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Is Softswitch Deconstructive, Disruptive, or Both
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to study what has already transpired in the North American long-distance market as barriers to entry have been lowered. The introduction of softswitch will serve to lower those barriers further. As described earlier in this book, the lower purchase and Operations, Administration, Maintenance, and Provisioning (OAM&P) costs of softswitch relative to Class 4 will lower the barriers to both entry and exit for the North American longdistance market. This will encourage more new market entrants and accelerate the loss of market share of incumbent long-distance service providers. Those most likely to enter the long-distance market are telecommunications service providers that already have customers and some of the necessary infrastructure. These potential market entrants include cable TV service providers, Internet service providers (ISPs), wireless service providers, application service providers, and Regional Bell Operating Companies (RBOCs). It should be noted that the introduction of softswitch in the long-distance market potentially accelerates a trend that has been in effect over the last few years. The Table 12-1 details the decline in market share of the top 20 international long-distance service providers and the growth in market share enjoyed by new market entrants. These new market entrants will take market share away from the incumbent long-distance service providers that use the more expensive and less flexible Class 4 switch. Eventually, competition will drive the price per minute for long distance downward. Incumbent long-distance service providers that use the Class 4, which is more expensive to operate than softswitch, will find themselves less competitive than their softswitchequipped competitors. This could potentially deconstruct the incumbents and drive them out of business. One long-distance service provider that is potentially disrupted by softswitch-enabled new market entrants is AT&T. Over the past few years,
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Table 12-1 Market share comparisons in international long distance, 1990 2000
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Indicator Revenues in international traffic ($ billions U.S.) Top 20 carriers share of world traffic Market share of new carriers
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Source: TeleGeography
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AT&T To Take Biggest Hits in Long-Distance Fight. Lightwave, Vol. 14 Issue 10, September 1997. pg. 118. Available online at http://lw.pennnet.com/Articles/Article_Display.cfm Section= Archives&Subsection=Display&ARTICLE_ID=33824
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Downloaded from Digital Engineering Library @ McGraw-Hill (www.digitalengineeringlibrary.com) Copyright 2004 The McGraw-Hill Companies. All rights reserved. Any use is subject to the Terms of Use as given at the website.
Is Softswitch Deconstructive, Disruptive, or Both
Is Softswitch Deconstructive, Disruptive, or Both
AT&T has lost market share to new market entrants.3 That trend could now be accelerated, given an ease of market entry and exit made possible by softswitch technologies. According to a report issued by the Federal Communications Commission (FCC), AT&T s share of revenues in the longdistance market decreased to nearly 40 percent by 1999, just after the company was split into several independent baby Bells in 1984. Other longdistance carriers, in particular WorldCOM and Sprint, took advantage of this fact, trying to gather more than 25 percent and 10 percent, respectively, of the share of toll revenues by the end of 1999. On the other hand, more than 700 smaller long-distance providers had the remaining 25 percent market share.4 Those 700 smaller long-distance carriers potentially can take more market share from AT&T if they adopt softswitch technologies that can cut their overhead and enable them to offer services not available from AT&T, MCI, or Sprint. Evans and Wurster s book debates the contradiction of reach versus richness. A business plan based on reach offers a product that is highly commoditized and easily distributed. A product based on richness is much more rich in information and customer contact. In the case of telecommunications, long-distance service is an example of a business plan based on reach as long-distance minutes have become a commodity (which might explain why over 700 long-distance providers exist in the United States). Richness implies a deeper customer-service provider relationship with a greater range of services tailored to the individual consumer. Such a relationship might exist between a large enterprise customer and a service provider, but not with a residential or small business service provider. A key element of deconstruction states that the chief competitor to any business is their customer. This is focused on the question, What does the business provide the customer that the customer cannot do for themselves An enterprise moving their voice traffic to their WAN would be an example of customers hauling their voice traffic for themselves, negating the need for a voice service provider. As more enterprises move their voice traffic (commoditized minutes or T1 lines) to their WAN, service providers will have to shift their focus to the richness of the relationship with their customer. One approach by service providers for developing a richer relationship with their customers could be to offer a wider range of custom features not available from competing service providers or not easily done by the customer. This will only be possible by softswitch-equipped service providers.
Long-distance market share of AT&T decreased to 40% in 1999. Mobile News, January 26, 2001, http://uk.gsmbox.com/news/mobile_news/all/28619.gsmbox. Downloaded from Digital Engineering Library @ McGraw-Hill (www.digitalengineeringlibrary.com) Copyright 2004 The McGraw-Hill Companies. All rights reserved. Any use is subject to the Terms of Use as given at the website.
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