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Introduction

Introduction Mobile networks have had a growing impact on business and residential life as their capacities and speed have improved. Until the early 2000s, mobile networks carried mainly voice; now, they support a growing volume of instant messages, e-mail, and applications, as well as Internet access. Business people and consumers alike are able to easily carry around their most important voice and data communications information in lightweight smartphones and tablet computers. Today, staff members can create proposals, check on orders, and conduct most business functions from within their office building, while away on a business trip, or from a home office. For carriers, most of which have experienced large losses in home telephone services, mobile services are a growing percentage of revenue. However, their success in attracting customers who transmit large amounts of data has increased pressure to upgrade networks to carry more data on finite amounts of spectrum. Spectrum, as the word is used with respect to the telecommunications industry, is the range of all radio frequency signals (invisible electromagnetic waves) upon which wireless traffic is transmitted. Because of past acquisitions and mergers, the largest carriers maintain the greatest control over how the majority of customers in the United States access these services. The mobile and wireline infrastructure owned by AT&T, Inc., and Verizon Corporation provides nationwide coverage. These companies also have the resources to upgrade their wireless networks to new-generation, high-capacity protocols. Their wireline networks are global in scope and support enterprise customers around the world. Competitive carriers such as EarthLink, Inc., Level 3 Communications, and Wind-stream Communications provide Internet access and a variety of other services to business customers. Windstream offers service to both residential and business customers. These and other carriers have grown by acquiring competitors and expanding their offerings. Many of them cover multiple regions of the country, but none of them have facilities across the entire country. They compete with the wireline divisions of AT&T and Verizon, cable TV operators, and others. Like AT&T, Verizon, and CenturyLink, Inc., competitive carriers have merged with other carriers, resulting in fewer competitors and less pressure to offer rock-bottom prices. Carriers such as Windstream, large incumbents such as CenturyLink, AT&T, and Verizon, as well as cable TV operators such as Cox Communications concentrate their wireline business customer sales efforts on cloud and managed services, which are seen as more lucrative than broadband data communications services. Managed services are those that carriers offer as adjuncts to broadband links. Examples include managing routers, multiplexers, or security. It’s unclear if the market can support all of these services plus the many cloud computing and managed service offerings from other types of companies. Another source of competition for telephone companies and Multiple System Operators (MSOs) such as Comcast, Time Warner Cable, Verizon, and AT&T that provide cable TV comes from over-the-top providers such as Hulu, YouTube, and Netflix. Over-the-top providers transmit TV shows and movies to consumers over cable and telephone company broadband networks. These services attract customers in part because of their lower costs compared to subscriptions to traditional pay-TV services. While most subscribers keep some cable TV service, many have dropped premium services in favor of lower-cost options. Netflix is now the largest provider of pay-TV service in the United States. To counter this competition, cable TV and telephone companies are developing the ability to transmit the content subscribers pay for to laptop and tablet computers. Although none of the major cable operators own mobile networks, they do resell mobile services. This mobile traffic is carried on other carriers’ networks. At one time, the majority of cable operators’ mobile offerings were carried on Sprint Nextel and Clearwire’s networks. Operators that resell mobile services rely on the availability of spare capacity on wireless networks and the financial health of these mobile carriers. Comcast and other MSOs invested in Clearwire to cement their relationship with them. However, as of the second quarter of 2011, Clearwire was operating at a loss and the cable companies had sold very little mobile services. Time Warner Cable and Comcast both decided to end their agreement to sell services on the Clearwire network. They instead made an agreement to sell their spectrum to Verizon and resell service on the Verizon Wireless network. The spectrum sale requires regulatory approval. Cox Cable started to build its own mobile network, but shut it down in 2011. Building a mobile network is a costly endeavor that requires vast resources. It’s not unusual for organizations to underestimate the cost and complexity of building a mobile network. When it shut down its network, Cox announced that it would resell mobile services. Internet-based companies including Apple, Google, Amazon, and Microsoft have had an enormous impact on the industry. Many of these relatively new companies have achieved astonishing success; much of their success can be attributed to the drive and vision of the entrepreneurs that founded them. Apple, Netflix, Amazon, Google, and Microsoft are examples of former startups that became hugely successful and had profound influences on the industry. However, as technology advances, these now-mature companies are faced with many of the same issues as the more established cable TV and telephone companies. They all face the need to continue to innovate in order to develop new sources of revenue. This is often difficult; none of these companies are as nimble as they were when they got started. Now, being large companies themselves, it takes longer to make decisions and develop products, with more layers of management needed to approve new projects. Moreover, when companies become public, short-term profit requirements often interfere with long-term projects that might not produce results right away. The rise of Internet giants with huge customer bases was made possible by improvements in the Internet and mobile networks. These improvements have enabled these companies to provide less costly services than cable TV operators, mobile providers, and telephone companies. However, broadband and mobile providers have their own advantage: their extensive broadband mobile and wired networks that connect directly to residential and business customers. Government regulations play a critical role in telecommunications. Important regulatory issues revolve around how to ensure that no single carrier is allowed to block competition and innovation by slowing down competitors’ traffic. Doing this without hampering the ability and motivation of the carriers to invest in costly upgrades to keep up with traffic growth is not a simple task. In the United States, the Federal Communications Commission (FCC) must balance pressure from large incumbent telephone companies and cable TV operators against the interests of consumer groups and other competing companies. Large businesses that are dominant in the market often push back against regulations that are intended to foster competition. These organizations understandably see regulations as potentially costing them market share or impinging on their operations in other ways. Regulatory rules are critical factors in the success or failure of carriers. They impact pricing, billing practices, and decisions as to whether to build or lease network infrastructure. The following quote from the 2003 annual report of BellSouth (now a part of AT&T) is still relevant: Our future operations and financial results will be substantially influenced by developments in a number of federal and state regulatory proceedings. Adverse results in these proceedings could materially affect our revenues, expenses, and ability to compete effectively against other telecommunications carriers.

  

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