Joe Nacchio's plans for slashing jobs, selling off nonstrategic assets and otherwise re-engineering US West--an old-style regulated telecom company--into a competitive, free-market company are on target.
US West's phone service area includes rural states such as North Dakota and South Dakota with many remote customers, who are very difficult to serve profitably. The question is, who will provide these people with not only basic phone service but also the additional services, such as high-speed Internet access, that are associated with the developing new telecommunications era?
In the aftermath of the US West restructuring (and other, similar moves), the risk is that the "Digital Divide" between individuals with access to a full range of telecom services and those without it will become much wider for people in rural areas.
Hopefully, another company will come forward with a business plan for making those lines and those services profitable--and this could even mark the start of a brighter future for communications in those areas. The local telephone companies, with their fixation on delivering dial tone, have been an impediment to the delivery of advanced communications infrastructure such as DSL to homes and businesses. By tearing that infrastructure down, Nacchio may be opening the way for new companies with new approaches to enter that market.
Nacchio's statement that he will cut 11,000 jobs is unusually honest for a telephone company executive. Most are too worried about conflicts with organized labor to say anything in public about layoffs.
Almost every telecommunications merger is marked by reassurances from top executives that they will gain savings from efficiencies and capital expense avoidance instead of from layoffs. Those promises may cover the first year or two of savings. But sooner or later, service providers must face the reality that a telecom provider's business expenses are heavily weighted toward its people, and the only way to really make an impact on operating costs is to cut staff. Nacchio has no choice but to cut the US West staff, even though he and his customers will pay a price in disruptions.
US West is an old-style telephone monopoly, and like all such monopolies has a severe need for staff streamlining. On the other hand, many of those people are union members, and any attempt to cut those jobs will bring the merged company into direct conflict with organized labor.
Other telecom companies will continue to look to shed staff as well, particularly after mergers, when the entire industry faces increased problems with labor as a result.
These plans are just the latest indication of the major, continuing changes in the telecom industry. Businesses not only in the US West area but also across the entire United States must maintain flexibility in their telephone service arrangements. They should avoid long-term contracts and, whenever possible, sign one-year contracts with renewal options.
In addition, businesses need to devote extra staff to babysitting their local telecom company to be sure that it delivers the services that it has contracted to provide on time and at acceptable quality. As telecom companies seek to sell lines, and face increased problems with organized labor, provisioning timetables are likely to slip, and quality levels are likely to decrease. Business staff should also actively investigate alternative sources for telephone connectivity service where those are available.
META Group analysts Val Sribar, Peter Burris, David Cearley and William Zachmann contributed to this article.
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