The Short Goods on Long Distance

By Vowles, Andrew | CMA - the Management Accounting Magazine, February 1995 | Go to article overview

The Short Goods on Long Distance


Vowles, Andrew, CMA - the Management Accounting Magazine


FOR BUSINESS USERS OF LONG-DISTANCE SERVICES, A GROWING WELTER OF ALTERNATIVE CARRIERS, RAPIDLY DEVELOPING TECHNOLOGY, AND A NEW SPATE OF TELECOM REGULATIONS MEAN THE CHOICES ARE FAR WIDER, AND FAR MORE COMPLICATED. A LOOK AT THE OPTIONS AND ISSUES.

Like many organizations, The Yankee Group would be dead in the water without dependable long-distance telephone service. Iain Grant, managing director of this Brockville, Ont.-based telecommunications research and consulting firm, says his half-dozen long-distance lines are "absolutely critical" in keeping the company plugged in to its customers and colleagues across Canada and around the world. With success or failure riding on those connections, it would take more than the promise of, say, a 5-percent savings in long-distance charges to persuade him to invest in a different carrier. Grant uses the example of his own company to illustrate what he believes is a key question for any organization: Do you view your long-distance phone service as an expense or as an investment?

Changing regulations, new players in the market, and rapid advances in technology have altered the long-distance market within the last few years - and the pace of change will only increase as new rules, competition, and gadgets and gizmos continue to proliferate. That market is worth about $7.5 billion to $8 billion now, including data transmissions over fax machines and moderns; business use makes up about half of the total. Canada's public phone companies across the country - including the nine largest phone companies brindled into the Stentor consortium - still account for about 85-90 per cent of that total. But since Canada's regulatory authority in telecommunications opened the door to long-distance competition in 1992, between 160 and 270 alternative carriers have registered with the Canadian Radio-Television and Telecommunications Commission (CRTC) to offer a range of services - no secret to Canadians who have been bombarded with print and television ads, and door-to-door sales pitches, on the residential side of the market. These companies lease telephone lines and switching equipment in bulk from the Bell networks and then resell chunks of that service to customers at discount rates; several of these companies already operate or plan to install their own lines.

Making a new long-distance market

Besides their lower rates, these alternative carriers have lured customers with a range of new services. In fact, Eamon Hoey, senior partner of Toronto-based telecommunications consultants Hoey Associates, predicts that alternative carriers will account for about one-third of total long-distance revenues by 2005, up from their roughly 10-per-cent share of the market today. Realistically speaking, says Grant, only about 15 of these upstart companies are likely to gain any real toehold in the market - and only about five represent a real threat to the public companies' oligopoly. (Estimates at the upper end vary as widely as they do because registration with the CRTC is no guarantee that a company has actually established services or is even still in business.)

Earlier this year, "equal access" made it easier for customers to use these alternative long-distance carriers. Instead of having to punch in a string of extra digits to put through a call, the user simply dials the number outright, allowing the hardware to take care of the connections.

Competition in long-distance and local services alike is expected to heat up even more in the wake of another regulatory decision reached by the CRTC early this fall. Decision 94-19 will deregulate the Canadian telephone market and usher in sweeping changes in the entire field of telecommunications from phones to home video entertainment. Among its specific measures, are the following:

* reducing long-distance costs and increasing local service costs, or so-called rate rebalancing";

* deregulating the long-distance market;

* throwing open local phone service to competition; and

* allowing phone companies and cable companies onto one another's turf ("convergence").

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