services to take on providers of fixed-line and cellular phone companies.

It will be a while before those technologies and services become pervasive though.

In the meantime, telephone service companies and equipment makers such as AT&T Corp., Deutsche Telekom and Alcatel Alsthom SA are staring at the inevitability of slashing thousands of jobs as they prepare for the changing climate in the industry.

AT&T is breaking up into three units to address the telephone services, telecommunications equipment and computing services markets, becoming leaner and giving the company’s large equipment business more credibility with rivals in AT&T’s telephone service business.

Some, like Alcatel, are making sweeping restructuring changes that will plunge them into the red for the first time in their histories.

“The world has changed and we have to reorganize accordingly,” said Serge Tchuruk, Chairman of Alcatel. “We are going through growth pains.”

All that comes as the regulatory climate changes rapidly in two of the three major telecommunications markets - Europe and the U.S. - and as markets look for newer technologies to become easy enough to use to be widely accepted.

In Europe, the European Union-mandated opening of markets by Jan. 1, 1998, is forcing state-owned monopolies to work quickly to get their houses in order and form international alliances before competition arrives from beyond national borders.

In the U.S., walls between providers of local and long-distance services are breaking down, preparing the ground for brutal competition between AT&T, MCI Communications Corp., Sprint Corp., GTE Corp. and the seven regional Bell companies.

Newer players - cellular phone companies and cable companies - are entering the fray, setting the stage for a multitude of companies, angling for customers’ attention and pocketbook.

Investment is being made in technologies such as global satellite mobile communications between handsets even though it’s far from clear what returns they will yield.

“There’s a lot of hype about the global satellite system operators and the reality might fall short of the hype,” said Singapore Telecom’s President Lee Hsien Yang.