The document provides an overview of emerging trends in the telecommunications industry following the 1996 Telecommunications Act. It discusses the goals of the Act to accelerate private sector deployment of advanced technologies and facilitate competition by removing barriers across sectors. Key areas that have seen increased competition include local telephone, long distance providers, cable television, and the emergence of new services like high-speed internet, IP telephony, and interactive television. Challenges to further convergence include developing standard technologies and architectures, content encryption, and sufficient distribution capacity for two-way communications across media.

1. Emerging Trends in
Telecommunications--
Business Overview
Video Services Forum
October 2001
Presented by Cindy Andreu

2. Creating Convergence
The 1939 New York World’s Fair featured the
formal debut television broadcast. The receiver, a
combination television-radio-recorder-playback-
facsimile-projector set, was way ahead of its time.
This suggests a fundamental desire to merge all
media into a single entity long before the birth of
telecommunications as we know it today.

3. Key Sectors in Telecommunications
• Telephone service companies
• Broadcast networks
• Cable television

4. Industry Subject Regulation
• Each sector’s history is filled with federal
regulation
– Intended to ensure that the masses had cheap access to
product offerings
– Prevent sector cross-over presumably to fend off
monopolies
• Finally, in 1996 the U.S. government issued
landmark regulation changing the dynamics of this
industry.

5. The 1996 Act
• The goal: Accelerate rapid private sector
deployment of advanced telecommunications
and information technologies
• The intent: Facilitate by enabling competition
and removing barriers to market entry across
all sectors
President Clinton’s Vision:
”We will help to create an open market place where competition
can move as quick as light.”

6. What does Today’s Competitive Landscape
Look Like?

7. Key Competition Indicators in Local
Telephone
• As of 12/2000, new
entrant phone lines
continue to increase
– CLECs report 50%
increase in
telephone lines from
1999 to 2000
– But CLECs only
account for 8% of
the pie
(Source: FCC)
ILEC Linesvs.CLEC Lines (In Millions)
CLEC=8%
ILEC =92%
16.4
177.6
CLEC Lines
ILEC Lines

8. • CLEC customers are primarily concentrated in
Georgia Illinois
Iowa Kansas
Massachusetts Minnesota
New York Pennsylvania
Texas
• Accounts for about 50% of total CLEC markets,
with each representing at least 10% of the market.
(Source: FCC)
Local Competition--continued

9. The proportion of
residential to
business customers
varies significantly
between CLECs and
ILECs
(Source: FCC)
Local Competition--continued
0
0.2
0.4
0.6
0.8
CLEC ILEC
Proportion of Residential vs.
Business Customer Mix
(expressed in percentages)
Residential
Business
``

10. Local Telephone Infrastructure Update
Capital expenditures = $105 billion from 1995 to 1999
Central office investment:
– In 98% or 14,900 central offices have computerized
switching
– Nearly all offices offer equal access for long distance
Local transmission investment:
– 80% of transmission paths to customers are linked by
copper
– 97% of all links tying switching offices together are fiber;
up from 60% in 199O
(Source: FCC, statistics as of 12/2000)

11. Local Telephone Industry Fact Sheet
(As of 12/2000 unless otherwise indicated)
U.S. Telephone Households 106,500,000
Households with Telephones 100,200,000
End-user Lines 193,400,000
Service Penetration Percentages:
Telephone 94.1 %
Video (TV) * .9 %
DSL * 2.1 %
Local Carriers 257
Central Offices 15,000
* as of 3/01

12. Long Distance Providers

13. Long Distance Providers
Market Overview
• By the end of 2000,
700 companies
offered long
distance service as
compared to 1 in
1976.
AT&T 38,111
$
MCI WorldCom 22,554
Sprint 9,038
Other Long Distance Carriers 30,544
Bell Operating Companies 5,865
Other ILECs 734
Other Local Carriers 1,335
Total 108,181
$
2000 Revenue Analysis
(In Millions)

14. Long Distance Providers
Historical Market Share Analysis for Annual Revenues
(Source: FCC)
Year AT&T MCI/ Sprint All other Bell Other Local
WorldCom Long-Dist. Operating Telephone
Carriers Companies Companies
1984 68.3% 3.4% 2.1% 2.0% 17.7% 6.5%
1990 50.7% 11.3% 7.5% 8.4% 15.8% 6.3%
1995 44.9% 21.4% 8.5% 12.0% 9.6% 3.6%
2000 35.2% 20.8% 8.4% 28.2% 5.4% 2.0%

15. Status of FCC Approval for BOC
In-Region/InterLATA Service

16. Television
Market Place

17. Sector Overview
• Broadcast networks and affiliates are consumed
with building new FCC mandated DTV channels
• In the meantime, Cable has been spending more
on programming and stealing audience and
advertising revenues from broadcast
• Cable is positioning to become a mult-service
provider for high speed Internet, video services,
Interactive TV and telephone

18. DTV Update
• Nearly 70 % of commercial TV stations expect to
have DTV signals by May 2002
• 19 out of 20 American homes will have access to
at least one DTV signal via over-the-air
• Depending upon the channel, viewers may be able
see sports or other programming in high definition

19. Trends in Broadcast vs.Cable
Viewership shifts:
• The most pervasive change over the past 10 years
is the shift in viewership from broadcast to cable
• Basic cable viewership more than doubled
• Cable has taken substantial advertising revenue
away from broadcast
– Cable represented 11% of TV advertising revenues in
1991 vs. 24% in 2000

20. Contributing Factors
• Overall increase in cable networks from 82 in 1991
to 224 in 2001
• Heavier investment in higher quality programming
– Program costs have increased an average of 23% per year
over the past five years
– Provides more than three times as much children’s
programming
– Leading source for political and public affairs
programming
• New business models

21. What’s up with Cable?
Infrastructure update as of May 2001:
• $50 billion spent on capital expenditures over the
past 5 years (Includes FY 2001 projection.)
• Heavy investment in infrastructure upgrades and
facility improvements provides:
– Two-way plant to 60% of all cable homes
– 550 MHz to 77% of homes by the end of 2001
(Source: NCTA Web site)

22. Cable Update
According to an NCTA press release on 8/13/2001:
• Q2 averaged 70K new subscriptions per week for
cable modems
• 200K residential telephone subscribers were added
in Q2 for a total customer base of 1.3 million
• There were 15 million business customers by
6/30/01

23. Cable Industry Fact Sheet
U.S. Television Households (1/01) 102,184,810
Homes Passed by Cable (12/00) 97,700,000
Basic Cable Households (5/01) 69,501,440
Cable Modem Homes Passed (E12/01) 81,237,000
Cable Modem Subscribers (7/01) 5,500,000
Residential Telephone Subscribers (7/01) 1,300,000
National Cable Networks (3/01) 224
Service Penetration as Percentages:
Cable homes 95.6 %
Basic Cable 68.0 %
Residential Telephone 1.3 %
Cable Modem 5.3 %
(Source: NCTA Web site)

24. Cable Update
Key Players as of 3/01:
MSO Subscribers
(In Thousands)
AT&T Broadband 15,900
Time Warner Cable 12,800
Comcast Communications 7,733
Charter Communications 6,208
Adelphia Communications 5,723
Cablevision Systems 1,285
Total subscribers 49,649

25. What’s Ahead
Emerging Products and Trends

26. Trends in High-Speed Internet Access
• In 1999, the FCC found that 98.2 percent of Internet
users accessed the Internet through dial-up facilities
• Reports from broadband front are one-sided with
cable deployments growing more rapidly than DSL

27. Trends in High-Speed Internet Access
• Banc of America Securities analyst Douglas Shapiro
sees cable modems in 18.8 million homes by 2005
compared to 13.9 million DSL installations
• Yankee Consulting predicts that cable modems will
hold and even wider advantage over DSL:15.7
million to 10.5 million in 2005
• The FCC projects roughly half of Internet users will
still access the Internet through dial-up by 2004

28. Other Frontiers in Cable
• Cable is now poised to fight off direct broadcasters
• Digital video offers 4-12 video signals in a 6-MHz
channel that used to accommodate 1 analog signal
– By the end of Q2, cable had 12.2 million subscribers
recovering previously lost customers
– Morgan Stanley believes that direct-broadcast subscriber
adds will drop from 3.3 million per year to 2 million in
2002
– Paul Kagan projects 43.2 and 48.2 million cable
subscribers by 2004 and 2005, respectively
(Source: Barron’s and NCTA)

29. Other Frontiers in Cable
Video-on-Demand is finally born
• Charter Communications, Insight Communications
and Comcast have launched services in selected
locations doubling the buy rates of older pay-per-
view. However, these services offer only a meager
350 films to date.
– Insight offers DIVA On Demand TV for VOD movies
accessed by a remote control and on-screen navigator that
includes full VCR functionality
(Source: Barron’s and NCTA)

30. Video On Demand
Studio Initiatives:
• Paramount, Sony Pictures, Universal, MGM and
Warner Brothers partner to create an on-demand
Web service that will provide theatrical releases to
viewers via the Internet. The service is scheduled
to start in 2002 or 2003
• Disney and News Corp. have agreed to launch
Movies.com in early 2002. Movies will be
available in the pay-per-view release window

31. Other Frontiers in Cable
Other Enhanced and Interactive TV initiatives
available in selected markets:
• Interactive Program Guides with many digital TV
offerings
• AT&T teamed up with WorldGate 2000 in Cedar
Falls and Waterloo, IA, to offer e-mail, e-
commerce, Internet access and interactive video
content/advertising through digital set-top boxes
deployed with digital cable
(Source: NCTA Web site)

32. Other Enhanced and Interactive TV Services
• Charter Communications teamed up with the city of
LaGrange, Georgia, in Spring 2000 to offer free
Internet-over-TV access providing customers Internet
access, e-mail and local information on TV
• Cox Communications launched Movies-on-Demand in
San Diego using digital set-top boxes and remote
controls with VCR ability: pause, fast-forward, rewind
• In Honolulu, Time Warner offers iControl Video on
Demand ,which instantly delivers pay-per-view and
Pizza-On-Demand through Pizza Hut

33. Overview of Interactive TV Products and Markets
Emerging Products:
• Forrester Research calls ITV the new business model for
television and predicts a $20 billion industry by 2004
• Recent product offerings:
– OpenTV
– Wink

34. Overview of Interactive TV Products and Markets
Market Penetration to date:
OpenTV 18 million set-
top boxes
deployed
worldwide
Wink 4 million
households

35. Overview of Interactive TV Products and Markets
Personal video recorders:
Major players are TiVO, ReplayTV, and
Microsoft’s Ultimate TV, just launched this year

36. Overview of Interactive TV Products and Markets
• Only 300-400,000 units have been sold to-date (189,000 are
TiVO units), comparable to adoption of the VCR in the late
1970’s
– Analysts believe that entrants have poorly explained the
mechanics and benefits to consumers
– Often products were priced too high; Replay was priced at
$1,499. Motorola will will incorporate this technology into
their set-top boxes
– TiVO offers several options including a $9.95 monthly
subscription or product lifetime subscription of $259.00.
TiVO is current being marketed in 4000 retail outlets

37. The Future of Interactive TV Devices

38. IP Telephony
• Cable companies are bundling voice
services,primarily circuit switched today, with other
broadband services. AT&T and Cox are leading the
way
• Bundled offerings are expected to cut customer
churn by 40%
• Most MSO’s are waiting for full IP capability to
emerge
• AT&T and Cox are currently testing IP telephony
technology

39. IP Telephony
• Time Warner experienced successful trials of IP
telephony over fiberoptic networks
• Current technical challenges:
– Delays in voice signals or loss of voice packets
– Commercial equipment delays; missing server that will
manage features such as 411, 911, and call forwarding
– Technologies to reach critical mass in 2003 and beyond
• Benefits:
– Estimated to be 40% cheaper to provide and maintain
– Leverages existing infrastructure rather building dedicated
circuits

40. Advances in Telemedicine
New Uses for Video
• Ambulance Telemedicine
– U. of Maryland pilots project that integrates video
images, audio, vital signs and ECGs to be transmitted
from within a moving ambulance to land-based
workstations where they are used to manage the patient
– Project has been underway for 18 months with over 12
patients
– A similar pilot is also underway in Las Vegas

41. Advances in Telemedicine
• Tele-Home Health Nursing
– Using a regular phone line and an MCI videophone
customized by American Telecare, Kaiser Permanente
staff can have a video visit from a healthcare center with
a patient at home
– Breathing is monitored on another line using headphones
while the patient’s spouse moves the stethoscope around
the patient’s body
– Preliminary trial results in Sacramento indicate nurses
can contact up to 15 patients per shift as opposed to 6 on
face-to-face visits traveling from home to home

42. Questions?

43. Today, wireless phones, personal computers,
PDAs, and televisions are taking on one another’s
functions.
Content can be sent to many platforms over
multiple distribution channels.
Creating Convergence

44. For certain, three elements of convergence are
emerging:
– Content:- combination of audio, video, data or just
data
– Platforms:- PC, TV, Internet appliance or game
machine
– Distribution:- how content gets to your platform
and they are powerfully intertwined.
Creating Convergence

45. The challenges:
• Standard technologies and architectures must be
adopted to ensure interoperability
• Content encryption tools must be developed for
copyright protection
• Profitable investment in distribution capacity
robust enough for two-way communications of
various media
Managing the process to Convergence

46. • We can expect to use multiple devices most likely
connected by the Internet.
• Consumers, with new technology choices, will
demand content in one source, received on a
single device, delivered by a single connection.
• Although this still seems far off, the outcome has
already been given a name…
Managing the process to Convergence

47. Emergence
–What defines telecommunications today?
–Emergence since the 1996 Act?
–What’s ahead?

48. Telecommunications
Tele:- distant or at a distance
+
Communications:- an act or an instance of transmitting
information; the technology of transmission of
information
=
Telecommunications:- Communications at a distance as
by cable, radio, telephone or television

49. Economic Factors Affecting Competition
• Legacy long-distance subsidies (roughly $30 billion
annually) produce backward economics.
• Its very difficult to build profitable models that
require infrastructure. The existing Bell network is
valued at more than $270 billion, not feasible to
duplicate
• No elasticity in voice. Revenues often suffer when
prices are lowered because demand does not grow.

50. Economic Factors Affecting Competition
The problem:
• For example, author Steve Rosenbush cites in his
book, Telecom Business Opportunities:
– Building a network from scratch including switches,
transmission, equipment and phone lines can run as
much as $4,000 per customer
– The FCC reports consumer payments to local telephone
companies average $360 annually
– At that rate, it would take more than 11 years to break-
even

51. Business Opportunities with DTV
Datacasting:
• Households
– games, video, Internet, or ticker services to TV
• Business
– sending data to businesses without using T1
lines