As the telecommunications industry continues to evolve with the bundling of services in 2005, residential and business customers will benefit from the competition, according to James Butman.
Butman, the president of Madison-based TDS Metrocom, which offers local, long distance and data services in the Milwaukee, Racine, Kenosha, Madison and Fox Valley markets, was a panelist at the Northern Trust Economic Trends 2005 Breakfast presented by Small Business Times Jan. 21.
"I think you will do voice, video and data over your computer," he said.
Residential and business customers will demand greater bandwidth from the telecommunications industry this year, Butman said.
Those customer demands will give telecommunications companies opportunities to expand their services and offer higher technology services to consumers.
However, those opportunities also will pose challenges for telecom companies, which will need to expand and bundle their ranges of services to stay competitive, Butman said.
Chicago-based Telephone Data Service Inc., the parent company of TDS Metrocom, also owns U.S. Cellular, the seventh-largest wireless phone provider in the nation.
The competition between cable companies, local phone companies, Internet service providers and wireless providers is good for consumers and businesses, Butman said.
"I think it will be tough for the industry. We may have to say goodbye to certain revenue streams and find new ones. Lots of (providers) will be offering different products – and there will be more technology."
Residential customers are demanding more entertainment and information options, which they want to be able access quickly, Butman said. At the same time, residential customers are relying less on traditional land-line telephones.
Eventually, many people may rely on their mobile phone as their primary voice communication device, a reversal of how many people use the technology now, he said.
Many young consumers already have replaced their home phones with mobile phones.
Some companies in the Milwaukee market already are offering voice over Internet protocol service, but VoIP currently comprise a very small piece of the telecom market.
Most telecoms are now starting to offer bundles of services that include voice, data and video services. TDS, like its largest rival, SBC Communications Inc., is working to offer video service in the near future, Butman said.
"People want more and more entertainment and information coming from their computer," Butman said.
Customers increasingly want to watch programs at their convenience – and they don’t want to have to flip through cable or satellite channels to get to them.
"If you think about all the TV you watch, not much of it is live," Butman said. "Why do you have to switch through the channels to find it? The consumer wants to watch it on their terms."
Digital video recording devices, whether they’re part of the offerings by a cable company or purchased from TiVo, offer a solution to that challenge. Video on demand services, now available to digital cable customers and on some satellite TV services, offer another option.
Using video on demand, consumers will watch fewer commercials, which could pose revenue problems for cable companies.
"The cable company has challenges. If they send 150 channels, they have ad revenues to worry about," he said. "If they let me play (shows) when I want, it disrupts their revenue streams."
Although residential customers might rely more on wireless phones in the future, Butman said businesses, particularly those with more than 10 employees, will continue to use traditional phone service.
"There’s still the issue of quality with wireless coverage," Butman said.
Residential customers "are very tolerant of it. But I’ve been in buildings where it wasn’t acceptable, and to have a business conversation, you want to be on a wire line phone," he said.
Most wireless phone carriers, particularly for business customers, rely on long-term contracts, which could be problematic for companies that have high turnover because they could run into contract termination fees for departing employees, Butman said.
Some businesses might want to have the traditional services that a "wire line" network offers, like being able to transfer calls or have a receptionist answer the phone.
"If I’m a business, and I have 12 employees, I have different needs, not just where each employee gets a cell phone and a computer," Butman said. "And if you want to control cost, you’re better off with a wire line phone."
Butman said there will likely be some consolidation within the telecom industry in 2005 and beyond, mainly because there has been an atmosphere of "artificial" competition created in the industry in recent years.
To foster competition, the Telecommunications Act of 1996 mandated that large local phone service providers had to sell access to their services to competitors at a below-market value wholesale price.
Competitors, in many cases national long-distance carriers entering the local phone market, were then able to sell services to residential and business customers, at times for less than the companies they were leasing the services from.
The FCC recently handed down a revision of that act that will disrupt the way some national long-distance carriers are able to bring local phone service to other markets. Companies will no longer be able to sell to new customers access to the platform of services bought from other carriers.
Butman said the ruling should have little effect on TDS Metrocom, because the company has installed its own switches, fiber-optic network and other infrastructure here.
TDS does not purchase its platform of services from SBC, but it does lease a segment of SBC’s wires that connect to customers’ homes or businesses.
Butman predicts further consolidation in the telecom industry, both locally and nationally, but he doesn’t necessarily think that’s a bad thing.
"When there is too much competition, there can be unrealistic rates," he said. "But two (providers) is never enough. You need at least a third, a spoiler in the market dynamic. In competitive industries, whether it’s auto or airline or telecoms, the rule of three plays out."
