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Pity the poor telco

By Scott Bradner

What's a poor PTT (a.k.a. Post, Telephone, and Telegraph authority, a.k.a. government owned telecommunications monopoly) to do? The world from its point of view is undergoing a lightning fast change. Used to no competition and decade long planning cycles, many of the world's PTTs on January 1st were suddenly put in the position of having to earn their customers rather than have them captive and beholden by the right and might of the power of the law. This is a result of the World Trade Organization's ( General Agreement on Trade in Service. This agreement opened almost all telecommunications markets to competition at the start of this year.

Well at least in theory. Some of the competition may take a while to develop (sort of like the instant competition that showed up in the local telephone business in the US after the passage of the telecommunications act). But not all of the PTTs can be complacent and lethargic in their response to the change. For example, with three companies competing for the international phone business, Israel now has some of the lowest cost international calling in the world, cheaper even than the US. This must have been quite a shock to the old guard monopoly.

The German PTT Deutsche Telekom ( is an interesting case study. Deutsche Telekom (DT) is the largest telecommunications provider in Europe and the third largest in the world (according to their own placement of themselves). They are responding to the change in a number of ways, some positive and some not.

They have been cutting employees, down 15% from 1993 (following a "socially conscious workforce reduction programme"). They have been making significant price reductions in their services, 45% reduction to North America, for example (with ISDN calls actually cheaper than analog- a rather different philosophy than the US telcos seem to have.) They have service offerings in a number of non telephone areas including cable TV and Internet connectivity. As we are seeing in the US, it does not hurt to be big in the telecommunications business and DT is big.

DT even formed its own venture capital subsidiary known as T-Venture ( to invest in high-tech telecommunications and information technology companies. They are also a significant investor in the IP telephony company Vocaltech ( just in case this Internet thing starts to have an impact on normal telephone usage.

At the same time DT has proposed to charge their customers a "processing fee" of as much as $52 if they want to switch to a another telephone service provider. This does not make their competitors all that happy and the German government may still force the fee to be lower. (There is still some place for government control in this age of competition.)

Unfortunately, DT's ability to react to the change to a competive world is the exception not the rule -- take a look at the US regional telephone companies for an alternative approach.

disclaimer: The change process at Harvard is "deliberate", thus the above support for change is my own opinion.