Telecommunications services - Industry Overview

Ivan H. Shefrin

The U.S. telecommunications services industry will continue to expand in 1993. Revenues should be up about 7 percent in current dollars, compared with a 6percent increase in 1992. In 1993, revenues generated by international services will increase about 14 percent, and local exchange telephone service is expected to rise by 3.5 percent. Sales of long distance services should grow more than 5 percent in 1993, depending on overall growth in the economy. Data communications services will exceed their high 1992 level of 16 percent growth, climbing an estimated 19 percent in 1993. Revenues from cellular mobile telephone services grew 31 percent in 1992 and will be about 30 percent higher in 1993; satellite service revenues in 1993 will increase about 27 percent.

The U.S. telecommunications services industry serves more than 88 million households and 30 million businesses nationwide, and is expected to have revenues in 1993 exceeding $184 billion. The industry (SIC 4812, 4813, 4822) is broadly divided into providers serving the communications markets for local exchange, long distance (toll), international, cellular and mobile radio, satellite, and data communications, the last including value-added network services (VANS). The more than 2,000 companies, employing more than 860,000 persons, which serve these markets are both regulated common carriers and unregulated private network providers. Before reading this chapter, please see "How to Get the Most Out of This Book" on page 1. It will answer questions you may have concerning data collection procedures, factors affecting trade data, forecasting methodology, the use of constant dollars, the difference between industry and product data, sources and references, and the Standard Industrial Classification (SIC) system. For other topics related to this chapter, see chapters 25 (Information Services), 26 (Computer Equipment and Software), 27 (Space Commerce), and 29 (Telecommunications and Navigation Equipment).

TELEPHONE SERVICES

The Federal Communications Commission (FCC) regulates interstate common carrier communications, while individual state public utility commissions regulate communications within their jurisdictions. The FCC also regulates the use of radio frequencies by the U.S. telecommunications industry through a system of spectrum allocation and licensing. Since the break-up of AT&T in 1984, the U.S. common carrier network has been divided into 161 local access transport areas (LATAs). Communications among LATAs are handled by long distance carriers, while intra-LATA telecommunications (both local and toll calling) are the responsibility of the local exchange carriers (LECs). Private telecommunications networks, which serve only specific customers rather than offering services to the public at large, are not regulated as common carriers.

Local telephone services are provided by seven Bell Regional Holding Companies (RHCs) that control 22 local Bell Operating Companies (BOCs), and by GTE, Sprint (United Telecom), Southern New England Telephone Company (SNET), and about 1,300 smaller, independent local telephone companies. Many of these small, local companies operate as rural telephone cooperatives. Long distance service is provided by AT&T, MCI, Sprint, WilTel, Metromedia/ITT, Cable & Wireless, Advanced Telecommunications (ATC), Allnet, and more than 400 smaller carriers.

The United States telephone network is composed of more than 15,373 central telephone offices and 143 million telephone access lines. The United States has about 49 access lines per 100 population; Canada has 53.4, Japan 42.2, Sweden 66.7, and the United Kingdom 41.4 lines. Of the estimated 1 1 3 million Bell Company access lines, more than 51 percent are served by digital central office facilities and 48 percent by analog central offices. Nearly all (98 percent) Bell companies' access lines are equipped for equal access (that is, identical interconnection facilities can be provided to all connecting carriers). A common signaling system, called SS7, is used on 59 percent of the access lines, but only about 1 percent of the access lines are equipped to handle services compatible with Integrated Services Digital Network (ISDN). ISDN is a digital system designed eventually to become a global network providing access to all communications services.

Use of the telecommunications network continues to increase rapidly in the United States. The volume of interstate telephone traffic over this giant web of lines has more than doubled since 1983; today, it accounts for 15 percent of total calling minutes. Interstate rate reductions, aggressive telephone company advertising, and expansion of the U.S. economy have led to steady growth in long distance telephone usage since 1984. Long distance minutes-of-use increased 10 percent in 1991, and about 9 percent in 1992. As telephone rates continue to fall, calling volume will increase proportionately because the economic demand for telephone service is highly sensitive to price changes. During 1992, callers made more than 405 billion local calls, 22 billion intra-LATA toll calls, and 46 billion inter-LATA toll calls. On an average business day, there are about 9.5 billion minutes of telephone calling.

The physical telecommunications plant of the United States consists of about 750,000 miles of aerial wire, more than 3.5 million miles of cable, and more than 4.5 million miles of optical fiber. In addition, microwave radio relay systems cover more than 57,000 miles, a network that is the equivalent of 165 million miles of individual telephone circuits. Total cumulative investment in U.S. telecommunications plant and equipment installed by the firms covered in this chapter was about $320 billion in 1992. In 1992 alone, U.S. telephone carriers invested about $22 billion in plant and equipment.

The nation's total number of local telephone lines tends to serve as a basic barometer of the nation's economic growth (Table 1). Virtually all businesses have telephone lines and more than 93 percent of the nation's households have telephone service. Growth in the number of lines has averaged about 3 percent per year.

Trends

Major developments in 1992 included: increased competition in local exchange telephone service; fast-paced introduction of new mobile radio and satellite technologies; a proliferation of new high-speed data communications services; continued consolidation of long distance markets; and a growing penetration of the U.S. telecommunications market by foreign-based carriers. Continued slow growth in the economy moderated revenues for local and long distance carriers, while price reductions stimulated additional calling volume, especially for international services. Heightened competition and strategic alliances were the watchwords for the international telecommunications service business during 1992. They represented trends that are expected to accelerate as lower prices, increased user demand, an abundant supply of new oceanic fiber optic circuits, private satellite carriers, and accelerating regulatory liberalization create many new opportunities to challenge the old international cartel of government telecommunications organizations--the Postal, Telephone and Telegraph (PTT) monopolies.

Market convergence and vertical integration are important trends now evolving in the domestic telecommunications services industry. Previously distinct market segments and the companies that compete in them, such as private and public communications networks, local and long distance, and cable and telephone communications, are being redefined along more consolidated lines. The proliferation of new radio technologies is moving the industry from point-to-point to person-to-person communications. The interconnection in 1992 of Centel, one of the nation's largest local exchange providers, with Metropolitan Fiber Systems, a private fiber optic network catering to large business users, is a recent example of this trend, as was Centel's acquisition by Sprint, the nation's third largest long distance carrier. Companies such as WilTel that formerly provided only dedicated leased circuit networks are now entering the market for switched telecommunications services in order to compete more directly with AT&T and other major carriers.

Another indication of such convergence during 1992 was evident when Tele-Communications Inc. (TCI), the country's largest cable television system operator, moved emphatically into the data communications market by partnering with Digital Equipment Corporation to test a new fiber optic home communications system. TCI owns fiber systems in many cities, and will push aggressively in the next few years to offer voice as well as data services over its facilities and thus become an alternative carrier to the local telephone companies in regions where it operates. In addition, several cable television companies are investing hundreds of millions of dollars to build networks for cellular telephone service in direct competition with the local telephone industry. Cox Communications acquired a majority interest in Teleport Communication Group in 1992 to solidify its entry into the local telecommunications services market as well. Time-Warner, the second largest U.S. cable television company, is building a fiber optic system in New York capable of delivering voice telephone traffic. Such strategic acquisitions are evidence of strong growth in the market for competitive access providers (CAPS), firms that compete in the local exchange.

The large number of diverse firms competing to provide telecommunications services, coupled with the growing

Table 1: Total U.S. Access Lines, 1980-90
                   Annual Growth
Year    Lines       (percent)
1980  102,216,367      -
1981  105,559,222     3.3
1982  107,519,214     1.9
1983  110,612,689     2.9
1984  112,550,739     1.8
1985  116,042,281     3.1
1986  118,345 686     2.0
1987  123,010 150     3.9
1988  127,087 323     3.3
1989  131,623 290     3.6
1990  136,184 917     3.5
SOURCE: Federal Communications Commission

complexity of network technology, also have created serious concerns about the reliability of the country's telecommunications networks. Following a spate of network failures during 1991, a number of companies offering disaster-recovery services experienced solid growth during 1992. As telecommunications systems become increasingly complex, and the economy grows even more dependent on their reliability, the demand for dependable, noninterruptible communications will provide new competitive opportunities. Ironically, the sophistication of today's modern telecommunications infrastructure, with dynamic call routing and self-healing networks, has also resulted in a complexity that makes the system tragically vulnerable to seemingly small problems, such as minor software bugs.

Rates and Tariffs

According to the FCC, the overall Consumer Price Index for telephone service rose 3.5 percent during 1991, the latest year for which data are available, compared with the national inflation rate that year of 3.1 percent. Local service charges increased 5.1 percent, intrastate toll charges declined 1.5 percent, and interstate toll charges rose 1.3 percent. The national average monthly charge for residential local service with unlimited calling was $13.05 in October 1991, and the total cost of local service, including subscriber line access charges and taxes, averaged $18.64, compared with $17.79 one year earlier. Businesses taking single-line service paid an average of $42.42 a month for service, compared with $41.21 the year before.

Since 1984, expenditures for long distance service have increased by about 5 percent each year for the average household, while long distance rates fell about 4 percent a year. The FCC data suggest that residential use of toll service has grown by about 10 percent per year. The average household spent about $35 a month on toll service in 1991, about $14 more than in 1980.

An important predictor of future local telephone rate changes are the decisions of state regulatory commissions. Rate decisions by such commissions have an immediate impact on the price of telephone service, while the number of pending cases and amount of rate increase requests provides an indicator of future change. At the beginning of 1984, just after the divestiture of AT&T, rate cases pending before state commissions totaled nearly $7 billion. Since then, the level of rate activity has diminished substantially, and the current amount of rate increases pending is about $280 million. Such cases typically take more than a year to resolve, so the low number of cases, taken in light of recent price reductions ordered by state commissions, should indicate a low level of state and local rate changes in 1993.

In the long distance market, direct dial rates for interstate service have dropped between 40 and 45 percent since the break-up of AT&T in 1984. The dramatic reductions in long distance charges, however, were due largely to the imposition of subscriber-line access charges on local residential and business customers, reducing the direct subsidy that AT&T used to pay its local operating units from long distance revenues. While competition has had a significant effect on prices, much of the 50 percent drop is attributable to the adjusted subsidy. Long distance carriers pay an additional subsidy to local carriers based on the number of originating and terminating minutes of use, a charge that has been reduced as subscriber line charges have risen. The reduced costs to long distance carriers have enabled them to aggressively lower prices. In 1990, about 35 percent of local telephone company revenue was derived from long distance access charges. In 1984, subscriber access charges were initiated at $6 a line per month for businesses. In 1985, residential users began paying $1 per line. The current access charge per line for residential subscribers is $3.50 a month.

Policy Developments

In a development affecting future market structure and competition in the U.S. enhanced services industry, the FCC decided in 1992 to reaffirm an earlier decision to allow the Bell Companies to offer unregulated enhanced service through the same business units that provide regulated basic telephone service. The decision reinstated rules originally imposed under the 1986 Third Computer Inquiry decision (later overturned in Federal Court) that guaranteed the Bell Companies' competitors equal access to network services used in the provision of enhanced services. Features such as call routing, number identification and traffic data collection can be purchased individually by non-telephone companies, such as voice mail firms, in order to combine them with their own services and compete with the local Bell telephone company.

The FCC also decided in 1992 to allow telephone companies to own cable television systems, although they will be restricted from providing actual programming services. Legislation before Congress in 1992 proposed allowing telephone companies to offer cable television programing services. In the future, there likely will be head-to-head competition between these two previously distinct industries.

Until recently, the FCC considered U.S. international carriers are regulated as "dominant" if they were 15 percent or more owned by a "foreign telecommunications entity." Dominant carriers, such as the U.K.-based firm Cable & Wireless PLC, were subject to a longer approval period for their tariffs (rates), had to justify their tariffs on the basis of costs incurred, and filed quarterly reports, the same rules that the FCC now applies to AT&T. Although the policy placed added requirements on foreign telecom companies, it did not directly hinder a foreign telecom's ability to enter the market or obtain a license.

In October 1992, the FCC adopted a new policy by imposing dominant carrier status only where a foreign carrier has a monopoly bottleneck over telecom facilities in its domestic market. The theory behind such policy is that a competitive market will make it uneconomical for a carrier to favor its foreign partner, since alternative service providers will step in if prices are too high or access discriminatory.

In a closely related decision during 1992, the FCC sanctioned international resale of private leased circuits to provide telephone service in cases where "equivalent opportunities" exist in the foreign market. The decision sparked two companies to file license applications in 1992 to provide resale service between the United States and Canada. Resolution of the dominant carrier decision will likely lead to resale with the United Kingdom as well. Resale will help drive down prices for international telephone service, provided fair competition exists in both telecommunications markets of the countries involved. Competition in basic telecommunications service is beginning to spread to other countries, and in coming years may have similar effects on rates and service innovation as it has in the United States.

Portability of 800 telephone numbers came one step closer to reality in 1992 when the FCC required GTE and the seven RHCs to upgrade their networks and work with the telecom industry to provide mandatory 800 data base access service by March 1993. A new national data base will enable 800 service customers to select or change their carrier without changing their 800 telephone numbers. An interim measure in effect during 1992 enabled individual carriers to assign special 10-digit 800 numbers to customers only within pre-assigned dialing codes. However, most of the large telephone carriers have expressed doubts that they can implement the FCC plan on time in 1993.

The FCC also gave AT&T more freedom to negotiate large service contracts with individual companies under the Tariff 12 option, and initiated an inquiry into the issue of nationwide, universal video dialtone service in which telephone companies would provide on-demand, full-motion image communications to any subscriber.

INTERNATIONAL COMPETITIVENESS

The importance of the international telecommunications market and a growing demand for service in this sector have caused an increasing number of U.S. domestic long distance telephone carriers to begin providing international service. Multinational corporations, using excess capacity on their private networks, are also entering the market. During 1992, for example, the shipping company UPS created a new subsidiary called UPS Telecommunications Inc. to serve the burgeoning market for international data communications. UPS and other companies are taking advantage of regulatory liberalization in Canada, Germany, the United Kingdom, and the United States that has allowed the resale by companies of circuits they have leased from carriers.

U.S. companies will also continue to move into new overseas markets to provide telecommunications services such as cellular, paging and radio communications. Of particular interest during 1993 to U.S. firms will be the developing telecom service markets in the newly independent states of the former Soviet Union, and Eastern European countries. During 1992, US West International inaugurated Moscow's first commercial cellular telephone service, for example, and AT&T acquired 39 percent of a long distance telephone company in the Ukraine.

U.S. telecommunications service providers remain the most competitive in the world, despite recent advances by other countries toward network modernization and regulatory liberalization. Of particular importance is the lengthy lead enjoyed by U.S. firms in providing value-added data communications services, such as wide-area networking, electronic mail, and data processing. However, the United States lags behind several industrialized nations in some categories of public telecommunications infrastructure, such as average investment per line, and deployment of such technologies as digital switches and signaling system 7 (SS7). Such data notwithstanding, the U.S. market supports a much greater number of private communications networks than any other country. The proliferation of private corporate networks in the United States--as contrasted with foreign corporations that must use their national monopoly telephone systems in order to communicate--means that the U.S. communications system is even more competitive than the available data comparing public telecommunications infrastructure might suggest.

U.S. telecommunications firms enjoy the world's most liberal regulatory environment, the most technological experience and the greatest business demand. However, there are concerns over the level of capital investment in some important technologies such as ISDN, where U.S. industry lags behind major trading partners such as Japan. This is likely to lead to new Government policies to encourage telecommunications infrastructure investment over the next few years, and perhaps public funding of projects such as an advanced, nationwide broadband optical fiber system.

Table 2: Network Utilization Ratios, 1989
(ranked by total calls)
Total Calls     Total Calls
Country         Per Capita   Per Access Line
United States   1,721            3,511
United Kingdom    828            2,002
Canada            750            1,405
Japan             553            1,307
Germany           496            1,072
France            395              874
Italy             370            1,060
SOURCE: Telecommunications in the Age of Information, U.S. Department of Commerc
e,
National Telecommunications and Information Administration.

Even as U.S. telecommunications providers expand overseas, for example, AT&T's 1992 joint venture in Brazil to provide data communications services, foreign companies are accelerating their entry into the North American market. This underscores the increasingly global nature of the telecommunications services industry. During 1992, there were several key acquisitions that highlighted this trend, notably the sale of Wang Laboratories' value-added data network operations to the British company, Cable & Wireless. Italcable of Italy has also entered the U.S. long distance market. Foreign investment in the U.S. telecommunications market is limited by laws restricting foreign firms from owning more than 25 percent of any common carrier that uses the radio spectrum.

Given the global nature of the telecommunications services industry, however, companies that offer services in their own national markets are looking to provide similar services internationally, often with cooperation of their foreign counterparts. One such example during 1992 was AT&T's announcement that it would provide digital private-line telephone service to the People's Republic of China by satellite. The service is the first stage of a $70 million digital network in which AT&T, KDD of Japan, and the Chinese Ministry of Posts and Telecommunications are participating. Another example is MCI's agreement to license its intelligent network (IN) to the Canadian Stentor telephone group (formerly Telecom Canada). MCI uses its IN system to offer calling card services, virtual network services, and a discounted outbound calling service package for small businesses. With slight software modifications, the Stentor Group companies will be able to offer similar services in Canada, as well as offer future IN services MCI and Stentor will jointly develop. Eventually, both companies will route all their IN traffic over this new integrated network.

A large number of international acquisitions, mergers and privatizations occurred between 1990-1992. A few such ventures include: Bell Atlantic and Ameritech's purchase of 90 percent of the New Zealand telephone company for $2.5 billion; Southwestern Bell's acquisition of a 25 percent position in Telmex of Mexico for $400 million; Bell South, along with Cable & Wireless, acquired 100 percent of Australia's second telephone carrier; and GTE, AT&T, and Telefonica de Espana purchased 40 percent of Venezuela's national telephone system for $1.8 billion.

An even greater level of activity has occurred in the cellular telephone sector. For example, Pacific Telesis is involved in systems in Germany and Portugal; Bell South bought shares of cellular networks in Denmark, Venezuela, and Chile; and US West joined with partners in Hungary, Czechoslovakia, Leningrad, and the United Kingdom. In the area of data communications and networking, AT&T purchased the British firm ISTEL, and MCI acquired a majority of the Infonet global network. US West and Bell Atlantic have set up a joint venture with Czechoslovakia to operate a packet-switching data network there.

International facilities competition will increase in the coming years as global telecommunications carriers compete to build transoceanic optical fiber and satellite links that position their home countries as communications hubs. Such central hubs can serve as links between high-volume traffic regions and economic centers of the world. In the latest such development, Teleglobe Canada, that country's international monopoly, stepped up competition with AT&T by announcing plans to construct two cables down each coast of the United States to vie for trans-Atlantic, trans-Pacific and pan-American telecommunications traffic. The new fiber routes would bypass U.S. networks to link Asia with Canada, and Europe with Latin America and the Caribbean via Canada.

Major segments of the international telecommunications services market include the international message telephone services (IMTS), the traditional telex and telegraph record services, international value-added network services (IVANS), and specialized services such as private line, virtual networks, and ISDN. U.S. revenues from international telecom services revenues are estimated to reach nearly $12 billion in 1993, up from about $10.5 billion in 1992. IMTS revenues account for more than two-thirds of that total.

Although revenues for some international services are not publicly available, international facsimile (including enhanced store-and-forward fax) and IVANs services are expected grow substantially over the next few years. The U.S. Government continues its efforts to negotiate bilateral IVANS agreements to open up foreign markets to U.S. providers. During 1992, IVAN agreements were reached with the Netherlands and Germany, and prospects are favorable for concluding agreements with Sweden, Australia and France.

Outlook for 1993

Revenues of the domestic telecommunications services industry are expected to increase about 6.2 percent in 1993, a slow but steady growth. Long distance revenue will grow about 5.3 percent, and international service revenues should rise nearly 14 percent over 1992 levels. Individual market segments such as international services can expand much faster than the industry as a whole. The sheer size of the telecommunications services market (more than $184

Table 3: Percentage of Digital Switches by
Subscriber
                Digital  Rank   Digital  Rank
Country        Lines    1994(*) Lines    1989
United Kingdom  92.0       1    38.0       4
Canada          87.5       2    51.4       2
France          86.5       3    70.7       1
Japan           76.0       4    31.0       5
United States   68.2       5    42.5       3
Germany         38.0       6     2.6       7
Italy           16.1       6    16.1       6
Forecast.         -
SOURCE: Telecommunications in the Age of Information, U.S. Department of Commerc
e,
National Telecommunications and Information Administration.
Table 4: Average Annual Investment per Telephone
Line, 1980-89
(ranked in 1989 dollars)
Country         Investment
Germany         $305.15
Italy            274.72
Japan            243.99
Canada           242.28
France           239.06
United States    217.89
United Kingdom   160.58
SOURCE: Telecommunications in the Age of Information, U.S. Department of Commerc
e,
National Telecommunications and Information Administration.

billion) makes it difficult for growth in any individual sector to have a dramatic effect on the overall data. One particularly explosive area will be data communications services, which should experience growth rates of 19 percent or more during 1993 as the demand for computer connectivity and wide-area networking develops rapidly. Cellular telephone revenues will increase to about $9.75 billion, up about 30 percent.

Long-term Prospects

Local Exchange Service

Since the divestiture of AT&T in 1984 from its 22 local Bell Operating Companies (BOCs), the "Baby Bells" have emerged as financially strong competitors. The BOCs have won a number of important regulatory freedoms in the past few years that will enable them to enter new markets (e.g., information services) as aggressive competitors, with inherent cost efficiencies due to their ownership of underlying local transmission and switching facilities. The BOCs will also continue their ventures in international telecommunications markets, where they have concentrated on investing in foreign private telephone company opportunities, and providing mobile radio services, cable television, and data communications.

Total revenues from local exchange service will be more than $84 billion in 1993, and are forecast to grow to almost $97 billion by 1997. The market for local telephone service will grow steadily at a rate of about 3 percent anually for the next several years, but market structure will begin to change as competition increases. One of the primary developments of 1992 was introduction of competitive access providers (CAPS) into local exchange competition. CAPS generally provide special, dedicated access between corporate customers and long distance telephone companies. In New York, a watershed decision by the state Public Service Commission created new rules that allow local competitors to sign business customers and then run cables from them to the central office switches of the New York Telephone Company, thereby gaining access to the public network. Such public network interconnection is the critical element in ensuring a competitive local market. In Chicago, Teleport Communications Group has proposed offering actual switched local telephone service in competition with the Illinois Bell Telephone Company, part of a far-reaching plan by the state Commerce Commission to establish a "Telecommunications Free Trade Zone" that would completely deregulate Illinois Bell within a defined downtown region.

Such alternate local access carriers (that provide local exchange services) offer some local business users with high volume telecommunications needs a viable option to the local telephone company. Other competitors in the local loop include satellite-based teleports, personal communications services (PCS), and cellular mobile radio telephone.

Overall penetration of such companies during the next 5 years is not likely to account for more than 3-4 percent of total local exchange revenues; it will amount to about $2 billion in 1993. The Bell Telephone Companies estimated in reports to the FCC during 1992 that revenue loss attributed to bypass from alternative carriers was more than $1 billion annually from switched facility bypass and about $500 million from private line facility bypass. Bypass concerns are important to subscribers, regulators and telephone companies because significant levels could force rate increases in basic residential telephone service. Local exchange competitors generally target only high-volume users, leaving the local telephone company to serve less profitable customers and raising carriers' costs for maintaining the public network.

In the face of such competition, local exchange carriers will continue to engage in mergers and acquisitions to strengthen and expand their customer and technology base. Recent examples of such mergers include: GTE's acquisition of Contel, creating one of the largest local companies with more than 16 million access lines; South Central Bell's merger with Hughes Telephone; Cincinnati Bell Inc. with Automated Phone Exchange of Utah; Pacific Telecom and the Mid Plain Telephone Company of Wisconsin; TDS Inc. with Humphrey and County Telephone Company of Tennessee; Rochester Telephone Company with at least 10 smaller independents; and ALLTEL with CP National.

An important development for the local exchange market has been the move from traditional rate-of-return regulation to a system of price caps, allowing these firms to reap direct profits from productivity gains and to maintain more market-oriented, flexible tariff structures. The phone companies have used their increased flexibility to offer unregulated enhanced services by launching new services such as customer local area signaling services, 700 and 900 number services, voice messaging, store-and-forward facsimile message transmission, electronic mail, audiotex, electronic directories, video conferencing, and caller ID.

An important ruling by the Pennsylvania Supreme Court that caller ID service is illegal, violating state wiretap laws, may have a significant impact on the future regulation of that service. There is currently a diverse number of laws and regulations across the country affecting the provision of caller ID, a service which allows customers to view the originating telephone number of a caller. Privacy advocates have opposed the service as an infringement on personal information. Several bills in Congress during 1992 addressed the issue of caller ID, and the future of the service is in question.

Additional customer services being marketed by local exchange service providers include measured toll service (MTS),

Table 5: Largest Local Telephone Companies by
Access Lines, 1991
Telephone Companies                   Telephone Lines
Bell Atlantic Corp                    17,750,000
BellSouth Corp                        17,614,737
Ameritech Corp                        16,684,000
GTE Corp                              15,632,000
NYNEX                                 15,409,521
Pacific Telesis Group                 14,262,000
US West Communications                12,934,679
Southwestern Bell Corp                 12,129,433
United Telecommunications, Inc          4,083,205
Centel Service Corp                     1,887,000
Southern New England Telephone Co      1,593,406
Centel Corp                            1,210,864
ALLTEL Corp                              906,047
Puerto Rico Telephone Go                 852,625
Cincinnati Bell Telephone Co             796,214
Rochester Telephone Enterprises, Inc     357,132
Century Telephone Enterprises            314,819
Telephone & Data Systems, Inc            304,000
Pacific Telecom, Inc                     233,995
Lincoln Telephone & Telegraph Co         196,622
SOURCE: United States Telephone Association.

pay telephone service, wide area telephone service (outbound WATS), 800 number services, analog and digital private leased lines, and directory and billing services. These services generated about $27 billion in revenues during 1992. The fastest growing segments are the WATS and 800/900 number services, respectively increasing at an annual rate of about 25 and 26 percent. The market for digital private circuits will increase approximately 30 percent in 1993.

The LECs ability to provide such services effectively will depend in large part on technological, advances in the local network that will accelerate as more companies implement their plans for the Advanced Intelligent Network (AIN) and ISDN. Bell Atlantic introduced a preliminary version of the AIN service in 1992, allowing users to customize telephone call routing to meet their individual needs. Implementing these new technologies is strategically critical to the LECs because the new enhanced services mentioned above, as well as cellular telephone and PCS, may account for as much as one-third of local telephone company revenue in about five years.

Long Distance Service

In 1992, U.S. long distance carriers generated toll revenues of about $58 billion, an amount that should grow by 6.5 percent in 1993 to almost $62 billion, and to more than $79 billion by 1997. In 1984, the year divestiture took place, AT&T's toll revenues of $35 billion accounted for about 90 percent of all long distance revenues even though the FCC had introduced limited competition years earlier. In 1992, AT&T's share of total inter-LATA toll revenues had fallen to less than 63 percent, according to the FCC. Although its market share in revenue has fallen to less than two-thirds, AT&T's retained percentage share of minutes of traffic is higher because the company handles a higher number of operator-assisted and international calls than its competition.

The top three long distance service providers-AT&T, MCI and Sprint--have almost a 90 percent combined share of the market; the other 10 percent is shared by medium-and small-sized carriers. MCI's 1992 revenues were about $8.8 billion, a 15 percent market share, and Sprint had revenues of about $5.5 billion and a 9.5 percent market share. Some of the larger second-tier companies are Cable & Wireless Communications (a wholly owned subsidiary of its British parent), Williams Telecommunications Group (WilTel), and Metromedia/ITT, each with revenues of $500 million or less.

Consolidation in the long distance segment during 1992 kept pace with the level of activity in 1991, and will continue or even accelerate during the next few years as the major carriers consolidate their market shares, and smaller competitors face shrinking margins. A development worth noting is that some local facilities-based carriers, such as Rochester Telephone, have begun to absorb long distance resellers and private network carriers in their regions, blurring the boundaries between public and private telecommunications services markets and emphasizing regional one-stop shopping. During 1992, United Telecom purchased the remaining 20 percent of US Sprint owned by GTE and changed its name to Sprint. Sprint, in turn, emerged as the high bidder to acquire Centel Corporation, an independent local service: telephone company. If this deal is consummated, Sprint will become the only company to provide local, long distance, and cellular telephone service in the United States. While the Bell Companies are currently prohibited from such activity, more independent LECs are likely to vigorously pursue such strategies to enter other markets, while long distance carriers will target local markets as well. Foreign telecommunications companies will also likely continue their penetration of the lucrative U.S. market.

Competition has also had an important effect on labor issues in the long distance market. The move to price cap rather than rate base regulation has eliminated the incentive for carriers to inflate their rate bases with excessive capital spending and cost structures. Profits are now directly related to productivity gains. Partially in response to this factor, tight budgets and slim profit margins are causing major carriers to scale back personnel and hiring. During 1992, for example, AT&T announced plans to replace up to one-third of its 18,000 long distance telephone operators by 1994 with a computerized voice response system.

Competition in the long distance market has also led to a proliferation of new services, some of which will experience high growth rates for the next few years. Key market segments in the domestic long distance industry include basic toll service (MTS), 800 and 900 number calling, WATS, private line, pay telephones, data communications, ISDN, and enhanced services. With about $7 billion in revenue, the 800 number market is the largest after basic MTS. The explosion of demand for video-conferencing services during the Gulf conflict in 1991 continued during 1992 and is expected to grow throughout the decade. AT&T, MCI and other providers of such services are beginning to offer centralized billing and volume discounts. The current market for such services is about $500 million, and may grow to more than $1 billion by 1995.

The technological foundation for the next generation of long distance services (e.g., ISDN) is composed of the SS7, digital switches, and optical fiber networks. All the major long distance carriers, as well as the LECs, have implemented SS7, an out-of-band signalling technology that sets up calls without first making a physical connection, although deployment is not yet complete. In 1992, the first stage of a U.S. national ISDN network was implemented. During the Transcontinental ISDN Project in November, the first national ISDN call was placed to demonstrate the interconnectivity of ISDN through the local and long distance networks. The RBOCs plan to have more than 60 million IDSN-capable access lines in service by the end of 1994.

Data Communications and Value-Added Network Services

The market for data communications services is evolving as the most dynamic segment of the telecommunications industry, driven in part by a growing demand for contracting with third party vendors for wide-area networking, local area network (LAN) interconnection, data processing, and value-added network services. Increasing numbers of small- and medium-sized businesses with international operations are saving on corporate communications budgets by contracting, or outsourcing, with international value-added network (IVAN) providers. IVANs can provide such services as electronic mail, credit card verification, store-and-forward multipoint facsimile service, point-of-sale transactions, electronic data interchange (EDI), database access and overall private network management. Such IVANS--typified by Electronic Data Systems, General Electric Information Services, and International Business Machines--base their networks largely on high-speed private leased lines purchased from carriers at bulk rate prices. IVANs can link LANs globally and offer efficient, reliable and inexpensive communications by virtue of the economies of scale they gain by maintaining a multinational presence. Customers avoid having to deal with different regulatory and technical standards across international borders by contracting with IVANs for centralized ordering, billing, and nearly seamless networks. The same conditions apply to domestic value-added network services as well.

The distinction between the value-added network services market, characterized by unregulated firms, and that of the data communications services provided by regulated common carriers is beginning to blur. CompuServe, for example, the Ohio-based on-line database provider, has built a global packet-switching network that now offers frame relay data transmission in direct competition with certain long distance and international carriers. Packet switching is a technique to enable the transfer of data among communicating equipment using a shared data network rather than a single physical telephone line connection. Packets of data can be transmitted across network nodes to the correct destination where the packets are reassembled into the proper sequence. Frame relay is a streamlined, fast packet-switching technology made possible by the error-free communications of optical fiber and improved transmission systems. The type of market consolidation exemplied by CompuService has been driven largely by developments in the corporate communications and private network field. Large corporations have typically maintained mid-size or mainframe computer networks with dedicated terminals, but also have allowed individual divisions or offices to operate self-contained LANs. In an effort to consolidate computer network resources and move toward distributed computing, such companies have in recent years begun connecting their disparate LAN and dedicated-user systems into relatively seamless corporate "enterprise" networks by using wide area network (WAN) technology such as routers, bridges and gateways (see chapter 26, Computer Equipment and Software for more information on computer networking). Some estimates project that the number of LANs interconnected via WAN technology will quadruple in the next five years.

The demand to create enterprise networks has created an immediate need for high-speed public and private data communications transmission. These services will generate some of the highest growth in the telecommunications services industry during the next decade: 10-30 percent annually, depending on the service. Computer networks usually operate at very high transmission speeds. In contrast, the public telephone network has been required to operate only at the very low rates necessary to ensure clear, reliable voice transmission. Telephone carriers are now responding with a broad range of high-speed data communications services to meet the exploding demand for wide-area networking and compete in this dynamic data market.

The diversity of data communications standards and computer systems has also created a large demand for network management services to control enterprise networks. The cost of implementing, continually upgrading and operating such data networks has led increasing numbers of corporate communications users to contract their data communications and management needs out to third parties. Value-added network service providers are meeting this need, but telephone carriers have also found it necessary to create new services to serve this segment of the market. Syncordia, the Atlanta-based company owned by British Telecom, offers global network management to large corporate customers. Other carriers such as AT&T are also offering large customers discounted service packages to help manage corporate communications resources. AT&T's Tariff 12 and Tariff 15 service contracts, as well as their Virtual Private Network service, were designed to compete head-on with private VAN suppliers in the corporate telecommunications market.

The principal services introduced in 1992 by carriers to meet the need for such data communications services were frame relay and switched multimegabit data service (SMDS). WilTel was the first long distance carrier to introduce frame relay in 1992, followed by Advanced Telecommunications Corp., British Telecom North America, Glasgal Communications Inc., SP Telecom and Sprint. Until recently, the carriers most interested in offering frame relay have been VAN providers who have traditionally offered low-speed packet switching service based on the international standard known as X.25.

Bell Telephone Companies such as US West and major long-distance carriers have only recently begun to show serious interest in frame relay, which they view as a competitor to SMDS. SMDS uses cell relay technology, which will lead eventually to asynchronous transfer mode (ATM) switching technology deployment, and broadband ISDN. However, SMDS, like ATM switching, requires significant network modifications and is about five years from being widely available. Recognizing that a strong market currently exists for frame relay services, the Bell Operating Companies and other major carriers announced their support in 1992 for nationwide frame relay.

The introduction of frame relay by local and long distance carriers will lead to greater data communications interoperability among frame relay networks, among the Bell Companies themselves, and between the Bell Companies and the long distance companies and VANs. Within five years the carriers will make SMDS available on a nationwide basis. At that time, frame relay services may continue to serve the lower end of the LAN internetworking market, while SMDS may attract customers that demand very high speed networks.

The market sector captured by private companies for value-added services, including electronic data interchange, business communications like electronic mail and enhanced facsimile, managed network services, and consumer services like database access, will reach about $8 billion in 1993. Data communications services provided by telephone carriers, in contrast, will generate revenues of less than $2.5 billion. During the next five years as AT&T and the Bell Companies begin to use their newly acquired regulatory freedom to accelerate entry into the markets for enhanced services, their shares of the entire data communications market will increase. The application-specific enhanced services provided by the value-added carriers today will remain a high growth market that increasingly will attract foreign owned telecom companies to provide those services to and within the United States.

CELLULAR AND RADIO SERVICES

The U.S. cellular industry maintained its impressive growth record in 1992, reporting nearly 8.9 million U.S. cellular subscribers as of June 1, and $3.6 billion in revenue for the first half of the year. By the end of 1992, this was expected to grow to more than 10 million subscribers, and annual service revenues of about $7.2 billion. Despite declining revenues per subscriber, industry revenues should continue to increase as higher capacity digital networks are implemented.

Although cellular revenues are derived almost exclusively from voice traffic, a number of companies have announced efforts to develop cellular data networks. Nine major carriers have joined forces with IBM to develop a cellular data network standard, and another, Cellular Data Inc., received an experimental license from the FCC to begin testing its technology.

In June 1992, the industry reached a new milestone when all 734 U.S. markets were being served by at least one of the two cellular operators licensed in each market. Along with this completion of the nation's basic cellular infrastructure, other actions contributed to the realization of "seamless" service. McCaw's 1991 equity purchase of the "Cellular One" trade name has led to the formation of the Cellular One Group of non-wireline (or non-telco) cellular carriers in more than 420 geographic markets across the country. The Group is well on its way toward developing a cellular system, the North American Cellular Network, that operates with consistent nationwide standards and provides quality service. Cellular One customers will be able to make and receive calls in and between many cities as if they were in their own calling area, eliminating the need to dial special access codes.

Long distance carrier Sprint is attempting to gain entry into the cellular arena with the May 1992 proposed purchase of Centel, the nation's tenth largest cellular carrier, for nearly $3 billion. The acquisition was subject to shareholder approval in late 1992. Bell Atlantic and Metro Mobile CTS proceeded with plans to merge their cellular operations, creating a network in 15 states with over 500,000 subscribers.

Congressional efforts to reallocate some of the government's radio spectrum to the private sector stalled again in 1992. The Emerging Telecommunications Technologies Act of 1992 failed to reach the floor of the U.S. Senate due to controversy over the issue of whether to authorize the FCC to auction spectrum. The National Telecommunications and Information Administration has undertaken a new Spectrum Planning Program to analyze future telecommunications spectrum requirements similar to that which would be required if the bill were to become law.

A number of actions are proceeding on the equal access front. Long distance carrier MCI, for example, has asked the FCC to establish a uniform, nationwide equal access policy requiring all cellular carriers to provide customers equal access to long distance carriers. Currently, only cellular affiliates of the Bell operating companies are subject to equal access obligations; non-Bell operators are exempt.

In June 1992, the FCC voted to allow the cellular industry to continue its practice of packaging equipment and service, as long as carriers also offer the service separately at a non-discriminatory price. The FCC had been asked by the National Cellular Resellers Association to prohibit cellular carriers from packaging service and equipment to attract new customers. The resellers claimed that this practice represented "bundling," legally defined as the refusal to provide service unless equipment is also purchased.

Competitiveness in the U.S. cellular market was also the focus of a recent study by the U.S. General Accounting Office (GAO). GAO concluded that the duopoly structure (two carriers to each market) is probably not competitive, and that the FCC should give preference in licensing Personal Communications Services (PCS) to non-cellular applicants.

As of August 1992, the FCC had granted 119 experimental licenses, selected from 140 applications, for PCS trials. In July 1992, the FCC moved closer to making PCS a reality in approving a Notice of Proposed Rulemaking (NPRM) on PCS market structure, and adopting a tentative decision to license spectrum for PCS. The NPRM proposes to allocate: 1) 90 megahertz (MHz) in the 2 gigahertz (GHz) band to at least three broadband PCS operators; 2) 3 MHz in the 900 MHz band for narrowband PCS; and 3) 20 MHz in the 2 GHz band for non-licensed PCS services licensed under FCC Part 15 rules. The FCC cited four values that it will take into account in licensing PCS--competition, speed of deployment, universality, and diversity of services. Earlier FCC proposals to exclude the cellular industry from bidding for PCS licenses were dropped. Nonetheless, important, controversial issues remain to be decided, including the geographic service area, regulatory status (common carrier or private radio), eligibility (whether Local Exchange Carriers should be allowed to compete for PCS licenses), and the bidding process (lotteries or competitive bids).

In a separate and hotly debated proceeding (Docket 92-9), the FCC has proposed that PCS licensees finance the relocation of 2 GHz fixed microwave users to create a 1.8-2.2 GHz spectrum reserve for emerging technologies. The utilities community and railroads have lodged an aggressive campaign, challenging the FCC's plan to reallocate to PCS the fixed microwave spectrum they now occupy.

As the debate on a regulatory structure for PCS continues, industry analysts have presented new demand forecasts. A.D. Little predicts 50-60 million PCS subscribers, generating revenues of $35-$40 billion beyond current U.S. levels by 2010. Telocater, the personal communications industry association, forecasts 40 million PCS subscribers by 2002.

After receiving 96 PCS-related applications for a Pioneer's Preference, the FCC awarded its first preference to Mobile Telecommunications Technologies Corp. (MTEL) for a Nationwide Wireless Network two-way messaging service in the 900 MHz band. The preference is designed to give operating licenses to those who pioneer a new service, without having them go through comparative hearings or a lottery. But the service must be innovative and it must be tested.

SATELLITE SERVICES

Annual revenues from fixed and mobile satellite services jumped to almost $1.5 billion in 1992, increasing 25 percent over 1991. Industry revenues are expected to rise to near $1.9 billion by 1993, and will likely top $3 billion by 1995 if plans for new mobile satellite services and direct-to-home satellite broadcasts are implemented.

Six U.S. companies operated domestic communications satellites (domsats) in 1992: Alascom, GTE Spacenet, General Electric American Communications (GE Americom), Hughes Communications Inc. (HCI), AT&T, and Comsat General. Combined, these companies operated 30 U.S. domsats, with a total of approximately 720 transponders (transmit/receive circuits), representing around 30 percent of the civilian transponders available worldwide. Within the next two years, domestic capacity will be significantly increased by higher powered, higher capacity and longer lived domsats, launched to replace the current, expiring generation. Six domsats were launched in 1992 and an additional two are scheduled for launch in 1993.

Satellite services to fixed earth stations or FSS--including fixed broadcasting, data transmission and telephony--continued to dominate the U.S. satellite services market in 1992, representing nearly 85 percent of overall industry revenues. Video transmission contributes around 65 percent of overall FSS revenues, or almost $830 million. The predominance of video in satellite traffic, particularly in point-to-multipoint applications, will continue to expand in relation to telephony, as domestic and international carriers rely more heavily on fiber optic ground networks for point-to-point transmission along heavily used routes. Domestically, 60 percent of existing satellite capacity is dedicated to providing cable television (CATV), television broadcasting and news feed services for the continental United States.

The U.S. satellite industry continues to hotly debate the potential of direct broadcast satellite (DBS) services, television services delivered via satellite directly to the home, often on a pay-per-view basis. With existing cable television or CATV services available to 80 percent of U.S. households, videocassette recorders in around 60 percent of the country's homes and 3 million television receive only (TVRO) satellite dishes, the developing DBS industry faces stiff competition. Although a July 1992 FCC decision allowing dial-up television services over normal telephone lines is not seen as a major threat to DBS now due to insufficient capacity on the current telephone network, the expanding reach of fiber optics places a time pressure on the implementation of DBS.

DBS proponents believe that the combination of unserved rural areas, viewer dissatisfaction with current CATV services, and demand for smaller TVRO dishes bode well for their success. Progress in digital compression technology has also greatly expanded the attractiveness and capacity of satellite-delivered video by expanding the number of channels to well above 100, as well as allowing the use of smaller, cheaper dishes, and facilitating the broadcast of high definition television (HDTV). Access to sufficient programming to fill DBS's capacity, along with close scrutiny of legislative efforts to reregulate the CATV industry, will continue as top concerns of the DBS industry.

The first high-power DBS satellite is scheduled for launch in 1994 and will be used jointly by HCI's DirecTV and Hubbard Broadcasting/U.S. Satellite Broadcasting (USSB). DirecTV estimates that within 5 years, 40 million viewers will sign on for their 100-plus channel service alone, at a cost of around $700 per receiver. An additional eight satellites dedicated to DBS service are proposed for launch by 1995, promising enormous capacity for this nascent service.

Although broadcasting continued to sustain FSS revenues for U.S. satellite companies, narrowcasting satellite services such as teleconferencing, distance learning for public schools or corporate training, and business television, attracted new interest. In 1992, around 80 networks served more than 30,000 sites and generated an estimated $290 million in revenues. Satellite technology's availability to remote areas, its distance-insensitivity and its ability to be rapidly deployed make satellite applications a viable alternative to terrestrial fiber optic narrowcasting networks. Advances in digital compression technology have also lowered the transmission component of satellite-based narrowcasting costs. Private business television is one of the fastest-growing sectors, with revenues of about $190 million and nearly 25 private corporate networks in 1992. Educators and corporate trainers are also turning increasingly to satellite for distance learning, with more than 30 educational networks in place. The earning potential of educating via satellite, however, remains to be proven.

Revenues from private FSS networks using very small aperture terminals (VSATs) continued to grow in 1992, but at a slower rate due to higher saturation of the domestic private network market. Revenues from domestic VSAT services were estimated at over $37 million in 1992, an increase of around 25 percent over 1991. Although around 80 percent of the world's VSAT terminals are used for data communications in the United States, domestic growth has already slowed as the industry reaches maturity. VSAT networks are used heavily by the financial, hotel and retail businesses to relay point-of-sale credit authorization and inventory control data among multiple remote locations.

Revenues from international fixed video, voice and data transmission reached $624 million in 1992, up more than 30 percent over 1991. The International Telecommunications Satellite Organization (INTELSAT), a consortium of 121 countries providing services to about 180 countries, added to its capacity with the spectacular in-orbit rescue and reboot of the INTELSAT-6, which had been mislaunched to a useless orbit, and the launch of the high-power INTELSAT-K. Except for these newly orbited satellites, INTELSAT capacity remains near or fully booked on INTELSAT's fleet of 19 satellites, a fleet that represents one-third of worldwide satellite capacity. Despite new capacity, capacity for video transmission in the Atlantic Ocean region is still seen as particularly short. INTELSAT reports that demand for all communications for the Atlantic Ocean region grew more than 5 percent in 1992, with 7.7 percent growth in the Indian Ocean region and a 15.3 percent increase in the Pacific. Transmission of services connected to the public switched telecommunications network (PSTN) accounts for around 60 percent of all INTELSAT traffic, international television accounts for 9 percent, and private network business services about 8 percent.

Communications Satellite Corporation (COMSAT), the U.S. signatory to INTELSAT, reported revenues of $370 million for its INTELSAT business in 1991, up 19 percent from the previous year. Increased sales of long-term voice/data circuits and demand for television leases drove this growth, largely as a result of broadcasting needs from the Middle East conflict and overall expansion in the Pacific and Latin American markets. COMSAT's revenue growth came despite lower charges for several INTELSAT services, including its primary digital services for international business networks.

In addition to competition from terrestrial carriers, INTELSAT competes increasingly with other satellite systems. Two privately owned, U.S. separate satellite companies are currently in operation, with an additional five systems planned. Alpha Lyracom/PanamSat currently operates a single, fully-booked satellite over the Atlantic, with spot beams on Europe, South and Central America and North America. Plans to launch three additional satellites in the Atlantic, Pacific and Indian Ocean regions will provide PanAmSat with global coverage by 1995. Columbia Communications has a six-year lease on the C-band transponders of two NASA Tracking Data and Relay Satellite System (TDRSS) satellites and is licensed to provide international or transoceanic services worldwide. A third U.S. separate satellite system, Orion, plans to launch two satellites for service in North America, Western Europe, and West Africa in 1994 and 1995. In addition to U.S. systems, use of foreign separate systems, such as Intersputnik and the domestic Russian satellite network, increased in 1992. Four U.S. companies have received temporary FCC authority to use Russian capacity for switched services, and more than 1,600 Russian circuits are now used by U.S. companies to provide private network services.

Restrictions continue to ease on the use of separate satellite systems for international communications. In November 1992, the INTELSAT General Assembly will review a recommendation to allow separate systems up to 1,250 circuits per satellite for interconnected PSTN traffic, expanding on a previous 100-circuit per system cap. An additional proposal under review would relax the process that requires separate systems to consult INTELSAT prior to initiating non-PSTN services. Prior to these liberalization moves, separate systems were restricted to non-PSTN services such as broadcasting and private network services. Video transmission continued to dominate the separate system business in 1992, representing around 80 percent of PanAmSat's traffic, but demands for separate satellite capacity are certain to shift with the rollback of restrictions on separate system use. All separate system restrictions are expected to be lifted by January 1, 1997.

Mobile satellite services (MSS) continued to make dramatic contributions to the overall satellite industry in 1992. U.S. companies are positioning themselves for an explosion in domestic and international demand. Estimates of MSS revenues neared $200 million in 1992 and will likely reach $300 million by 1993. Revenues are projected to soar by the mid-1990's with the introduction of even more sophisticated services and the launch of satellites dedicated solely to mobile communications. Land mobile satellite services (LMSS) are expected to be the fastest growing MSS application, both domestically and abroad, including applications such as satellite-delivered cellular telephony, positioning and navigational services, and digital radio.

Land mobile services dominate the domestic market, representing over 80 percent of current MSS revenues, and U.S. companies are seen as the bellwether of the future of global LMSS developments. Qualcomm, the provider of OmniTracs, a satellite-based two-way data communications and positioning service, reported more than 40 percent growth in revenues and nearly 30,000 units installed in trucks, fishing boats, helicopters and other vehicles. American Mobile Satellite Corporation (AMSC) began offering domestic two-way messaging and position-location services to U.S. truckers, shippers and others in March 1992, using leased capacity on COMSAT's Marisat satellite. AMSC also moved closer to offering mobile telephone, voice, data and position services on its own geostationary satellite by 1994. It awarded contracts for launch services and ground equipment, signed agreements with cellular carriers, and purchased the license for additional spectrum generated by the bankruptcy of Geostar Corp.

Three U.S. companies proposing domestic and international direct audio broadcasting (DAB) services, or satellite-delivered digital radio, received a significant assist from new international spectrum allocations. Worldspace proposes to offer high-quality radio first to Africa and ultimately globally using eight planned satellites; Radio Satellite International Corporation proposes to launch three large satellites for international DAB targeted at shortwave broadcasters; and Satellite CD Radio plans a 30-plus channel DAB service for automobiles. Support from local broadcasters and sufficient financial backing are critical for the ability of satellite DAB to compete with existing radio applications and emerging terrestrial digital radio proposals.

The surge of interest in the Global Positioning System (GPS), a satellite constellation operated by the U.S. Department of Defense and available to civilian users, illustrated the potential demand of commercial navigational and positioning services for delivery services, trucking, nautical navigation and air traffic control. The Federal Radionavigational Plan forecasts 96,000 users of GPS services by 1996, growing to 250,000 users by 2003. Although use of the GPS system currently is free of charge, the commercial potential of GPS has spurred discussion of ultimately initiating user fees and possibly licensing, opening up a new potential MSS revenue area.

International interest in MSS services proliferated in 1992, with capacity bolstered by a high-power satellite launched for the International Maritime Satellite Organization (INMARSAT). INMARSAT, a consortium of 64 countries, has about 20,000 users worldwide, and serves 18,000 ships, 100 aircraft and 2,000 users of suitcase-sized, transportable satellite terminals. COMSAT, the U.S. signatory to INMARSAT, reported 1991 revenues of $125 million from its maritime, land mobile and aeronautical mobile services. Its second quarter revenues in 1992 were up 20 percent over the comparable period in 1991. Maritime services remain COMSAT'S largest mobile business area, contributing 87 percent of the company's MSS revenues, but land mobile services have been particularly dynamic. COMSAT revenues from LMSS doubled in 1991 and should continue to grow with new INMARSAT service offerings, such as global paging. Despite dull performance in the overall airline industry that dampened the aeronautical services business in the near term, optimism for in-flight phone service, video and data applications persists for the longer term.

New spectrum allocations brightened the prospects for worldwide personal, portable and mobile telephony using small satellites by the close of the decade. The 1992 World Administrative Radio Conference (WARC) granted international access to necessary radio spectrum for five U.S. proposers of low-earth orbiting (LEO) and medium-earth-orbiting (MEO) satellite constellations: Motorola's Iridium proposal, Loral and Qualcomm's Globalstar, TRW's Odyssey, Constellation Communications' Aries plan, and Ellipsat. In addition to securing financing and overseas operating agreements, the companies are now awaiting final regulatory approval from the FCC; the commission authorized technical experiments for the proposals in August 1992. None of the applicants expect to initiate services before the mid-1990's. In addition to the U.S. small satellite proposals, INMARSAT intends to begin Project 21, its own billion-dollar plan for portable, hand-held communications, by 1998, and Smolsat, a Russian space consortium, has already launched six small satellites for its planned 36-satellite constellation for global data and telephony.--Ivan H. Shefrin and Daniel W. Edwards, Telecommunications Services, Rates, Trends, and Policy; Linda Gossack, Cellular and Radio Services; and Patricia Cooper, Satellite Services, Office of Telecommunications, (202) 482-4466, August 1992.

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Additional References

The NTIA Infrastructure Report: Telecommunications in the Age of Information, U.S. Department of Commerce, National Telecommunications and Information Administration, Washington, DC 20230. Telephone: (202) 482-1880. Critical Connections: Communications for the Future, U.S. Congress, Office of Technology Assessment, OTA-CIT-407 (Washington, DC: U.S. Government Printing Office, January 1990). Telephone: (202) 783-3238. Long Distance Market Shares, Federal Communications Commission, June 28, 1991, 1919 M St. NW, Room 537, Washington, DC 20254. Telephone: (202) 632-0745. Statistics of Common Carriers, Federal Communications Commission, 1991/1992, 1919 M St. NW, Room 537, Washington, DC 20254. Telephone: (202) 632-0745. Telephone Rates Update, Federal Communications Commission, March 1992, 1919 M St. NW, Room 537, Washington, DC 20254. Telephone: (202) 632-0745. Trends in Telephone Service, Federal Communications Commission, March 1992, 1919 M St. NW, Room 537, Washington, DC 20254. Telephone: (202) 632-0745. U.S. Spectrum Management Policy: Agenda for the Future, U.S. Department of Commerce, National Telecommunications and Information Administration, Washington, DC 20230. Telephone: (202) 482-1880. U.S. Telecommunications in a Global Economy: Competitiveness at a Crossroads, August 1990, U.S. Department of Commerce, Washington, DC 20230. Telephone: (202) 482-1880. Communications Week, CMP Publications, Inc., 600 Community Dr., Manhasset, NY 11030. Telephone: (516) 365-4600. Industry Basics: Introduction to the History, Structure and Technology of the Telecommunications Industry, 1989, 3rd Edition, North American Telecommunications Association, 1511 K St. NW, Washington, DC 20005. Telephone: (202) 296-9800. Networking Management, Advanced Technology Group, PenWell Publishing Company, One Technology Park Dr., P.O. Box 988, Estford, MA 01886. Telephone: (508) 692-0700. Telecommunications Market Review and Forecast: Annual Report of the Telecommunications Industry, 1992 Edition, North American Telecommunications Association, 1511 K St. NW, Washington, DC 20005. Telephone: (202) 296-9800. Telecommunications Reports, Business Research Publications, Inc., 1036 National Press Building, Washington, DC 20045. Telephone: (202) 347-2654. Telephone Statistics 1992, United States Telephone Association, Suite 800, 900 19th St. NW, Washington, DC 20006-2102. Telephone: (202) 835-3100. Telephony, Telephony Publishing Corp., 55 East Jackson St., Chicago, IL 60604. Telephone: (312) 922-2435.

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