Executives from several of Nevada’s leading communications firms gathered at the Four Seasons Hotel in Las Vegas on January 16 for the second annual Communications Roundtable, a discussion of issues affecting their industry. The meeting was a part of Nevada Business Journal’s monthly Industry Outlook series. Those in attendance represent telecommunications firms and high-tech companies from both ends of the state.
The group discussed topics ranging from deregulation to new technologies, and from right-of-way management, to customer service, to predictions for the future of their industry. Steve Schorr of Cox Communications acted as moderator.
Steve Schorr: I’d like to begin this morning with the Telecommunications Act of 1996, which Congress believed would bring about competition, more players within the marketplace, lower rates and better services for consumers. When you look at the marketplace today, that has really not occurred. Where do you see the competitive marketplace today and how has that benefited the consumer?
Lou Emmert: I am going to disagree. Just by virtue of all the people who are sitting around the table today, I feel like competition is in Nevada. Obviously, there have been companies that have not done well, but that is also the free marketplace. It’s probably a part of the normal process of evolution we’re going through, and I think competition is well on its way. When long distance became competitive, it took over 10 years for that to become a very viable competitive marketplace.
Mark Lipford: I agree. There are successes and failures. Large corporate customers, especially in key markets of the United States, have been seeing competition for 15 years on the local side. It’s been able to move downstream since the Telecom Act of ’96, and competition still exists in those businesses in those markets. I think residential and rural areas are the ones that still have not benefited. But in the key markets in California and Nevada that we serve, business customers do have choices.
Rob Roy: Most of us probably watched the FCC hearings the other day, talking about facilities-based competition, and that really is something that is going away. We use the companies in this room to transport data, help clients, connect them back and forth to their sites or to our sites. XO spent an amazing amount of money to try to run fiber and get a facilities-based matrix put in Las Vegas and it was too much money. They couldn’t do it. Cox and Sprint have their pieces in place, and I don’t see over the next five years anybody else jumping up to come and build a lot of the facilities-based infrastructure to compete against that. I think it’s going the other way. There’s no more dark fiber going forward. I would agree with Steve on that, and say that the options for clients are getting limited to what exists today.
Michael McGhee: I actually think the ’96 Act has worked, but I don’t think it’s worked fast enough. I do believe broadband deployments into residential and business [markets] will be different, but also extremely beneficial for the customer. And unfortunately, for many of us, that’s going to mean lots of churn (customers changing from one carrier to another) and lots of necessity to have differentiating products. But that’s what the process is designed to do. People do want to take advantage of new services delivered over different physical mediums, so I think the Act started the process well.
Sylvia Samano: We really do believe in legitimate competition. It certainly improves the way we operate. It also benefits our consumers. But what we’re seeing in our marketplaces are companies that are coming in and taking advantage of the access network rules. And so they’re able to market their services over our lines, and we’re paying the price for it. They’re only paying us back for a fraction of the cost. And so, from that standpoint, I think the Telecom Act didn’t pan out the way it was envisioned.
Rhonda Rae: Each of us has our own unique products we bring to the table. In the case of Pac-West, we bring a lot of bundled services that we feel are great solutions for our customers. But we’re not everything to everyone, so we need to determine our market strategies and determine what the customer’s demands are.
Schorr: Has the real asset of the Telecom Act been not so much the competitive marketplace, as it has been the increase in customer service?
Emmert: I think it’s been a real benefit to customers, because they now have more choices, and I think people are striving to outdo each other in customer service. And some of the competition has come from unexpected areas. For example, wireless. On one hand, it’s a competitor. On another hand, it’s a piece of our portfolio because we [also have a wireless division].
Lipford: I believe – and I tell our employees – that everybody’s going to have everything one day, and what is going to separate us from the competition is how we treat our customers today and the loyalty we build. The relationships we build with customers are going to make a difference for us down the road, so that is the strong foundation we’re laying for our business today.
Kenneth Bisnoff: Sitting at the table with two of my largest competitors, SBC and Sprint, I’ve seen a change in customer care. We have very good relationships in the operational side, because we need that in order to service the customer side of it. There is a lot more cooperation thanks to the Telecom Act of ’96, and I think that is bringing better service in the end to customers.
Roy: I am hearing more the opposite in the last six months. From WorldCom on down, because of the economy, the big corporations have laid off 6 or 12 or 47 percent of their staff. [I’m hearing that] the customer service from bigger corporations is actually at an all-time low. We have a lot of clients from outside Nevada, so maybe it’s more on the West Coast than locally. But, there are some people out there right now very frustrated with how customer service from the bigger players in the industry has gone. When [companies] get on the news, they say, “Our focus is customer service. We’re going to get our installation times down to the lowest they ever have been.” But when you’re a client on the other side of that and you’re still waiting to have your line installed 33 days later, a lot of false issues come to bear. This is not the group you need to ask questions [about customer service]. Go out to the clients, and ask, “How do you think it’s been?” They’re going to say, “It hasn’t been that good.”
Samano: I was listening to your comments with a lot of concern, because that’s not what I’m seeing in my company. We’ve all had to make cuts because of the economy and also because of some regulations, but we’re making real careful decisions at an upper management level about what jobs are going to go away. We’re certainly not going to give any jobs away that affect customers. The jobs that are going away are where we’re not seeing the business any longer. So I will disagree with you on that.
Lipford: I hear the same things, and I have a little bit different take on it. Customer service goes beyond how you answer the phone, what services you deliver, when you’re in the customer’s home or business. It also goes to your commitment to the community. Are you giving back? Are you a good corporate citizen? I think you have to look at the total picture.
Emmert: The philosophy that runs Sprint, across the country, and specifically here in Nevada, is customer service. We do numbers on customer surveys in all different market segments, and those numbers are improving. We’re not 100 percent perfect, so there are occasions when something does slip and intervals become longer than should be expected. But by and large, our focus is to meet the competition and exceed the competition.
Schorr: For the smaller companies, is customer care where you see your key?
Rae: It really has to be. We have to be extremely focused on our customer. It starts from our first conversation. When we’re out prospecting, we are talking to a customer and representing our company and returning phone calls, and meeting our commitments for appointment times, and bringing the information they requested. Properly educating the customers as to their choices, even if it means we have to advise them that we’re not the best choice for their needs. It doesn’t end at the sale. We’re not done until our agreement is over. And then, of course, we want to renew that agreement.
Schorr: There’s now a debate going on that maybe there needs to be re-regulation or more regulation of the telecommunication industry, while those in the industry are calling for less regulation. Where is the balance that’s going to benefit the consumer, yet allow the industry to continue to grow?
Bisnoff: Well, the answer is not government regulations. I think stability in the regulatory environment is more looked for than anything else, because that helps fuel capital investment, which allows our companies to service the customer with new technologies, with regional technologies and in a better fashion.
Lipford: From our business standpoint, I think you need less regulation the more competition there is. If you try to do regulation in a competitive marketplace, you can make it very difficult for everybody to be successful. And no business likes to have a government or some third party try to tell it how to operate, particularly when they are not experts in that business.
McGhee: Just to take a slightly contrary view, Sylvia [Samano] mentioned legitimate competition. And the only way we’re going to define and enforce that is through some form of regulation. So in a sense, we would like to have it, as long as it makes that marketplace fair and even. But with respect to the ability of government to anticipate changes in the telecommunications market and be flexible enough to perform, I don’t really see it. I think the FCC has grown well beyond its mandate and is much more a hindrance at this point than it is a help, and it is in serious need of a major restructuring and reformation across the board.
Samano: One of the things we keep hearing in our industry is about a “level playing field”. And that’s what I think needs to happen in some of the regulatory arenas. One example we deal with is broadband parity. The Regional Bell Operating Companies (RBOCs) are regulated by both federal and state agencies, and we have to get permission to change prices or roll out new products. Cable companies, which offer the same broadband service, are not regulated, so they can often get there faster and underprice us. As a result, nationally, telephone companies have 30 percent of the broadband market, while cable companies have 70 percent. We would just like to be regulated the same. I am not saying less or more, just the same.
Emmert: I don’t think we should see more regulation, because competition has brought so much for the consumer. Rates on long distance have gone down. It’s brought new products. But we don’t think that, as an ILEC (incumbent local exchange carrier), we should be totally deregulated. We understand regulation. However, we would like to have more flexibility and be able to compete on a level playing field and be more responsive to our customers. We often can’t respond with new and creative things, because we may not have something tariffed. Therefore, we have to design something and get it tariffed before we can go back, whereas competitors are very free and flexible to design it, and go back tomorrow or the next day.
Bisnoff: Regulations are necessary, both state and federal, but we need to have incentives for players who can deliver better bandwidth to customers and keep it open to legitimate competitors like us. I need the help of folks who had the benefit of being the incumbents and who built the networks, or having wireless investors who would get it to a point where it has the stability necessary for customers. There just needs to be stability instead of uncertainty of who has control – federal or state. While they’re battling, all the players around this table, and more importantly, the people with the money behind us, are afraid to put their chips into an area, which would allow us to bring increased broadband to the customers. Getting the balance within the state and local arenas worked out so there is clear ownership will make a big difference in this area.
McGhee: Right of way is something customers do not understand. They have a common sense question: “Why can’t you bring the line to my building?” That’s because it’s somebody else’s vault and they want to charge $25,000 to move eight feet. You know, those are the sort of things that sometimes have to be explained to customers. And that just doesn’t make sense to them, but it happens all the time.
Roy: Sprint and Cox control pathways into most of the buildings in town, exclusively, and then they’re forced to let somebody else use what they built. As a CEO of a company I built myself, I don’t think I like either side of that. I think we’re moving more towards a company like Sprint – that has the ability to get to the next building, and then the next building – taking it from twisted-pair copper to DS3 capabilities. The government says there is not enough facilities-based competition, although they don’t explain how we are going to change that. Costs went from $52,000 a mile to run fiber, to being just about impossible to run fiber.
Schorr: We have seen a shift within the industry because of dollars and cents. At one point, what the industry could do was driven by the consumer. Now, it seems to be driven by Wall Street.
Lipford: Speaking for the cable industry, I absolutely agree with that. Three or four years ago, Wall Street was telling us, “Invest heavily in your network. Put in money and capital and assume debt to roll out new products and services.” Then they turn around and said, “Now, you need to be free cash flow.” Companies like CableVision, Charter and Adelphia got caught up in that trap. The nice thing about Cox is, you’re not going to find a more fiscally conservative cable company, and we’re in a position to be cash-flow positive for 2003. But trying to respond to what Wall Street wants is driving companies out of business. We need to get back to our customers and our products and our technology and away from what an analyst on Wall Street says, who in one day will make a comment and drive your stock up or down 7 percent or 10 percent. It’s a crazy way to do business.
Emmert: It’s been a brutal business environment for the past couple of years, and I think about pendulums swinging. Three years ago, so much was built on perception and nobody had any earnings or results, yet the stock market was just going up, up, up. And all of a sudden it fell, for a number of reasons. We’ve also had failures because of poor business decisions and some illegal business decisions. So now I think you’re at the other extreme. People are very, very distrustful and it’s going to take us a while to build that trust back up. We’re free cash flow also, but we do manage the business based on Wall Street to a great extent. Every day we look at the stock market, and unfortunately, Wall Street is not looking at the results it should be.
Rae: If you use general business financial practices and compare balance sheets with stock prices, they don’t match. We want to put the reality back into all our businesses based on our financials and our projected growth.
Bisnoff: I think we’re heading back towards the middle ground where we need to be. Companies that have solid infrastructures, solid plans and solid teams to execute on those plans will be able to bring services to clients.
Roy: How much does the stock market affect me? None, because we own our company. We don’t have to look outside for the money, and then also we’ve had to use real fundamental business practices to grow and succeed, not throw a million dollars at every problem. Buying the Enron building [in Las Vegas] has been a fun experience. The five people I’ve been working with are liquidating $7 billion in real assets. And as we listen to the people who actually worked within the industry, we hear the real stories of what went on, and it was just an inconceivable waste of people’s money. A few individuals who sat at the top of the telecommunications industry stole more money than probably every felon in jail in the United States. When you think about it, I actually made $61 billion more than Enron last year. (laughter) I could have lost a billion and still come out way ahead.
Schorr: Twelve months ago, some of us sat in this room talking about what telecommunication’s future looked like. There was a lot of discussion at that time about more competition, more CLECs (Competitive Local Exchange Carriers), more companies coming forward, bigger pressures on the incumbents. It’s been an interesting 12 months. The way it looks today is different. In closing, it’s only proper to give each of you an opportunity to look at where you think the future of the industry is going to be, in the next 12 months to three years.
Samano: In my area of responsibility, which is Nevada, we’re looking at a bright future, particularly with the expectation of long distance being approved this spring. That gives us the ability to offer one-stop shopping and give our consumers what we think they want.
Curt Miller: At The Noc (Network Operations Center), our business is going crazy. Our goal is to constantly monitor networks. I like to relate it to that commercial: “Can you hear me now? Can you hear me now?” Our goal is to find out if something in somebody’s network goes down, to notify the right engineers – whether they be ours or theirs – and get it fixed before the users ever know it went down. And it’s exploding. All the technology that’s come aboard is fleshing out a little bit, and I think over the next 12 to 24 months some real solutions will start to show up. Everybody’s going to be grabbing one and running with it. It’s going to be fascinating to watch what happens.
Rae: We’re all testing technologies and it’s very exciting. I love the quote, “Adversity does not build character. It reveals it.” That’s pretty much what every company in our industry has been going through in the past couple years. We’ve pretty well revealed ourselves. And we’re now going to be revealed, in the next 12 to 24 months, as to what our real platform will be and how we’re going to deliver it.
McGhee: By the end of next year we’re going to see the wholesale adoption of VoIP(Voice Over Internet Protocol) in both business and residential. In our [colocation] site today, we have a major provider doing wholesale long distance internationally, and it’s using a platform that would have taken the whole facility just a year ago. There is going to be a major adoption of Internet protocol across all consumer devices, and this next year is going to see that become more of a vernacular for the consumer.
Roy: I am not just excited – I’m maybe even a little giddy. The new technologies have caught up. When a trillion dollars went into industries that just fell in the garbage three years ago, the technology wasn’t ready yet. The data testing has now been done, so it’s all emerging. We grew during a brutal two years, and expanded, and filled our first site and moved to the next. We’re happy campers.
Bisnoff: TelePacific is happy to be a survivor in a position we are, in the marketplaces that we’re in. And I’m hoping we’ll again see investment in technology over the next couple years. Just as a final note of technologies to watch, I am very excited about what I see in Wi-Fi. You’ll be able to sit anywhere with your laptop, cell phone or PDA and log into the information you need. It will be huge for consumers and the business customer. With broadband exploding and prices coming down, video is also going to become more and more prevalent down to smaller-level business customers.
Lipford: To borrow a phrase from Lou Gehrig, I truly feel like the luckiest person in the world. I work with a great company in the greatest city in the world. We sat here at last year’s roundtable and talked about high-definition television, and today we have it in thousands of customers’ homes. We talked about entertainment on demand, VOIP, the potential high speed network, and are now making them all happen.
Emmert: The world runs on telecommunications today, so I think we’ve got to have a bright future, because people want more and more speed and more communications. I think the companies that will be successful are those companies that, first of all, are ethical. Companies that set high standards internally, as well as for the customers, and companies that exercise discipline and have financial stability, and obviously those companies that meet the customers’ needs.
Schorr: I want to thank all of you for being here and for taking part. I think the industry does have challenges in the future. What people have to remember is where we have come in such a short period of time. Less than 18 years ago, what you received in your home was only 24 channels of television. Cellular phones were not even thought about. The Internet was a dream. You couldn’t carry a computer on your back with all the muscles in the world. Today we carry them on our waists. I think the industry has met the challenges and needs of the consumer. Has it done it perfectly? No, but I don’t know if any industry can. And I think the future is very bright for our consumers throughout the country for all facets of the industry.
