FORTUNE MAGAZINE

Source: FORTUNE

Date: 10/13/1997

Document ID: SG19990714110008224

Subject(s): TELECOMMUNICATIONS; BUSINESS; TECHNOLOGY

Business & Investing; Technology; Telecommunications industry

Citation Information: (ISSN 0015-8259) VOL. 136 NO. 7 page 118 FEATURES

 

TELECOM'S SOFTWARE STARTUPS

JUST AS THE PC SPAWNED A SEPARATE COMPUTER SOFTWARE INDUSTRY, SO NEW TECHNOLOGY IS LETTING THOUSANDS OF GADFLIES CREATE AND SELL TELECOM SERVICES.

 

At first, you don't believe Neil London is for real. Sitting on a red leather couch in his plummily lit gallery in Manhattan's Silicon Alley, he seems a showman with a decidedly odd shtick--selling art and telecom services under one roof, as if they were as natural a pair as pastrami and rye. But then he starts talking about T3 lines and high-speed Web access and you realize not only that London knows what he's talking about, but also that for the phone company, he's just the sort of gnat that can ruin a sunny day.

Mergers of the world's giant phone companies are the most visible sign that the telephone business is splitting in two. What's harder to see is that a host of small companies with no networks of their own are starting to create more of the telecom services that customers buy.

Think of how the computer industry blossomed in the 1980s. Personal computers spawned entire hardware and software industries because the PC is an open standard. Nearly every manufacturer could build computers and the devices that plugged into them to the same technical blueprint. Software became a separate business. Anyone with a PC and ingenuity could write software that would work on virtually any PC, and thousands of programmers did. Some founded companies that became economic powerhouses.

The same sort of rapid growth and specialization is sweeping telecom. Governments are ordering network owners like the Baby Bells to divulge the closely held secrets of their operations so that would-be newcomers can hook in. The phone network is becoming like a computer standard writ large. John LeGates of Harvard's Program on Information Resources Policy says: "Now a gazillion companies are tailoring communications services to the pharmacy business and the library business and the media business. The expertise is not knowing more about communications, but knowing more about pharmacies and libraries and doctors."

What does that leave for the phone companies? They will have to focus on running telephone networks efficiently, and competing with owners of new networks like WorldCom and Qwest. David Friend, head of Faxnet of Boston, says, "The functionality--the features that make communications exciting--will fall to people like us."

Faxnet gets businesses to unhook their fax lines from AT&T and connect them to its switches instead. It then sends the faxes to their destination via the Internet. That saves money because the company avoids the fees that long-distance carriers pay the Baby Bells for delivering faxes via the phone network. Faxnet also stores faxes in case of a busy signal, and sends them later.

Small service companies are also getting a toehold by knowing their customers really, really well, as AUDCOM does. Neil London and his partner, Audrey Regan (the company is named for her), might hire video editors to peddle telecom service to film production companies. AUDCOM buys local and long-distance service in bulk from the cheapest provider and sells it to the production companies at a discount. By knowing precisely what sort of data its customers need to transmit--space-hungry video files, for example--it can offer just the right sort of high-capacity line.

Companies like AUDCOM can rescue customers who may not realize how little they have been getting for their money. London says, "I go into someone's premises. He's paying $12,000 a month for a high-bandwidth connection, and I can tell he's getting $2,000 worth of service. I look at his rack and see he's on an Ethernet hub"--a kind of party line for computer hookups. "He's getting screwed. Half the time I don't want to let the owner know, because it tells him he's an idiot."

With thousands of startups seeking to fit customers like a hand-tailored suit, the new era of telecom will bring a shift in power and control. On the Internet--the nexus of computers and communications--users who create software programs can share them with ease, without the mediation of any company. The phone companies may begin to feel a bit like picnickers plagued by a swarm of gnats.

email Neil London tel: 954-296-5204

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