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January/February 1997
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Back to the Future
By Donald M. Heath
heath@isoc.org

Thomas Edison invented the incandescent lamp nearly three years after the telephone was first demonstrated. The decade that followed brought applications for generating and distributing electricity. This included the three wire systems, underground mains, better dynamos and motors, and an electric railway. There was growing concern among the power companies--which were charged with supplying power for electric lights--that the power they supplied would be used for other applications. Arguments were made that the power company was established solely to deliver power for the light bulb. That narrow view faded, however, as the profitability of providing power at varying levels for a multitude of applications became apparent.

Today we are surrounded both by applications of electricity and by applications of applications of electricity. Power companies formed for the purpose of delivering power, and they could charge differently for whatever amount or volume of power was consumed. Grids formed. Companies began manufacturing work-saver devices that depended on electricity for operation. Other companies emerged that depended on electricity for operation but whose end product was not directly related to the use of electricity. In other words, applications were built upon applications, level upon level, always moving up the value chain. Whole industries spawned that depended on those various levels of applications.

This sort of parallel process is occurring today with relation to the Internet. IP may well be the second application of the phone network, but it is an expanding technology-an enabling technology-such as we haven't seen since the advent of electricity. How will the telecommunications companies and the PTTs of the world manage this opportunity? Are there signs that the teleco industry will follow a path similar to that of the power industry?

In the United States, the breakup of the AT&T monopoly in the early 1980s had the effect of producing seven powerful and cash-rich local operating telephone companies looking for opportunities to invest their cash. Many attempted to either buy or buy into the PTTs in developing nations. One way or another, they were intent on investing in dial tone-the one technology they understood and the one that would continue to make them money.

Today, telephone companies and PTTs of the world are uniquely positioned to leverage the potential of the Internet. In fact, in order to survive, they must remain intimately involved with Internet evolution. But make no mistake: the development of the Internet will continue. Other entities are paving the way but without the history, knowledge, and financial base enjoyed by the teleco industry. Only they have the wherewithal to realize the true potential of the Internet.

Many questions remain, however, such as, What will the telecos do? What actions will they take? How should they be involved?

AT&T, the largest long-distance carrier in the United States, began the race by acquiring NCR in a huge, multibillion-dollar deal that, at the time, was applauded as a stroke of strategic genius. Many now say that it was more of a stroke! AT&T followed with other strategic acquisitions that were designed to allow it to be virtually everything to everybody.

MCI, with its infusion of cash from the deal with British Telecom, went out and bought into the Murdoch news enterprises, a strategy that put the company in control of creating, maintaining, and delivering content. MCI consolidated its investments in local access capabilities and made decisions that would give the firm more overall control in all aspects of what was generally thought to be what the Internet would be offering.

Let's look at what is happening today: AT&T is divesting and becoming more focused. It has spun off its equipment manufacturing, Lucent Technologies, and it recently decided to embrace the Internet instead of going it alone. MCI, as quickly as it made the deal with Murdoch, is now backing off. It still is not clear what the long-term strategies of either of these pace-setters may be, but they do seem to be cooling in their attempts to be a source of one-stop shopping.

Is the history of the power industry repeating itself? Might there be bandwidth companies, infrastructure companies, network companies, network applications companies, and content providers? Will enough time pass to allow companies like America Online to regroup and catch on to what they could achieve? Might Microsoft come up with the model for exploitation of the essence we are attempting to evolve to in the Internet? Can the telecos compete in the new world of universal communications?


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