Sprint's announcement didn't even raise its own stock price! Seems to be a little skepticism. |
From the WSJ:
>>Sprint Announces Plans to Integrate
Voice, Data Services in New Network
By STEPHANIE N. MEHTA and JOHN J. KELLER
Staff Reporters of THE WALL STREET JOURNAL
NEW YORK -- Sprint Corp. executives confirmed the company's plans to move to a single
communications network that will provide integrated voice and data services, and far more
communications power than currently provided by phone companies.
It was a day of reckoning of sorts for the companies that built America's massive telephone
system. Faced with huge growth in data traffic, the phone industry must scramble to find new
ways of transmitting voice, data and video on a wire to businesses and homes, eventually
scrapping the sluggish circuit-switch setup that has served the industry for more than a century.
Sprint said it will move to a streamlined delivery system, which it calls the Integrated On-demand
Network, or ION.
Speaking before a jammed news conference here inside the Richard Rodgers Theater, Sprint
Chairman William T. Esrey vowed to "leave competitors behind to talk about the future" while
Sprint gives customers "a single connection and blazing speeds" to make calls, conduct business
and surf the Internet. Sprint plans to accomplish this with a single network that employs new
high-powered switches called ATMs, Internet packet transmission gear and data routers to move
traffic from local subscribers to its high-powered fiber-optic networks.
The ambitious plan underscores the massive shift under way across the industry. Big carriers are
struggling to upgrade their networks for higher speeds and better phone hookups. They are
being challenged by startups such as Qwest Communications International Inc., IXC
Communications Inc. and Level 3 Communications Inc., which are building all-digital networks
that are unencumbered by old voice-based systems.
Particularly vulnerable are the Baby Bells and other big local phone companies such as GTE
Corp. With data rapidly overtaking voice calls as the primary traffic on phone networks
world-wide, the big phone companies need to retool their systems, lest rivals such as Sprint,
IXC and even tiny Frontier Corp. move in quickly and lure away their high-spending business
and residential customers. The newcomers can provide a full suite of voice and data services to
business customers simply by leasing a pipeline from local carriers, relegating the Bells to the
role of a wholesaler of dumb wires. "If the Bells want to play in this game, their whole [voice
network] facility is at risk," said Benjamin L. Scott, chief executive officer of IXC, based in
The transition will be costly. In just the U.S., the local-phone plant comprised 30,000 switches,
more than 483,000 workers and a capital investment of $320 billion at the end of 1996. The
Bells and other locals will have to make the shift while continuing to serve tens of millions of
subscribers. "There's no one day when a Baby Bell will pull the plug on their old network and
plug into a new one," said Timothy Weller, an analyst at Donaldson, Lufkin & Jenrette. "Voice
switches will be around well into the next century."
Ultimately, the Bells may have to take huge write-downs, analysts said, not unlike AT&T's $9
billion write-down of its old network when it moved to a fiber-optic network in the mid-1980s,
following Sprint's lead.
The transition is costing Sprint plenty, as well. Sprint said its new network will hurt earnings for
at least the next three years. Sprint executives acknowledged Tuesday that preparing for the new
service will cost $400 million over the next two years on top of the $8.3 billion the company will
spend on its existing networks during the same period. Broken down, Sprint spends $3 billion
annually on its long-distance network, and it spends $800 million more a year on operation and
maintenance. Sprint will also spend $3 billion this year and $1.5 billion next year building its
national wireless system, Sprint PCS.
While Sprint expects to cut its costs to deliver phone calls by as much as 70% when the new
system is completed, the earnings dilution from moving to the new service will amount to as
much as 25 cents a share in 1998 and 60 cents in 1999 and 2000, said Sprint President Ronald
T. LeMay. Positive cash flow and earnings from the new ION network won't come until 2001,
Competitors Say They're Keeping Up
Rivals were quick to pooh-pooh Sprint's plan, noting that they too are installing the same kind of
gear Sprint is using. AT&T's network chief Frank Ianna noted that 50% of AT&T's traffic from
business customers runs directly to AT&T's network, bypassing the Bells altogether, and this
will be beefed up further when AT&T completes its $11.4 billion purchase of competitive local
carrier Teleport Communications Group Inc. this summer, giving it additional direct connections
to subscribers across the country.
To get to one network, AT&T has been working on a project, code-named Aladdin, which like
Sprint's plan would move all traffic onto a single network. Currently in the testing stage,
Aladdin will use the same Internet-based packet routers and powerful ATM switches as hubs.
But Mr. Ianna maintained "the entire world in voice communications" is now using older-type
circuit switches. "It's not going to be a flash migration" to these new single networks, he said.
BellSouth Corp. noted that it already has installed 30 such ATM, or asynchronous transfer
mode, switches that Sprint plans to use to offer its services, and it plans to install 24 more by the
end of next year. Earlier this year, Bell Atlantic, New York, announced plans to invest $1.5
billion over the next five years to upgrade its network for data demands.
A Little $200 Box
But Sprint made plain Tuesday that it has already done much of the heavy lifting. Inside the
Broadway theater, the company staged a little play about its ION service for reporters, with
actors playing people at home, using their PCs, talking on upstairs phone extensions or
telecommuting. Sprint's service would let customers do all of this through a single wire, and
they would get tremendous transmission power, including Internet access, multiple phone lines
and even the juice to do push-button video intercom with other Sprint customers. A little $200
box in the home would provide some of the electronics for the multiple-line, high-capacity
service and act as an electric meter. The device would allow Sprint to bill customers by the
number of bits they transmit rather than by the minute or by distance as calls are charged for
The tough part will be leasing the direct connections to customers from local phone companies.
Sprint executives Tuesday acknowledged that a single line today might cost as much as $50 per
month to lease. And the Bells are notorious for dealing slowly with requests for line connections
from new entrants to their local markets.
Even so, Sprint is the first carrier to redefine phone service as most customers now know it, said
John Chambers, chief executive of the Internet networking company Cisco Systems Inc.
Speaking via videotape at the Sprint press briefing, Mr. Chambers noted that "Those who
understand [the move toward streamlined networks] will be leaders," he said. "Those who don't
will be left behind." In a major coup for a data-networking company, Cisco will act in the future
as the primary supplier and supervising vendor of the Sprint network, replacing telecom leaders
Northern Telecom Ltd. and Lucent Technologies Inc., Sprint executives confirmed.<<