Lecture 5 Network Service Providers. Telecommunication Industry In a state of flux due to: –increased competition –growth of the Internet –globalization.

Lecture 5

Network Service Providers

Telecommunication Industry

• In a state of flux due to:– increased competition– growth of the Internet– globalization of the worldwide economy

Globalization

• More competition in long distance services in the US

• Growth of multinational corporations eager to purchase services from a single source

• Growing demand for network capacity• Liberalization of overseas TC markets• Opportunity developing countries very large

Developing Countries

• Long waiting lists for telephone lines

• Eastern Europe has fewer than 20 phones per 100 people

• US has 64 phones per 100 people

Long Distance Market

• Still some growth potential in US

• Interstate margins slim, growth decreasing

• Investment in overseas ventures possible with overseas deregulation

• Results in higher profit margins

• RBOC’s also expanding overseas, SBC owns 10% of Telkom South Africa

TC Service 1984-1990

• Local carriers:– Sell mainly local and toll services– Yellow page advertising– Cellular services

• Long distance carriers:– Interstate voice– Data telecommunication services

After TC Act 1996

• Local providers and cable operators:– interstate long-distance inside their territories– high-speed data networking– Internet access and services– cellular services outside their territories– local calling outside their territories – interstate long-distance outside their territories

Examples of Expansion

• RBOC’s, Cable TV operators, and independents: – interstate long distance from within their region– high-speed data networking– Internet access and services– cellular services outside their region– local calling outside their region– interstate long distance outside their region

Examples of Expansion

• Cable TV operators emerging as major competitors for Internet access and local phone service

• Independent carriers (Level 2, Quest Comm., Global Crossings) building high-speed fiber optic networks

• Many resellers in long distance, Internet and data services

Services sold by resellers:

• Debit cards• Dial-around calling• International call back services• Internet access• Local telephone service• Long distance to consumers and small business• Local and long distance to hospitals and college

dorms

New Class of Resellers

• Emerged in mid 1990’s• CLEC: competitive local exchange carriers• Sell local, data services, Internet access and

local toll calling to business and residential customers

• Urban business customers bulk of business• Use their own facilities, and buy from local

exchange carriers

The Bell System Prior to 1984

• 22 local Bells, all owned by ATT

• Bells sold local, domestic, and international services

• Manufactured and sold central office switches, customer premise telephone systems, electronics and consumer phones

• yellow pages and white page directories

Monopoly System

• ATT had a total monopoly on all telephone traffic

• MCI and Sprint wanted to compete with ATT in metropolitan areas

• by 1974 many complaints filed against ATT for not supplying connections to local phone companies, antitrust suite filed

• anti-trust suit resolved in 1984

Modified Final Judgement

• ATT settles with the Justice Department

• ATT must divest 22 local companies

• Ownership transferred to 7 Regional Bell Operating Companies

RBOC’ s

• Retained:– the “Bell” logo and the right to sell local and

toll calling within local area’s– the lucrative yellow pages and white directories

• Denied:– the right to manufacture equipment

Bellcore

• Centralized organization

• Jointly owned by the RBOC’s– central point for National Security and

Emergency Preparedness– technical resource for the RBOC’s– administered the North American Numbering

Plan

Bells 1984 -1996

• Sold basic services

• 1988: allowed to offer enhanced services– computer processing to act on subscriber

transmitted information• voice mail• audio text• electronic mail services

• Bell’s opened 100 service features to competitors

Bell’s Core Business

• Local telephone service

• Experienced enormous growth in data and wireless services

Telecommunication Act 1996

• Bell territories were opened further to competition– long distance vendors– cable companies– local access providers– utility companies

• Many mergers followed between the Bells, now only 4 RBOC’s remain

Independents

• 1,270 independent telephone companies– Alltel Corporation– Cincinnati Bell– Sprint Corporation– in many rural area’s

• Supply dial tone to 15% of the telephones in US and cover >50% of US geographically

• May manufacture their own phones and sell long distance within their regions

Impact TC Act 1996

• Objective to open up $193 billion p/y local telephone market to deeper competition

• Provided guidelines for opening interstate long distance market

Impact TC Act 1996

• 14-point checklist for RBOC’s

• Opened local service to: interexchange carrier’s, CAPs, cable companies, wireless operators, broadcasters, and utility co’s

• Required interconnection for the above

• Local could: sell cable and TV services, equipment, and out-of-state long distance

Impact TC Act 1996

• Raised limit on the number of TV stations networks could own

• Phased out cable rate regulation

• Promised carrier discounts to schools, health care institutions and libraries

• Allowed RBOC’s to manufacture once they receive permission to sell in-region long distance services

Interexchange Carriers

• ATT, MCI, Sprint

• Before Act, primarily sold long distance and international service

• Own most of the switching and transmission equipment routing their calls

• Connect to provider to complete the call

New Interexchange Carriers

• Level 3 and Qwest Communications– route traffic over a mix of of their own fiber

and facilities owned by other carriers

• Williams Communications– sells mainly at the wholesale level to other

carriers and Internet service providers

New Interexchange Carriers

• Services include: • toll-free 800, 877, 888 services

• outgoing long distance, private lines

• local calling services

• data transmission services

• 900 services

• Internet access

• cellular wireless services

• VPN’s, webhosting

Transporting Calls

Markets Opened by TC Act 1996

• Telephone system manufacturing

• Sales of interstate long distance depending on meeting conditions of interconnection

Merger and Partner Mania

• Amritech invests $6 million in Europe

• BellSouth $2 million in Latin America

• ATT and Teleport Communications Group and TCI

• WorldCom with MCI

Impact of TC Act 1996

• Permitted RBOC’s to sell in-region long distance after 14-point checklist

• Freed interexchange carriers, CAP’s, cable companies, wireless service operators, broadcasters and gas and electric utilities to sell local telephone service

• Required local telephone providers to offer resale and interconnection

Impact of TC Act 1996

• Authorized local telephone companies to sell cable and TV services, equipment and out-of-state long distnace form outside their regions, voice messaging and cellular

• Raised the limit of TV stations networks could own and phased out cable rate regultion

Impact of TC Act 1996

• Promised carrier reimbursable discount to schools, health care institutions, and libraries in rural areas

• Allowed RBOC’s to manufacture goods through separate subsidiaries, after they receive permission to sell in-region long distance services

Interexchange Carriers

• Prior to 1996 Act: ATTm MCI, Sprint

• After 1996 Act:– Frontier, Qwest, and Level 3 Communications:

• own most of their own switching and transmission equipment, microwave, fiber, multiplexers, etc.

• route their customers traffic over a mix of their own network and leased fiber or cabling from others

• sell capacity at wholesale to other carriers and Internet service providers

Interexchange Carriers

• Services include:• toll-free 800, 877, 888 services• outgoing long-distance• dedicated private lines• local calling services• data transmission services• PCS cellular services• 900 services: VPN, web hosting• Internet access• cellular wireless services

LATA

• Local access and transport area

• 161 local geographical area’s in the US

• area in which local telephone area’s may offer phone services, local or long distance

• regulated locally state-by-state

Local and Interexchange Carriers

• Post divestiture conditions:– IXC carriers were barred from carrying traffic

within LATA’s– Local phone companies were to carry traffic

within LATA’sIXC carriers forced to hand-off interstate calls

to local provider which are then carried to their final destinations

Point of Presence

• The point in the network where the IXC carrier passes off the call to the local phone company is called the point-of-presence or POP (see figure 3.3, page 97)

• It is the location of the IXC’s telephone switch that connects to the local telephone company

Point of Presence

• A long distance carrier’s office in your local community

• Place where long distance carrier lines terminate, just before those lines are connected to the local telephone company’s lines

• IXC may have several POPs within a LATA

POP

• Each major interexchange carrier has a POP in each metropolitan area

• EX: ATT has two in Boston

Competitive Access Providers

• An alternative, competitive local exchange carrier, such as MCI metro

• Largest CAP’s are:– ATT– MCI Worldcom

CAP’s and CLEC’s

• The CAP provider evolved into CLEC’s in the 80’s and 90’s

• IXC paid access charges to the local carrier for access and egress to the local loop

• This cost passed on to their customers

• Amounted to 1/3 of Bell’s revenue, 4.5 cents per minute

CAP’s and CLEC’s

• Business customers found these access charges to be costing them a lot of money

• Circumventing these charges a priority• Learned how to circumvent by building their

own capacity and connections• Beginning of CAP industry• Supply alternative for local phone service and

access to IXC carriers from local areas