United States: The Art of Adaptation in the Telecom Industry

The telecom industry has been buffeted by a severe storm. But in my nearly 25 years of experience, I have seen many entrants survive other turbulent periods. The reason is their adaptability. As Charles Darwin argued, those species that ultimately survived were not the strongest or smartest, but those most receptive to change.

The competitive sector in particular is no stranger to difficult times. While the process has been unquestionably painful, the survivors inevitably became stronger and more resilient. This same cycle should hold true over the next decade. Competition has not come to the natural end of its lifespan.

But some pundits are now questioning the viability of competition and whether the industry actually possesses natural monopoly characteristics. The recent debate fixates on how each industry sector prevailed in the FCC's triennial review decision, and whether that decision is the conclusive barometer for competitive industry survival. The UNE transition, competitive access to broadband facilities and the availability of enhanced extended loops all depend on whether the decision is stayed, which court hears the appeal, and the inevitable line drawing and dispute resolution between federal and state regulators.

I don't intend to diminish the significance of these regulatory outcomes. They are fundamentally critical to the future face of competition. However, success depends not on the benevolence of regulators, but on each company's ability to adapt to marketplace and regulatory changes. For example, MCI under Bill McGowan faced continual regulatory uncertainty over the terms of interconnection with the Bells. MCI did not succeed by winning all those regulatory battles — in reality, it probably lost as many as it won. MCI succeeded because it was able to adapt to the results of each regulatory change and found innovative ways to market its services to new customers. In fact, even the original Bell System lost legal battles but prospered by adapting to the new environment. To avoid the greater threat of a breakup, AT&T refused to acquire new independent telcos, and later accepted price and service regulation.

The industry shouldn't build a business model that depends on the regulatory environment as it exists today. Those telecom companies that succeed offer inherent value to customers, control their costs, differentiate their products, provide highly competent back office support and possess business plans that evolves over time. Companies don't become successful by winning regulatory battles — and they don't fail by losing those battles, either.