What's next in telecommunications?

CEOs from the major phone companies meet this week in Las Vegas, as they face major changes in the industry.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
5 min read
As the most influential executives in the telecommunications industry gather this week in Las Vegas for their annual powwow, they're more likely to be talking about TV than phones.

An all-star lineup of executives--including Ivan Seidenberg, CEO of Verizon Communications; Edward Whitacre of AT&T; Robert A. Iger, CEO of The Walt Disney Company; Glenn Brit, CEO of Time Warner Cable; and Kevin Martin, Federal Communications Commission chairman--will be taking the stage at TelecomNext starting Monday afternoon.

Judging from the diverse list of keynote speakers, it's easy to see that the phone business is readying itself for cataclysmic change. The traditional telecommunications market has already begun consolidating in anticipation. Following last year's megamergers between SBC Communications and AT&T, and Verizon Communications and MCI, the newly named AT&T is planning to buy another local phone company, BellSouth, for $67 billion.

Putting itself back together two decades after being broken apart, the new AT&T faces an entirely different competitive environment. Phone companies and cable companies will soon be competing directly with each other not just for broadband customers, but also for TV and phone customers.

New technology developments are making it possible for content owners, such as Disney, and Internet companies, such as Google and Yahoo, to also become competitors to the cable and phone companies, since these companies will also be able to deliver telephony and video services.


What's new:
CEOs from the major phone companies are meeting this week, but there won't be much talk about traditional wireline phone services, the companies' bread and butter for the last hundred years.

Bottom line:
The industry is in the throes of a monumental shift: Phone and cable companies will soon be competing directly--for broadband, TV and phone customers--and content owners themselves may become rivals before long. Conference topics should reflect the phone companies' scramble to ready themselves for major change.

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"We've seen the telecommunications industry change dramatically in the last 20 years," said Jeff Kagan, an industry analyst based in Atlanta. "And we'll see it change again in the next 10 years. And eventually, the end result should be better services and lower costs for consumers."

It's no secret that the two largest phone companies--AT&T and Verizon--are getting into the TV business. For the past couple of years, they've spent billions of dollars upgrading their networks. Verizon, which is building a fiber-to-the-home network, is already serving communities in several states, including Texas and Florida, with its TV service. AT&T has also begun rolling out its TV service in certain areas over its upgraded network.

The phone companies have been forced into the TV market by the cable companies, which are now offering their own phone services to consumers. Time Warner Cable has already seen staggering uptake on its new phone service, which it bundles with its TV and high-speed broadband services. In 2005 alone, Time Warner added 880,000 new subscribers to its phone service for a total of 1.1 million voice subscribers. Others, such as Comcast and Cablevision, are also seeing strong growth in voice.

The trend has been on the horizon for several years, but some analysts say 2006 could be the year phone companies and cable operators actually start competing head-on--not just for broadband customers, but to be the single communications pipe into the home.

"This is the year that we are going to see the phone companies and cable operators offering the same bundle of services," Kagan said. "As consumers, we've always done business with both. But now we will choose one or the other. And that is a major market shift."

So what's likely to be the buzz at the show? With all these changes and new competitors coming on the scene, expect the big executives to continue speaking out on regulatory issues. Verizon's Seidenberg, who speaks at the conference on Monday, will likely continue taking digs at cable companies over local TV franchise laws. The company has been lobbying on Capitol Hill and in state houses throughout the country to change existing laws to allow new entrants to obtain a single franchise to cover a state or the whole country.

The Net neutrality debate, which was a hot topic at the Voice on the Net conference in San Jose, Calif., last week, will also be important at TelecomNext, as phone companies argue that they should be allowed to charge different rates to content providers, such as Google and Yahoo. Companies on the other side of this debate have been lobbying Congress to pass laws prohibiting phone companies from acting as gatekeepers on their networks.

Beyond the policy debates, Internet Protocol TV and wireless communications are likely to dominate most discussions. Analysts believe the key issue here is how television programs will be distributed within the home.

"Most of the big decisions about how to deliver IPTV to the home have already been answered," said Joe Laszlo, an analyst with JupiterResearch. One of the remaining issues, though, is how to handle IPTV inside the home, he added.

"Should service providers use existing wiring in the home, or should they use wireless?" Laszlo said. "This is still an issue that is still very much open for debate."

Several industry groups have formed to push their flavor of technology for distributing broadband and video throughout the home. The Multimedia over Coax Alliance (MoCA) promotes using coaxial cable installed for cable TV. Verizon has already said it plans to use technology developed from this group to help lower the cost of its Fios deployments.

HomePNA, formerly the Home Phoneline Networking Alliance, is also pushing for existing coax as well as copper phone lines to carry data through the home. The HomePlug Powerline Alliance advocates using electrical wiring to carry Ethernet signals, turning every electrical outlet into a network jack.

And then there's wireless, with companies such as Ruckus Wireless adapting Wi-Fi for broadband video. Several chip manufacturers, such as Intel, Broadcom and Airgo will likely be talking about compliance with the upcoming 802.11n IEEE wireless standard, which greatly increases speeds of WI-Fi to deliver new services, such as video.

Equipment makers and chip manufacturers will also be pushing technology that helps bridge the divide between landline and wireless phones. Nortel will demonstrate products for delivering WiMax, mobile gaming and wireless handset to PC video calling. Cisco will demonstrate products that show cell phones handing off calls from the cellular wireless network to a Wi-Fi network using dual-mode handsets. And ADC will show off products using a new antenna system that enhances capacity and coverage in wireless networks.

"Across the board, there's going to be very little talk of traditional wireline phone services, which is kind of funny since that's been the phone companies' bread and butter for a hundred years," said Laszlo. "But it just goes to show how the industry is changing."