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WorldCom SPRINTs, Nokia/Visa Pays Bill, & Service Providers Gear for Wireless Tsunami

Written By: R. Krause
Published On: March 1 2000

WorldCom SPRINTs, Nokia/Visa Pays Bill, & Service Providers Gear for Wireless Tsunami
E. Robins - March 13th, 2000

Event Summary

In October 1999, MCI WorldCom (NASDAQ- WCOM ) and Sprint (NYSE - FON, FON PR, FON PRA, FXN, PCS) announced a merger agreement that will bring together two giant telecommunications companies with complementary capabilities. SPRINT offers wireless PCS networking while MCI WorldCom has an expanding fiber optics network.

Coupled with this is the announcement of the deployment of MMDS (Multi channel Multi-point Distribution Services) by both SPRINT and MCI WorldCom later in 2000. MMDS will enable rural and small town areas to have high-speed Internet access where DSL (Digital Subscriber Line) and cable are not available.

In addition, packages for end customers in which long distance and local calling are bundled into single price packages means the ability for MCI WorldCom to provide both local and long distance access to its customers (this is a result of the 1996 Telecommunications Act which effectively deregulated the industry).

DBSP's Benefit

What has this to do with Digital Business Service Providers (DBSP)? Plenty. DBSPs in all sized markets can benefit from this, particularly in such verticals as agriculture, mining, forestry, and related industries. The expansion also means keeping the likes of AOL happy. AOL is MCI WorldCom's single largest customer, and the Time Warner merger has put pressure on expanding broadband and wireless services. Smaller ISP's, and MCI WorldCom's own (rather surprisingly crude) ISP service will also benefit from this.

MMDS brings the capability of on-line performance in the larger cities where the availability of high bandwidth has transformed the business landscape. It also raises the high probability of new dot-com's springing up in more remote corners of the U.S. to support much of the new infrastructure that is likely to develop, as evidenced from Internet history to date.

There is Competition

Competing for the mobile business are also the satellite companies like Iridium LLC. Unfortunately, the Iridium project was planned and conceived in the days before the Internet took off, and was directed at cell phone voice and messaging. With the Internet, the need for broadband has become apparent, and the laying of fiber and microwave repeater networks has made Iridium's technology less attractive.

Currently it is on the verge of bankruptcy and is now under the financial glare of telecom mogul Craig McCaw, who is assessing Iridium's status. Craig McCaw is also chairman of Teledesic LLC, which is building a global broadband Internet-in-the-Sky satellite communications network that should be fully operational sometime in 2004 with 288 satellites.

In 1999 Teledesic completed a major agreement with Motorola to design and build the satellite network, with LockHeed Martin as the satellite builder and launcher. According to Teledesic, "On Day One of service, Teledesic will enable broadband connectivity for businesses, schools, and individuals everywhere on the planet." This month (March 2000), the GlobalStar network of satellites will go commercial, using the current 24 satellites it has launched out of the 48 to be eventually launched. The Globalstar system provides data services as well as voice, but is not broadband.

What the Future Holds

By 2004, there will be 31 separate satellite commercial communications systems blanketing the earth with over a thousand satellites mostly in low earth or mid-earth orbit, with varying bandwidth capabilities. Additionally, many of these satellite systems will be tied together through GMSS (Geostationary Mobile Satellite Standard).

This means that in any country where GMSS is offered, customers of these companies will be able to use their mobile phones. The battle of Satellite, Wireless, and Fiber will be well underway, as will the battle for the applications providers and DBSP's. Implications of the Nokia and Visa Agreement Added to this is the newest piece in the puzzle - the agreement between Nokia and Visa, to develop applications using WAP (Wireless Applications Protocol). WAP is an open global application standard for mobile systems that integrates telephony services with micro-web browsing.

WAP is currently in use for making hotel reservations in Asia and Europe. Other applications are remote ATM banking, as well as a large number of other applications under test. Motorola currently has over 20 projects planned in Europe and the Middle East.

Market Impact

MCI/SPRINT Merger

The MCI/SPRINT merger has implications for small and medium sized businesses in the rural and under-served areas in the states of the Southeast, the Southwest, the Pacific Northwest, and the Great Plains.

The number of farms alone in this area is over two million, and this does not include the small businesses as well as larger companies with offices - mobile or not - in the towns and cities, many of whom are already linked on MCI's fiber network. High speed and wireless access to the internet can transform these backwaters into live connectivity sites, increasing both the volume on the network, and on the pressure to create new websites and web-based businesses for these rural communities. The pre-eminent industry that is likely to benefit from this is Agriculture.

MCI WorldCom technology partners include IXL and USWEB, two DBSP's. If these companies have handled things right in their partnering with MCI WorldCom (shortly to become New WorldCom with Sprint in the fold), they stand in a good position to expand into the wireless market particularly rural America, and where the giants of other industries (Chemicals, Pharmaceuticals & Fertilizer, and seed industry giants like Monsanto) also play.

These DBSPs already see the potential. However, it means that these companies must gear up rapidly.

Another player that is happy with this announcement is MCI's largest customer - AOL. The wireless and broadband access to more homes and businesses provides AOL with more customers to its portal. In turn, this enables AOL to link to other ISP's and new markets that could spring up as a result of the expansion of broadband services.

Overall, the MCI WorldCom / SPRINT merger move will not have a significant impact on the Service Providers' market while it gears up and re-organizes over the next 6-12 months, and begins to deploy MMDS services later this year. After that, a significant amount of activity is likely to be generated (probability 90%) in the next year-and-a-half, with Internet speed. However, the gear up time for DBSPs is three to six months.

VISA/NOKIA Deal

Combined with the availability of Satellite communication resources, mobile connectivity has implications for all users in the consumer space. The recent announcement of the VISA/NOKIA deal gives the basis for mobile e-commerce worldwide, and will again provide impetus to wireless (low bandwidth) application service providers, and businesses looking to capture this part of the worldwide market.

DBSP Alliances

The positioning of DBSP's with a third tier of broadband and wireless data services, as well as applications providers for the Internet means these service providers will have a leg up as the network expands through rural U.S., as well as in the smaller cities.

Proxicom, for example, has recently forged (February 10, 2000) a strategic alliance with wireless applications provider Aether Systems, while Puma technologies has teamed with Agency.com. Both team-ups are directed at building infrastructures that are tailored to hand-held devices such as mobile phones, PDAs, Palmtops, and other hand-held devices.

The Immediate Future

Some estimates are that by 2001, 25% of accesses to the Internet will be through hand-held devices. Though we think this picture is a little optimistic (less than or about 20% is our estimate), hand-held isn't the only device to need access to the Internet. According to a Merrill Lynch report, wireless data will overtake voice data by 2004, and wireless voice is to increase sevenfold from 1999.

Caterpillar, for example, has provided remote monitoring of engines, and can call farmer Joe up to let him know his engine needs an oil change - because the oil sensor has detected metal shavings in it. Another wireless example is a coke machine that you can call for a coke if you don't have change - it adds the seventy-five cents to your phone bill (and hopefully delivers the coke).

The prospects obviously raise a host of concerns - including of course data security and billing issues (maybe you rang the wrong number and got the coke machine?). Another existing application is GM's OnStar service that can notify a GM service center automatically if an air bag deploys in the car, and locate the car through its GPS system.

Remote sensing and data will eventually play a major role in the agricultural industry. A corporation could, for example, monitor the micro-status of animal stock or crops on every ranch it owns or has an interest in, or various marts specific to an area can arise. One existing market is for farm equipment parts at http://www.agpartsonline.com/. We predict in 3 or 4 years, such applications will be ubiquitous.

However, our suspicion is that vertical market DBSP's will spring up to accommodate these needs, provided they can find the skill sets. For example,WorldCo.com http://www.theworldco.com/ is a website builder in Regina, Saskatchewan with offices located across the prairie provinces and across the border into the States. It is an NT/UNIX hosting organization largely serving prairie-based industries. Indeed there are already significant inroads in this area with Beef Cattle websites, for example, (see for example http://www.agriculture.com/ or http://www.agview.com/ for an overview of agriculture sites).

The Internet will provide a boost to rural areas where jobs are scarce, and high technology is generally lacking, provided skill sets are available to drive it. This is likely to follow in other parts of the world as they are opened up with wireless and broadband coverage, albeit much more slowly in developing countries.

International Activity

Europe and Asia have not been overlooked by U.S. based DBSP's, since it is in these regions mobile phone use is expected to skyrocket first (I should add, it already is).

Razorfish has entered the European scene through acquisition of Swedish Spray Ventures AB with laboratory facilities in Finland. Agency.com has offices in several parts of Europe, and Proxicom has linked up with the likes of Ericsson in Italy. Lante is busy opening an office in Singapore where Agency.com is already present with a wireless practice, while USWEB is taking the global picture and wants to spread everywhere - it is even advertising for overseas partners on its website.

Then, of course, there are the international consulting houses and systems integrators scrambling for pieces of the action, among them EDS, Cap Gemini, Deloitte Consulting, CSC, and Anderson Consulting.

Market Threats

Three possible threats to this market exist.

The first is that regulatory bodies in local areas may effect the distribution and costs to subscribers, reducing the demand on at least B2C services.

In the U.S., the Telecommunications Act of 1996 essentially deregulated local and long distance service providers, making it easier for competition to exist between long distance and local carriers. The effect has been for many carriers to bundle and package local and long distance services, and this trend will continue, making it attractive for the end user.

In Europe, the regulatory situation is more complex, and creates artificially high subscriber rates for local calls: it is one reason the Internet has not taken off as much as in the U.S., and wireless (with packaged deals) is taking off.

The second threat is a lack of standardization of services among telecommunications networks. This is slowly being addressed in the U.S. Internationally, large mergers are likely to force greater standardization. Countries like China have yet to define their standards; this will impact the availability of wireless and broadband within their country.

The third threat comes from perceived and potential health risks of flooding the environment with microwave radiation. Thus far this has had minimal impact on the distribution of repeaters, though a number of repeaters have been removed from, for example, church and school rooftops (often the high points in small towns) due to local protests. It remains to be seen if these pose a serious threat to the spread of wireless communications.

Vendor Winners/Losers

Vendors that have chosen to build up early in this space stand to be ready for incorporating mobile and broadband applications into the digital business structures of their clients within the next year will stand a greater chance to absorb some of the energy of the Tsunami.

This includes vendors such as Agency.com, Razorfish, and Proxicom. Large international consulting organizations and systems integrators such as Deloitte, Anderson, EDS, CSC, and others have proclaimed expertise in broadband and wireless, and their international presence can only aid in assisting clients.

Further, they are likely better prepared from the quality assurance perspective to respond to an international mobile audience. An international presence will assist in the U.S. for those clients who foresee international clientele, since the U.S. lacks in this context.

Other clear winners are companies like Puma and Aether who have a commanding lead as product developers in the wireless domain.

Vendor Recommendations

First we need to look at the current situation, see Figure 1.

Figure 1 schematically illustrates what we believe is the current situation. Products already exist for broadband and wireless applications - MP3, AOLTV, TiViO, and Microsoft's own MSN Mobile 2.0 (announced February 28, 2000), spring to mind. For wireless, currently only a few companies provide products to seriously service this market and this makes training and technical ramp up easier for the moment for most common applications.

However, other applications are likely to appear on the horizon, with the potential for new competitors. Think for example of the GM's OnStar system improved to call local medical help in the event of an accident, or a Coke machine informing base that it its getting low (and for the user to find the next nearest one that still has some!). There are also an estimated 45 million mobile users in the US alone.

If the vendor believes that the mobile and wireless sector represents a significant value add to its business, then it should be thinking of positioning itself now in this market place. It is likely several months of tooling and training of selected personnel will be required because of familiarization with international standards such as WAP, and various telecommunications standards around the world. Additional time and effort is called for in order to rollout the services through your organization.

An alternative - and supplement - to this is to partner with an existing complementary product developer and service provider such as Puma or Aether, Laplink.com, and DataViz (for MAC and Palm top.) Unfortunately, there no clear industry leaders for infrared or other technologies related to remote data exchange and other areas of wireless communications to Intranets or the Internet.

User Recommendations

The expansion of broadband and wireless services can only increase demand for DBSP services.

Rural and Remote Sites

Currently, users in rural farm communities and industries with remote sites such as mining, oil drilling, and power utilities, requiring Internet access, have limited capability in remote areas. However, they should determine what infrastructure plans there are from telecommunications carriers to get early into the planning stage. It is our belief that only a few DBSPs are in a position to take full advantage of the telecom companies' broadband and wireless services expansion plans at this point. Users who are ready to move forward with their projects early in the game have a distinct advantage.

Large Companies

Large companies should certainly be looking at the opportunities posed by Telecom company expansions now - and where they are expanding and providing integrated services wireless/broadband services - and the opportunities it may have on cost cutting and business efficiencies on longer-term operations, as well as new business opportunities posed by agreements such as the NOKIA/VISA arrangement.

Smaller Companies

For smaller companies and mom-and-pop operations, local web site creators are likely to get busier. For those considering "Agromarts", for example, more opportunities are on the horizon, possibly acting as B2B2C middlemen for information services, and agriculture community interests. For MCI WorldCom customers, the focus is in the south and western U.S.

Tourism

Another industry worth mentioning is of course tourism, which is currently well represented in catalog-style static websites. Broadband and local web hosting are likely to provide additional advantages for the ambitious country getaway owner, and this will add to the business activity in their communities. This industry is likely to be slower on the uptake (probability 90%) since the catalog style is largely adequate, and costs for building more dynamic sites are high. However, look out for bundled and packaged services.

Other User Considerations

Other considerations for the user are the vertical market specializations, experience of the vendor, and its international presence.

Larger companies can leverage the partnership with an experienced vendor and be able to maintain their own staff to cut future outsourcing costs. It is expected that the cost of these outsource vendors will be high. However, you may not have much choice, unless you intend to build up your in-house expertise from scratch. In that case you may find yourself seriously competing for talent with attractive high paying DBSP's. International presence can assist if you want to serve an international market - a whole other issue outside the scope of this analysis.

For the user of DBSP services in this domain, the time is now, not later. There is limited manpower and expertise, which is one reason companies such as Razorfish are expanding into Europe and building the capability for skills and knowledge transfer and sharing expertise among international offices.

A skills shortage will mean it will become hard to find the right DBSP when you need it, and the DBSP's is likely to prove picky in the customers they want. Several DBSP's have already expressed to us how they currently filter their clients for those that are most rewarding to them over the long term, and as the demand heats up, the filter meshes will get tighter.

Glossary

AOL: America OnLine

DBSP: Digital Business Service Provider. This is a service provider who incorporates or provides at least one of (1) translating business strategies into digital business strategies, usually implying connectivity to the Internet, (2) web creative design and architecture, (3) implementation, and systems integration, backend development, firewalls, and (4) continued support and digital business solution maintenance.

End-to-end DBSP: Provides a complete suite of DBSP services

EES: End-to-End Services

DSL: Digital Subscriber Line

GMSS: Geostationary Mobile Satellite Standard

ISP: Internet Service Provider

MMDS: Multi-channel Multi-point Distribution Services

PCS: Personal Communications Service

WAP: Wireless Applications Protocol

 

 
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