AT&T'S Dorman Says IP Is Driving Telecom Growth

CHICAGO -- After weathering the burst of the investment bubble and the indictment of former executives, the telecom industry is transforming and growing again, AT&T chairman and CEO David Dorman said here Tuesday at Supercomm.

The growth, Dorman said, all comes from new technologies, like IP, wireless and Internet services, while traditional telephone services continue to decline.

Dorman linked the decline in part to the Telecommunications Act of 1996, which fueled investment and speculation in competitive carriers. Prior to the enactment of the law, carriers spent about 10 to 15 percent of revenues on capital expenditures, Dorman said. In the late 1990s, that figure grew to more than 40 percent for four consecutive years.

With those investments came the pressure to perform for Wall Street, which in some cases (most notably at WorldCom) led to financial fraud. Five of the largest financial frauds in history were in the telecom industry, Dorman said. When the capital spigot turned off, the industry lost $3 trillion in market capitalization and 100,000 jobs.

But there have been enormous strides since then as proposed corporate combinations, like SBC and AT&T and Verizon and MCI, and new industry offerings, like Internet services and VoIP, supplant older services like long distance.Even long distance is still strong in terms of actual calls, according to Dorman, who said that AT&T billed more long distance minutes last year than five years ago. However, prices for long distance have declined 17 to 18 percent per year for several years.

IP rather than analog long distance is where the industry's profit future lies, he predicted. Dorman said that AT&T's network is carrying 2.2 petabytes of switched packets per day, a figure that is growing by 100 terabytes per month. He attributed the significant growth to the improved capacity at the edges of the network.

Cable companies are moving quickly to add VoIP as part of their packages, Dorman added. Comcast expects to offer the service to 15 million of its customers by the end of this year and to all 25 million customers in its footprint by the end of 2006. Time Warner and Cablevision are aggressively providing the service as well.

The growth of newer services is evident. Dorman said, pointing to the expected growth of VoIP from 800,000 to more than a million and the replacement of wired access with wireless by college-age individuals. Dorman, who sits the board of the Georgia Tech Foundation, said the school is no longer placing wired phones in dorms because no one is using them.

"It's not a meltdown," said Dorman, who sees VoIP as a companion to wireless rather than the other way around.Telecommunications still represents 3 percent of the country's gross domestic product, Dorman added. "Long distance is a feature, not a business," Dorman said. "We need to move ourselves along in recognition of that."