Americans communicate at the dawn of the 21st century a lot like our grandparents ate in the early 1900s. Sure, we have a vast electronic library at our fingertips, thin mobile telephones stuffed in our shirt pockets and 70 channels of simultaneous television programming piped into our homes day and night.
But we buy these services in more or less the same way as our grandparents shopped for groceries before the advent of supermarkets in the early 1930s. The roast came from the butcher shop, the potatoes from the green grocer, the dinner rolls from the bakery and the milk from the dairy.
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Today, everything on the shopping list for dinner is available at gymnasium-sized supermarkets. Shopping for food is convenient, and consumers often pay less for groceries at the supermarket than they would have at a handful of specialty food stores.
When it comes to communicating in the Information Age, however, most of us still get local telephone service from the telephone company, long distance telephone service from a long distance company, television programming from the cable company and Internet access from an Internet service provider.
Four companies. Four numbers to call for customer service. Four bills.
But not for long.
One-stop telecom shopping
More than half of the Rhode Islanders surveyed last year by researchers from the University of Rhode Island said they would prefer to get their home telephone, television and Internet service from a single company. They’ll get their chance soon.
Bell Atlantic Corp. and Cox Communications Inc. and others are vying to become Rhode Island’s first integrated provider of telecommunications and electronic media services, one-stop shops for voice, video and data.
Both companies already are peddling high-speed connections to the Internet in parts of Rhode Island. But Cox landed the first major blow in the fight to become Rhode Island’s communications and media supermarket by rolling out local telephone service in the northern part of the state early this month.
Cox has spent hundreds of millions of dollars upgrading its local cable lines to carry voice and data traffic. The thick black cables that bring television pictures and sounds into Rhode Island homes have ample capacity to handle telephone conversations and high-speed Internet connections, but the cable system was designed to carry signals in just one direction, into the home. That’s fine for television, but it makes talking on the telephone or surfing the Internet impossible.
The telephone network, on the other hand, is much larger and has been carrying signals to and from homes since the late 1800s. But telephone companies have had to perform engineering back flips to coerce the trusty old copper telephone wires into carrying huge volumes of data through high-speed Internet connections. And cramming a massive television signal onto a telephone line seemed all but impossible until recently.
It’s not clear yet whether telephone or cable lines eventually will become the preferred link to homes, according to Matt Lukens, a 30-year veteran of the telecommunications business and the founder of six technology start-up companies in Rhode Island.
“They are pretty much in a dead heat regardless of what they claim,” said Lukens, whose latest start-up, West Warwick-based e-tel Corp., makes smart telephones. “You can bet that there’s enough money behind both technologies that they can make it work.”
So far, Cox seems to have the price advantage. The company sells its ultra-fast Internet access to cable subscribers for about $30 a month. The service generally is faster than Bell Atlantic’s $50-a-month basic high-speed Internet access offering.
And Cox is selling basic local telephone service in five northern Rhode Island towns for just under $12 a month. Bell Atlantic’s monthly charges for local telephone service range from $12.30 to more than $17 depending on the location.
But Cox is vulnerable too.
Telephone companies tune in TV
Telephone companies in other states are courting Cox’s core customers with satellite television services that offer more channels than cable at comparable prices. For example, Bell Atlantic offers digital satellite television in the greater Boston area through a partnership with DIRECTV for $30 a month for 100 channels. Cox charges $33 a month here for its basic package of 68 channels.
Although Cox’s television supremacy hasn’t been challenged in Rhode Island yet, Bell Atlantic officials said the company is eyeing the Ocean State as a potential new market for satellite television service.
Another Baby Bell is going head-to-head against Cox in Phoenix by offering digital television service delivered through standard copper telephone lines using a supercharged version of the Digital Subscriber Line, or DSL, technology that allows telephone companies to provide high-speed Internet access.
Cox has been selling local telephone service in five Connecticut towns in the greater Hartford area for two years. The company won’t say how many of the roughly 90,000 homes in those towns have switched their telephone service to Cox from local phone company SNET.
But cable analyst James Goss of Barrington Research Associates in Chicago estimates the cable company had more than 86,000 telephone customers in all of its markets around the country at the end of last year. Those customers represent about 2 percent of Cox’s total cable subscribers and about 7 percent of the cable subscribers living in areas where the company’s telephone service is available, according to Goss.
Goss estimates Cox’s telephone revenue topped $84 million in 1999, less than 4 percent of total revenue. He forecasts the cable company’s telephone revenue could shoot to $425 million in 2002, or more than 8 percent of the company’s total revenue.
To post that kind of telephone revenue, though, Cox must first convince customers that its telephone service isn’t threatened by the outages that occasionally leave cable subscribers looking at a blue screen instead of watching the Discovery Channel.
Reliability is an issue
Nearly 30 percent of the Rhode Islanders that last year told URI researchers they want one-stop shopping for telecommunications services said they prefer to get those services from the telephone company. Just 8 percent chose the cable company.
Goss expects Cox to overcome the perception that its system isn’t as reliable as the telephone network.
“If they deliver a quality product, they feel customers will be willing to turn to them for other services including something like telephone service, which most people would be somewhat skittish about giving to anybody that wasn’t proven,” he said.
Scott Hightower, Cox’s director of consumer broadband services, said the company has spent millions adding emergency generators and backup fiber optic lines from the company to neighborhood nodes, where television and other signals are transferred onto individual cables and routed to the homes at the other ends.
Hightower said the company’s telephone service in Connecticut has been up and running 99.99 percent of the time, which means telephone service was interrupted for less than an hour and a half during the course of a given year.
“They’ve built redundancy into their systems to reduce the risk of outages, and their actual outage record is, I think, very low,” Goss agreed.
But Connecticut’s local telephone company SNET hasn’t been standing idly by as Cox perfects its telephone service. In addition to offering digital satellite television to 14 communities and counting, SNET is fighting to hang on to its telephone customers.
“They’ve been a very good phone company for a very long time, and they’ve focused on Connecticut,” Hightower concedes. “So they’ve been able to really take care of customers and do a good job.”
He likes the match up against Bell Atlantic in Rhode Island a little better. Rhode Islanders, he noted, already have been bounced from NYNEX to Bell Atlantic.
“I don’t think there’s as much customer loyalty probably to Bell Atlantic as to SNET,” Hightower predicted.
For its part, Bell Atlantic has publicly welcomed the competition from Cox and others. The 1996 Telecommunications Act requires that before Baby Bells can begin selling long distance service they must demonstrate, among other things, that they face competition for local telephone service.
In a recent interview with Providence Business News, Bell Atlantic’s top Rhode Island official, Donna Cupelo, all but praised Cox’s ability to provide local telephone service. “Quite frankly, who has the better reach to the residential customer after Bell Atlantic, but Cox?” Cupelo said.
But there is other competition.
Long distance giant AT&T Corp. has acquired major cable providers to position itself to offer local phone service in addition to long distance, Internet access and wireless service. And the heavy-hitting Internet service provider America On line Inc. last month announced a mega-merger with Time Warner Inc. which includes cable television systems serving more than 21 million homes.
Locally, Log On America began reselling Bell Atlantic local telephone service in Rhode Island last year. The Providence-based Internet service provider charges $15 a month for local telephone service–a 15 percent savings over Bell Atlantic in Providence, but significantly more than the $12.30 a month Bell Atlantic charges in Newport.
Log On America plans to begin routing calls across its own network some time in April, officials said. But the company will continue to rely on Bell Atlantic’s telephone lines to reach from its switch in Providence to the customer’s home–the so-called “last mile” of telecommunications.
“Bell Atlantic still has the customer,” Lukens, the e-tel president, said. “Customers can’t rip out Bell Atlantic copper and get it somewhere else.”
But now they can choose to communicate via cable lines in parts of northern Rhode Island.
And conventional wisdom in the telecommunications industry holds that it shouldn’t be long before customers can talk to friends, flip through hundreds of television channels and surf the Internet at breakneck speeds without any wires at all.
