The U.S. telecom industry has undergone a number of significant changes over the past few years. In this presentation that Dr. Jim Anderson created for MBA students, he explains where the industry has been and where it is going. Dr. Anderson takes the time to explain the changes that have occurred in the industry in terms of the classes that MBA students have already had. He brings home how the changes have dramatically reshaped the telecom industry. For more information on Dr. Jim Anderson and his company, Blue Elephant Consulting, find out more on the web at http://www.BlueElephantConsulting.com

1. Sex, Lies, and Phone Calls:
How The North American Telecom Industry
Relates To Your MBA Degree
Dr. Jim Anderson
Page 1 - PLM

2. The Future Is Now: Verizon’s Fios Project
What Is Fios?
Verizon’s Fios uses
fiber optics to
transmit information
to and from your
home, and that
makes all the
difference.
The service provides
unlimited high-speed
data access with
• High-speed Internet access • A 4-Port Broadband Router speeds of up to
• A choice of packages with •
•
MSN Premium Internet Software 30Mbps downstream
maximum connection speeds: Up to 9 e-mail accounts
5 Mbps / 2 Mbps, = $40 / month • Access to newsgroups / 5Mbps upstream.
15 Mbps / 2 Mbps, = $50 / month • Personal Web space of 10MB
30 Mbps / 5 Mbps. = $200 / month • 24/7 live technical support
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 2 - JMA

3. So What Has Your MBA Taught You?
1. Ethics
2. Accounting
3. Economics
4. Finance
5. Marketing
6. Human Behavior in Organizations
7. Operations Research
8. Management Information Systems
9. Global Business
10. Strategy
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 3 - JMA

4. Ethics! (Lawsuits! Regrets! Jail Time!)
q 01/09/01: Lucent: Lawsuit charges Lucent and two of its top
officers with inflating the company's stock price by issuing
financial statements that misrepresented the company's
revenues and earnings. Lucent improperly recognized an
estimated $679 million in revenue and announced that it would
restate its fiscal fourth quarter financial statements.
q 03/01/02: Worldcom: Executives perpetrated accounting fraud
that led to the largest bankruptcy in history. The fraud was
revealed to the public in June 2002 and WorldCom filed for
bankruptcy in July 2002. Evidence shows that the accounting
fraud was discovered as early as June 2001, when several
former employees gave statements alleging instances of hiding
bad debt, understating costs, and backdating contracts.
q 03/24/04: Nortel: Lawsuit alleges that Nortel officers and
directors caused Nortel’s shares to trade at artificially inflated
levels through the issuance of false and misleading financial
statements. It is further alleged that by posting the false, positive
fourth quarter results, defendants and the Company’s top
executives were rewarded with $30 million in bonuses.
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 4 - JMA

5. Accounting!
q What Are The Cost Elements of With more than $71 billion in annual revenues,
the Network? Verizon Communications Inc. is one of the
world's leading providers of communications
q Assets services. Verizon has four business units:
– Plant and Other Equipment Domestic Telecom serves customers based in 29
states with wireline telecommunications
– Total Plant
services, including broadband, nationwide long-
– Current Assets distance and other services. Verizon Wireless
– Total Current Assets owns and operates the nation's most reliable
wireless network, serving 43.8 million voice and
q Liabilities and Owner's Equity data customers across the United States.
Information Services operates directory
q Operating Revenues publishing businesses and provides electronic
– Line Erosion Due To Mobile commerce services. International includes
Switching wireline and wireless operations and
investments, primarily in the Americas and
q Operating Expenses Europe.
– 200,000+ employees
q Income
q After Income: Earnings and Profit / www.BlueElephantConsulting.com
© 2012 By Blue Elephant Consulting
Page 5 - JMA

6. Economics! Inefficient Competition?
q Local exchange companies q When LECs used usage-sensitive
(LECs) charge interexchange fees to recover the largely usage-
carriers (IXCs) for access to the insensitive costs of access provision,
local telephone network . the highest volume users were
required to contribute a greater share
q In the 1990's, competing of the local exchange company's
companies, called Competitive costs.
Access Providers (CAPs),
entered this market. CAPs q For such customers, total revenues
provided transport services from recovered from access were higher
LEC offices and the premises of than the costs of stand-alone access
larger individual customers to the services, leading LECs to claim that
IXCs' networks. the pricing structure created an
artificial incentive for CAPs to enter
the market.
AT&T Long
Distance
Network MCI Long
Distance
Network
Local Local
Phone Co. Phone Co.
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 6 - JMA

7. Finance!
q Telecom Financing Includes:
– Structuring infrastructure
For Fios: projects
– Advising credit agencies and
“Verizon expects to make an $800 multilaterals/development
million capital investment in FTTP in finance institutions in connection
with the financing of
2004. For, even if a full one third telecommunications projects.
of the residents in Keller subscribe – Advising borrowers and lenders
to Verizon's FTTP network, the on the structural issues involved
carrier's network will have cost it with raising debt at a number of
levels.
about $1,360 per customer served.
– Advising lenders on achieving
Supposing one third of [Verizon’s inter-creditor arrangements
customers] do subscribe to FTTP satisfactory to all parties.
services at the $45 monthly rate, – Structuring complex shareholder
Verizon would take about two-and- support packages.
a-half years to make its money – Structuring complex multi-
back.” jurisdictional security packages.
–Carrying out legal due diligence,
dealing with the relevant
governmental and regulatory
authorities and the taking of
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
local security.
Page 7 - JMA

8. Marketing! (How To Become A Cable Company)
q Allure of the “Triple Play”
q Packaging, Pricing
q Bundling & “sticky” product
offerings.
q Single Communications Bill
q Internet is a key channel!
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 8 - JMA

9. Human Behavior in Organizations!
q My Part Of The Fios Project:
– 90 Engineers spread across 5
separate projects
– 70% of engineers were
contractors (outsourcing)
– 10% of engineers were located
in India (offshoring)
q 3 Major Milestones: June,
September, and November
– High stress for a full 12 months.
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 9 - JMA

10. Operations Research!
q Service Order Fallout
– Key to success is touchless order processing.
– Eliminating fallout is key before 1000’s of orders start arriving
later in 2005.
q Truck Rolls
– Companies today pay anywhere from $100 to $400 per truck-
roll for local and regional service calls and more than $1,000 for
national service calls.
– How to combine voice, video, and data service requests into a
single technician visit.
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 10 - JMA

11. Management Information Systems!
q Mergers
q Legacy Systems + + =
q GPS Asset Tracking
q Automation
q Single Billing Systems
q Data Retention
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 11 - JMA

12. Global Business!
q International standards
– Optical
– Wireless
q Low(er) Cost Of Entry
q T-Mobile
q Foreign Ownership of Firms
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 12 - JMA

13. Strategy! Verizon vs. The World
q AT&T Broadband (now Comcast) 24.4M subscribers
q Time Warner Cable 12.7M
q Charter Communications 6.4M
q Cox Communications 6.2M
q Adelphia Communications 6.0M
Internet
Cable Cable Regional Internet
Modem Router Data Access
Center Point
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 13 - JMA

14. The Internet
q The Key Value Of The Internet Is That It Provides The
Missing Content That Providers have Been Looking For.
q 204M Americans (75% of the population) Have Internet
Access.
q Broadband Is The Future.
q Next Wave Of Services:
– Phone Calls
– Cross-Platform Instant Messaging
– Video
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 14 - JMA

15. The Next Big Question...
+ + = + =
+ =
+ = ?
+ + =
q Verizon bid $6.7B q Qwest bid $8B
q Market value is $14B larger q Claims regulators could approve
than Qwest. deal 6 months faster.
q Deal includes stock, $488M in q MCI shareholders not happy.
cash and $1.5B in dividends q Qwest has higher debt load, lower
by MCI cash flow and less attractive
q $200 million breakup fee for business profile.
Verizon if the deal falls q Qwest has lingering legal troubles
through
© 2012 By Blue Elephant Consulting / www.BlueElephantConsulting.com
Page 15 - JMA