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Industries In Transition
 

The divesture of ATT has created a maze for manufacturer and customer alike -- and new market opportunities for those who can see them.
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It is called a T-1 multiplexer, and for companies strangling on their telephone wiring -- or on its cost -- the device is a godsend, ending the need to buy new phone lines every time they expand their voice-, data-, or video-communications capabilities. The device can put scores of lines on a single circuit, carrying messages across cities or even states, at a savings. For a company with, say, 10 voice lines and five data lines extending over 500 miles, the cost reduction can be up to $16,000 a month, says Avanti Communications Corp., a Newport, R.I., maker of the device. The company, ranked #431 on this year's INC. 500, claims it can trim such a company's monthly charges from $35,000 to as little as $19,000.

"A lot of people think this is something new, but, actually, the technology's been around for a while," says vice-president for marketing George R. Kushin. American Telephone & Telegraph Co. had used the devices within its own system for years, he explains, but didn't exploit their use until regulatory changes created a market for them. When substantial reductions in AT&T's T-1, or ultra-high-speed digital transmission, rates made the purchase of such ancillary equipment cost-effective for all but the smallest customers, such makers as Avanti went into production. In response, AT&T is now aggressively marketing the T-1 lines on which multiplexers operate.

The dynamic growth of the telecommunications industry -- the fastest-growing of any industry represented on the 1983 INC. 500, in terms of employment growth, and the third fastest-growing in sales -- is largely the result of the efforts of companies like Avanti. These businesses have taken advantage of a newly competitive climate born of deregulation and the divestiture of AT&T, and have brought to the market products and services virtually unavailable before 1978, when the industry was still under AT&T's thumb.

Of the 17 telecommunications companies on this year's list, 8 are manufacturers; 4 are interconnect companies involved in the installation and maintenance of commercial phone systems that tie into the lines of a Bell operating company; I markets computer software intended to help corporate clients control or monitor phone use; and another provides engineering services. It is a labor-intensive group, ranking 20th among the industries on the INC. 500 for average sales per employee, but it is also the fourth most profitable, and among the most sought-after industnes in the venture capital community. To a company, this collection of enterprises attributes its success to marketing -- identifying and applying technology in ways that give customers more control and flexibility in the area of telecommunications, quite often for less money.

"Telecommunications, once an engineering-driven industry with horrendously long product cycles, is finally a market-driven industry," says Peter J. Boni, chief executive officer of Summa Four Inc. (#30), in Manchester, N.H., a maker of microprocessor-based peripherals equipment. One product line, for example, lets commercial customers add new calling features to their phone systems without having to start from scratch, which was once almost the only option. "Now customers get what they want, not what the phone company wants [to give them] "

Judging by the success of the companies on the INC. 500, customers want office-automation equipment, mobile communications gear, switching and monitoring devices that control phone or computer systems, and ways of using phone technology to transmit, receive, and process data. But within these broad categories, many would-be buyers -- even fairly savvy businesspeople -- are flying blind.

"The average consumer is used to renting from Bell [which is no longer possible under divestiture rulings that take effect in January], so he or she is not accustomed to purchasing communications equipment," says Bill Lessig, CEO of Executone Telecommunications Inc. (#245), an interconnect company in Reading, Pa. "We find we have to educate people." He says that most people aren't aware of microwave- and infrared-transmission options that can often eliminate wiring altogether. Nor are they up-to-date on the ways computers and telephones can work together on voice-and-data transmissions or how radio signals are being used to hasten the day when a traveler can be paged or reached by telephone while driving cross-country.

Those companies most successfully marketing products or services in today's deregulated telecommunications industry don't base their sales talks on schematics and jargon, however. They brainstorm for potential applications of their technology or expertise, no matter how narrow the markets or arcane the ideas may seem, and pitch them to the right people.

For example, Jerrold Hacker, CEO of Seaboard Electronics (#52), a division of Nealor Corp., in New Rochelle, N.Y., has taken radio telemetry -- in which systems can be controlled or monitored via digital data superimposed on a radio signal -- to utilities, refineries, and the like. "During a blackout or a fire, you can throw switches in a power grid, or shut doors in a refinery by remote control," Hacker says. "And you can monitor the temperature of a freezer from miles away " Lessig of Executone Telecommunications targets lawyers and others whose business depends on getting paid by the hour, when selling a peripheral device that records the time and duration of phone calls.

Another Executone distributor, Executone Telecom Inc. (#298), of Rochester, N.Y., is attempting to break into what is becoming known as tenant services, in which building owners or developers install sophisticated telecommunications services for rental to small offices that might not normally be able to afford them.

Others have found opportunities in the sheer number of products and services available on the market, and the confusion it causes in many companies. "One of the big problems since divestiture has been, who's got the bills and who's got what telecommunications] features?" says James Jewett, president of Telco Research Corp. (#218), in Nashville. "Most companies have so many vendors, providing so many different things, that it's extremely difficult to keep track of costs. Our system-optimization and cost-accounting software can help."

But some see safer turf outside of traditional U.S. business channels. R&E Electronics Inc. (#386), of Wilmington, N.C., markets 25% to 50% of its systems-integrating devices -- which, for example, can hook up a remote-location security device with a monitoring terminal -- to Third World nations. "[These countries] had been buying old equipment from Bell and Western Electric," says CEO Ed Mayorga, "but they want state-of-the-art equipment as much as anybody else." S. T. Research Corp. (#442), of Newington, Va., sells much of its digital sorting equipment -- which can receive and analyze microwave transmissions -- to the U.S. military.

Niche-making is seen by most INC. 500 CEOs in telecommunications as the only way to survive this volatile postderegulation period. AT&T will always be the dominant factor in the market, and, come January and the emergence of the new Bell operating companies, there will be more rival sales organizations to contend with. Meanwhile, conglomerates of all descriptions are eyeing this $100-billion industry, hoping to have a sizable piece of the action by 1990, when it is anticipated to have reached the $150-billion to $200-billion range. Many of these large companies will attempt to establish themselves through acquisitions, and while the majority of the telecommunications enterprises on the 500 expect their out-of-the-way niches to protect them from being acquired, a few -- readily admitting they would like to sell out -- are hoping their successful performance in a small market will attract the right attention.

But now, the toughest competition is within these niches -- small companies against small companies. Fortified with once-scarce venture capital that now practically falls into any telecommunications entrepreneur's pocket, companies are pushing hard to gain new markets -- or larger shares of existing ones. Price-cutting -- now said to be not much of a factor, unless you are an interconnect company up against a two-person operation across town that can undercut you by 40% on overhead alone -- is likely to become more prevalent.

"It's a war zone out there," says CEO Vince Mulhall of National Business Communications Corp. (#174), in Pompano Beach, Fla., an interconnect company. "I won't be long before some of these people will have to bail out, sell out, or borrow some money -- if they expect to stay in."

Last updated: Dec 1, 1983




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