"Does consolidation mean the end of innovation?" asks new report

June 15, 2006 Chantilly, VA -- Where does the telecom industry have to go once the impending mergers of AT&T and Alcatel are complete? A new report issued by BIA Financial Network (BIAfn) and Telecom Pragmatics, "Does consolidation mean the end of innovation: Telecommunications after the AT&T and Alcatel mergers," describes the probability that the market will soon be dominated by "mini-Western Electrics," creating a situation where there will be a primary vendor serving each of the major RBOCs.

However, the consolidated equipment market will not signal a return to the past, say analysts, because innovation increasingly depends on developments at semiconductor companies and selling across the globe, not just at one carrier. The report is based on in-depth interviews with service providers, investment firms, and manufacturers such as AT&T, Alcatel, Verizon, SBC, BellSouth, and others.

The global market is not the only difference between the newly consolidated industry and the one that existed before 1984, note analysts. As chip manufacturers push new technologies and more software-dependent enterprise equipment slips into telecom networks, large carriers are expected to throw away their network hardware before it serves its useful life. This has never happened at the RBOCs, and the situation is shifting their purchasing habits towards hardware that competes primarily on capital cost, not theoretical operating savings that could take years to achieve.

An analysis of how carriers compete and what services they offer also are addressed in the report. BIAfn and Telecom Pragmatics examine recent market M&A activities and offer insights on the impacts to the industry as a whole and to the relationship between consolidation and the expected directions of market innovations.

"The telecom industry is dominated by long-standing relationships and rivalries," explains one of the report's lead authors, David Gross, BIAfn senior financial analyst. "As such, we think how companies like Verizon and Sprint have historically pursued acquisitions says even more about the future than any communication they have offered publicly. For example, why has Verizon taken so long to respond to the BellSouth acquisition, and when will we see their counterattack? The answer is multifaceted, yet offers insight into what can be expected next in the market."

In the report, BIAfn and Telecom Pragmatics also address:
• Who is AT&T and Verizon's toughest competitor?
• What is the mentality at the RBOCs today?
• Will other equipment vendors wilt under the weight of the new Alcatel-Lucent?
• Will deployment of new services like IPTV speed up or slow down as a result of these deals?
• Who controls product development cycles now?
• What are the three best ways service providers can gain cost efficiencies when combining similar networks?

For more information about the report, "Does consolidation mean the end of innovation: Telecommunications after the AT&T and Alcatel mergers," written by Gross and Telecom Pragamatics' Sam Greenholtz and Mark Lutkowitz, visit the company's web site at www.bia.com/TelecomReports.htm.