Banking faces another new set of helpers and competitors if the new Telecommunications Reform Act is passed. The act is an attempt to limit federal regulation and permit more competition in radio and television broadcasting, cable television, local and long-distance phone service, media (magazines, newspapers), cellular phone service, computer online services, satellite broadcasting, and the Internet.
As drafted, the legislation is designed to:
* Open up the telephone service industry to allow more companies to offer local and long-distance phone service.
* Lift most government controls over the cable television industry and spur competition from other providers.
* Allow more communications mergers and permit a single company to own a larger, though still limited, number of media outlets.
The spectrum of consequences from the act range from the telecommunications industry's view that it will increase choice and diversity in telecommunications and media and lower costs to the consumer advocates' view that it will create communications giants that will build information distribution empires and make the information highway an expensive toll road, killing off chances for innovation, stifling competition, and quashing progress toward media diversity.
Probably neither view is entirely correct. Both price competition and conglomeration will occur, and it is too early to predict the mix. But it is not too early to see the impact of such changes on banking and financial services. There is evidence from telecommunications industry behavior to date that points the way.
For example, the intense, almost annoying, price competition among long-distance carriers to gain market share and to fill their pipelines is rampant and will continue, if only because an industry with already substantial excess capacity will have even more capacity and will fight for customers even more strongly. Telephone, cable, and satellite providers will be in a tough battle for market share. These companies will shift, whenever possible, from competing based on price to competing based on content and programming.
Telecommunications companies are also likely to consolidate to control capacity. A rush to form communications conglomerates is already underway. A good example is Time-Warner, which is melding both communications capacity and programming. In 1983, 50 corporations controlled the majority of media outlets. By 1995, this number was reduced to 23, and the industry is still contracting.
Control of content is one way to fill excess capacity. There have already been selected mergers and alliances. And the signs of marrying content providers with distribution providers to achieve vertical integration abound. For example, Comcast's toehold in electronic commerce through Telecom and QVC and the many other media mergers.
In sum, there has already been a drive for product, or programming, and for transmission/processing fees to make networks cost-effective. Both are threats to banking in terms of providing banking services (which are, after all, a form of programming) or providing transaction processing in cyberspace, such as fees or payment clearance.
Implications for Banking
The pace and scope of the challenge to banking depends on which occurs faster: telecommunications diversity or concentration. If diversity occurs first, telecommunications costs should fall dramatically, facilitating major implementation of remote distribution of financial services. With such diversity and a low-cost structure, it would be possible to create dedicated, bank-only distribution to homes, similar to shared automated teller machine networks. But diversity and low costs would also facilitate further inroads by nonbank competitors into home banking by making it very cheap for them to offer new remote banking services.
On the other hand, if concentration occurs first, banking will be seen as a rich source of content - or programming - to fill transmission capacity. …