June 1, 1998

22 Min Read
What's News

By Paula Bernier

Posted: 06/1998

Westinghouse Strengthens RSL’s Data Strategy

By Paula Bernier

RSL COM U.S.A. Inc.’s $90 million purchase of Westinghouse Communications will be key
in driving the company’s intranet services strategy targeted at businesses, says RSL COM
U.S.A. President and CEO Ed Thomas.

"We want to offer intranets to business–closed users groups, e-commerce via the
intranet," says Thomas.

Westinghouse, which owns six data switches, has nationwide frame relay and TCP/IP
networks. Small- and medium-sized businesses make up 70 percent of Westinghouse’s customer

In addition to RSL COM U.S.A’s core wholesaling business, the company provides voice
and data services to small- and medium-sized businesses, Thomas says.

Of course, the Westinghouse network will be used as a U.S.-based origination and
termination point for RSL COM U.S.A’s international long distance traffic.

The Westinghouse deal also will tie in nicely with RSL COM U.S.A’s Internet protocol
(IP) telephony plans, he adds. RSL Communications Ltd., the parent company of RSL COM
U.S.A., owns 95 percent of international IP telephony operator DeltaThree. The
Westinghouse network could act as a U.S.-based aggregator of the DeltaThree traffic.

Meanwhile, RSL COM U.S.A. also could leverage its existing post- and prepaid calling
card services for IP telephony, he says.

"$90 million is substantially less than [Westinghouse Communications’] revenue
streams," says Thomas. "This is one hell of a good deal."

Kennard May Be Open to Bell Data Argument

By Carol L. Bowers

There are signs Federal Communications Commission (FCC) Chairman William Kennard may
seriously consider the arguments of regional Bell operating companies (RBOCs) that have
asked the FCC to abstain from regulating so-called interLATA (local access transmission
area) data transmissions.

LATAs are the artificial in-state boundaries in which the RBOCs operate. The Bells
traditionally have been banned from offering services between LATAs.

"First, can we find a way to permit companies to experiment with new technologies
with little or no regulatory preapproval? I think we ought to be able to," Kennard
said in a recent speech. "If we treat every experimental offering just like a
full-fledged commercial offering, we will be discouraging innovation."

Bell Atlantic Corp., US WEST Inc. and others have argued that one way to encourage
innovation and investment in infrastructure would be for the agency to abstain from
prohibiting them to carry high-speed data traffic between LATAs. These companies want to
build interstate backbones to send their data traffic, but are banned from doing so under
long distance restrictions on the RBOCs.

Their petitions were filed under Section 706 of the Telecommunications Act of 1996–a
section that requires the FCC to undertake an inquiry no later than this August to
determine if there are barriers to telecommunications innovation.

"There’s nothing that prevents other carriers from building that [backbone]
capacity, but none of them are," says Thomas J. Tauke, senior vice president for
government relations at Bell Atlantic. "We want to be able to build the capability
and take it from Maine to Boston."

There’s nothing preventing the RBOCs from offering high-speed interLATA data
transmission now through a separate subsidiary. That idea, however, is
"troubling," Tauke says, because if Bell Atlantic created a subsidiary to offer
the service, the result would be that two local loop lines would run to the customer
premises: one supplied by the Bell Atlantic telco to carry voice, and another line from
the subsidiary solely devoted to data.

Joe Zell, president of US WEST Communications’ !NTERPRISE Networking Services, recently
told members of the Senate Communications Subcommittee at a recent hearing that without
the FCC’s forbearance from regulating interLATA data transmissions US WEST will not make
the investment.

"To make this new investment possible and efficient, we’ve asked for the ability
to carry data–not voice–across LATA boundaries," he says.

FCC Fines Carrier $5.6 Million, Revokes License for Slamming

By Carol L. Bowers

The Federal Communications Commission’s (FCC’s) historic move of fining a long distance
carrier $5.6 million and revoking its operating license for repetitive
"slamming" likely will have little practical effect on the Falls Church,
Va.-based Fletcher Companies, which ceased doing business sometime last year.

Still, the FCC’s response to slamming, the practice in which consumers’ long distance
carriers are changed without their permission, "should serve as a wake-up call to all
slammers," says FCC Chairman William Kennard.

"The FCC is slamming back," Kennard said in a recent speech to the United
States Telephone Association (USTA) in Washington, promising quick delivery of an order to
make slamming penalties tougher.

In its revocation order, the FCC said the long distance reseller owned by Daniel
Fletcher drew more than 1,400 complaints between 1993 and 1997 and said the carrier’s
practice of putting in "forged or falsified" change orders was
"particularly egregious."

In the second unprecedented move in a month, Kennard also said during the meeting he
plans to use a unique strategy to tackle the related problem nicknamed
"cramming," in which customers are billed for telecommunications products and
services they do not receive. "I want to solve this problem–and if at all possible I
want to solve it now by working in association with carriers and others, not after however
long it may take to complete a rulemaking docket." The first meeting with the CEOs of
top telecommunications carriers was scheduled for May 20. Kennard wants to work with
carriers to compile a list of suggestions carriers have for stopping slamming.

LCI Offers Penny-A-Minute International Calling

Just when you thought it couldn’t go any lower, LCI International Inc. is offering new
customers of its Tell the World service penny-a-minute international long distance

"We’ve done penny-a-minute domestically in past, but not internationally,"
says LCI spokeswoman Carolin Sagawa.

For the first 10 minutes of a call, customers making calls from the United States to
any country are billed at the penny-a-minute rate. After the first 10 minutes, the rate
goes back to LCI’s regular price, but customers will get LCI’s best international
discounted rates for those additional minutes, says Sagawa.

Customers who sign up for the promotion, which started in May, will get the
penny-a-minute rate for 12 months. LCI, which will take a loss by offering the service,
expects to more than balance that out by winning new customers, says Sagawa.

In other LCI International news, the company has signed a three-year, multimillion
dollar agreement to provide long distance services to paging and wireless messaging
services provider Metrocall Inc.

NETCOM Enters Long Distance Business

By Paula Bernier

NETCOM On-Line Communications Inc. has begun selling long distance services to its
existing customers.

The Internet service provider (ISP) is offering traditional long distance services
through ICG Communications Inc., of which NETCOM is a subsidiary. Customers can sign up
for the services at NETCOM’s website, the first interface most of its customers see before
initiating an Internet connection.

NETCOM and ICG follow in the footsteps of at least two other ISP/long distance carrier
partners that have teamed to offer telecommunications services to online service

In an extremely successful pairing, Tel-Save Holdings Inc. markets its long distance
services to America Online Inc. subscribers. And DeltaThree, an RSL Communications Ltd.
subsidiary offering long distance via Internet protocol (IP) telephony, in December
entered into an agreement with NIFTY Corp., Japan’s largest ISP and information provider,
to market Internet telephony services to more than 2.5 million online subscribers.

"This is a prelude to [IP telephony]," says ICG Telecom President Sheldon

For 8.9 cents per minute, NETCOM customers in Alabama, California, Colorado, Georgia,
Kentucky, North Carolina, Ohio and Tennessee can make phone calls to other U.S. areas
(including Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands). Plans are to expand
the service nationwide by the end of September.

Rates for intrastate and international calls vary by state and destination country,

ICG will provide a $5 credit per telephone number being changed to ICG Long Distance to
reimburse customers for potential fees charged to make the change by a customer’s local
telephone service provider.

There is no monthly charge for the service.

Customers, who need not enter a special access code to make long distance calls on the
service, will receive a separate invoice for their ICG long distance calls.

For domestic calls, ICG has a 18-second minimum per call. After the initial 18 seconds,
calls are rounded up to the next six seconds. International long distance calls are
rounded to the nearest minute, with a one-minute minimum.

How Much Is Your Time Worth?
Service Offers Free Long Distance for Listening to Ads

By Peter Meade

Just when it looked like the price of long distance service could get no lower, a
Pittsburgh-based company has begun testing a service that offers free long distance calls
from Pittsburgh to anywhere in the United States.

Here’s the catch: Users must listen to several seconds of commercials before they can
place a call.

In April, Duquesne Enterprises Inc. began signing up customers in its surrounding area.

To use the system, subscribers call a toll-free number, enter their personal
identification number and then choose the length of their call. The longer the call, the
more 10- or 15-second commercials callers must listen to before they are connected. An
automated announcement is made when they near the end of the call’s duration, then it
abruptly disconnects.

According to President Thomas Hurkmans, if the phone keeps ringing, the company plans
to offer nationwide service before the end of the year. "Hundreds" of customers
were signed up in the first weeks, he says.

Yet many industry observers are skeptical about the long-term viability and timing of
this something-for-nothing offer.

Providers such as Qwest Communications International Inc. and I-Link Inc. already are
offering rates as low as 4.9 cents a minute. So don’t expect volumes of consumers to spend
their valuable time listening to commercials just so they can make free calls, says Bruce
L. Egan, a Jackson Hole, Wyo.-based executive vice president for Indetec International
Inc., a Del Mar, Calif.-based consultancy.

"When I pick up the phone it’s because I want to talk to someone immediately, not
listen to a bunch of commercials," he says. "Several years ago, a product called
Telespots tried a similar approach. It soon fell flat. No one wanted to listen."

Similar approaches also have been tried–and come up short–overseas and in Canada,
according to Roger Wery, a San Francisco-based vice president for the consultancy
Renaissance Worldwide Inc.

"Their common thread is they appeal purely on a price factor, and that is a
difficult equation to maintain over time," says Wery.

"The biggest negative is that callers traditionally have a low tolerance for
listening to things they do not want to hear, such as advertisements," he adds.
"It has been our experience with interactive voice response (IVR) systems that
callers will listen only for about five seconds before hanging up."

It will be difficult for "cumbersome" calling systems to succeed, says Casey
Freymuth, president of Group IV Inc., a Phoenix-based consultancy that specializes in the
long distance market.

"What if I wanted to talk longer than the designated time? I’ll be cut off
anyway," he says.

Freymuth adds that the lure of free calls may attract the wrong kinds of subscribers,
ones who may be unprofitable for established long distance providers.

"Taking these kinds of people away from an AT&T [Corp.], MCI [Communications
Corp.] or Sprint [Communications Co.] is actually doing those companies a favor," he
says. "They’re not likely to be the cream of the crop."

These people are more like "table scraps," adds Indetec’s Egan. "It’s
the same kind of people who use free e-mail on the Internet and have to endure all those
flashing ads," he says. "It’s like legal ‘spam’ on the telephone."

Hurkmans responds that his company’s focus group findings revealed that the same people
who take advantage of the airlines’ frequent flyer programs are likely to be interested in
free long distance. If they do not have time to listen to the commercials, they can opt to
use their regular long distance service, he says.

Consumers who sign up for the Duquesne service, called Freeway, must complete a
questionnaire detailing information on their lives, buying preferences, hobbies and

While Freeway was launched with two large advertisers, Duquesne Light Co. and the
Pittsburgh Symphony, Hurkmans says the goal is for subscribers to hear advertisements that
are more targeted to their individual interests.

According to Hurkmans, Duquesne eventually plans to customize the playlist of ads that
individual callers hear to align them with the information gathered from their
questionnaires. The call set-up may also someday become interactive, letting callers
listen to ads for an upcoming event and then push a keypad number for a direct connection
for buying tickets, he says.

IXC Lights Coast-to-Coast Fiber Optic Network

By Bob Titsch Jr.

The bandwidth-deficient market for high-speed, high-capacity applications found some
relief April 7 when IXC Communications Inc. lit the nation’s first new coast-to-coast
fiber optic network in more than 10 years. The New York-to-Los Angeles digital route is
part of the interexchange carrier’s total planned network of 20,000 digital miles.

The Austin, Texas-based company celebrated the lighting of the network with a
demonstration by linking commemorative events in New York City, Austin and Los Angeles
simultaneously via a videoconference.

"Lighting this network is a great milestone for IXC and the telecommunications
industry," says Benjamin L. Scott, IXC’s president and chief executive officer.
"Its ramifications will touch all facets of society from business to education to
medicine to home communications. In short, our network facilitates all kinds of
communication using fast-packet switches, IP routing and broadband circuit

Ironically, the celebration took place the same week AT&T’s frame relay network
imploded, leaving thousands of customers without service and a number of industry pundits
pondering whether the nation’s carriers–established and emerging–will be capable of
meeting the explosive demand for high-speed, high- capacity applications.

"IXC’s network certainly helps the situation," says Casey Freymuth, president
of Phoenix-based Group IV, a firm specializing in strategic and operational issues
affecting global communications. "But I wouldn’t tell carrier and corporate data
customers to throw away their Rolaids just yet. The demand for advanced data services and
multimedia communications is swelling faster than carriers can increase capacity."

The cavalry is on the way, however.

IXC also has formed an alliance with e.spire (formerly American Communications Services
Inc.) and fONOROLA to create InterconX, a vast North American asynchronous transfer mode
(ATM) data network designed for facilitating massive, high-bandwidth applications.
InterconX supports transmission speeds up to OC-12 and spans more than 21,000 miles,
extending the voice, data, video and Internet protocol (IP) traffic capabilities of each
partner into major metropolitan markets throughout the United States and Canada.

Qwest Communications Inc., a Denver-based multi-media communications company, recently
activated the entire transcontinental portion of its Macro Capacity Fiber Network from Los
Angeles to San Francisco to New York. The lighting of the additional 650 miles gives the
company more than 5,400 route miles and 259,000 fiber miles of high-capacity native IP
fiber network in service.

Frame Relay Goes Abroad

GST Telecommunications Inc. has cut a deal to resell WorldCom International’s frame
relay services, expanding GST’s reach to more than 20 countries.

The move will allow GST to better cater to domestic companies that have operations

"The ability to tap into this international frame relay network enhanced our
capability to provide superior high-speed Internet and data connectivity to international
locations," says Joseph A. Basile Jr., GST’s president and chief operating officer.
"Given GST’s footprint in the western United States, Hawaii and Guam, this agreement
provides GST greater international capacity to provide services for its growing Internet
and data customer base throughout the Pacific region and beyond."

The companies will interconnect their networks in Los Angeles and Honolulu.

Colorado ISP Enters Long Distance Arena

By Paula Bernier

Rocky Mountain Internet Inc. (RMI) next month will begin reselling the traditional long
distance services of Frontier Corp. to business and residential customers nationwide.

Under the three-year deal, RMI will expand its service offerings to include 1+ long
distance, calling card, audio conferencing and inbound/outbound toll-free services.

The move is yet another step in the Internet service provider’s (ISP’s) quest to become
a full-service, national telecommunications company.

RMI’s telephony services will be sold through recently formed subsidiary Rocky Mountain

RMI announced the formation of Rocky Mountain Broadband in March after filing for
competitive local exchange carrier (CLEC) status in Colorado. Upon approval by the
Colorado Public Utilities Commission, Rocky Mountain Broadband will begin providing local
exchange services in Colorado, including private line services, switched and dedicated
access service, intraLATA toll and advanced features.

RMI also is offering Internet protocol (IP) long distance services. The company
recently contracted Vienna Systems Corp. to provide about $100,000 worth of IP telephony
gateways, says Vienna spokeswoman Shannon Murray. The ISP launched its Internet telephony
service in April using one gateway in Denver, one in Colorado Springs, Colo., and
additional gateways at PSINet Inc. and Winstar PacNet Corp. points of presence.

Bells Pursue International Markets

By Carol L. Bowers

Increasingly the regional Bell operating companies (RBOCs) are turning their attention
to the international telecommunications markets, with the latest deals in long distance
service evolving in Germany and France.

Most recently BellSouth Corp. signed a deal to assume an ownership stake in Otelo, a
competitor to Deutsche Telecom that is owned by two German utilities.

"Our participation in Otelo would give BellSouth broader access to Europe’s single
largest market, an exciting market that recently opened to full telecommunications
competition. Broadening our interests in Germany fits beautifully with BellSouth’s
strategic goal of expanding from a wireless communications offering to a full line of
telecommunications services wherever possible," says BellSouth Chairman and CEO F.
Duane Ackerman.

Otelo, which has been offering data and long distance service to businesses in German
since January and recently began offering domestic long distance service to residential
customers, will be a full-service competitor to Deutsche Telecom, BellSouth spokesman
Kevin Doyle explains. Otelo also has cable holdings and a 10 percent interest in Iridium
LLC’s satellite project.

The non-binding agreement calls for BellSouth to acquire a stake in Otelo by exchanging
its 22.5 percent interest in the German E-Plus wireless company for a 15.5 percent stake
in Otelo. However, Vodafone Group plc would have to approve the transaction because E-Plus
is owned jointly by BellSouth, Otelo and Vodafone. If Vodafone doesn’t approve the deal, a
backup plan calls for BellSouth to purchase in cash a 10 percent interest in Otelo.

Prior to this deal, BellSouth primarily has focused its interests in international
telecommunications services in Latin America.

Meanwhile, Ameritech Corp.’s global offering of shares in its New Zealand subsidiary
looked to be a success with the American parent predicting a $1 billion after-tax gain to
be recorded in the second quarter of 1998. When the deal closed on April 15, some
436,970,670 shares in Telecom New Zealand had been sold–essentially Ameritech’s entire
24.95 percent stake.

Reinforcing the company’s international intentions is an operating agreement between
Ameritech’s Global Gateway Services long distance unit and France Telecom. The deal allows
the company’s to handle each other’s international long distance traffic between the
United States, France and other countries.

"We are halfway through a dramatic transformation of Ameritech’s businesses,"
says Ameritech Chairman and CEO Richard C. Notebaert. "Five years ago, only 3 percent
of our assets were outside of our core business." Now, 24 percent of the company’s
assets are outside the core U.S. local exchange operation.

Notebaert says he is shooting for half the company’s assets to be outside the core by

CallNet Makes Bid for fONOROLA

By Carol L. Bowers

Startled by an unsolicited U.S.$1.12 billion takeover bid from interexchange and data
carrier Call-Net Enterprises Inc., fONOROLA Inc. in late April turned to Goldman, Sachs
& Co. for advice on the wisdom of merging the two Canadian companies.

The offer was scheduled to expire May 19.

If the deal closes, it will create the fourth largest telephone company in Canada after
Bell Canada, BC Telecom Inc. and Telus Corp. Call-Net Chairman, President and CEO Juri
Koor says the deal would give the newly created potential entity access to the entire
Canadian marketplace, as well as links in the United States.

The two companies combined own more than 9,100 route miles of fiber optics, most of it
belonging to fONOROLA, and serve more than 1.35 million customers.

Call-Net, which operates under the brand name Sprint Canada and is 25 percent owned by
U.S.-based Sprint Communications Co., says the transaction would boost its 1999 cash flow
and "provide synergies of more than C$600 million over the first five years."

The deal was announced two days after another Canadian telephone deal fell through, as
talks between Telus and AT&T’s Canadian affiliate ended.

Welsh to Lead IXC Wholesale Enterprise

IXC Communications Inc. announced in April the appointment of Leo Welsh as president of
the company’s wholesale business division.

Welsh joins IXC with 12 years of managerial background at Sprint, most recently as vice
president and general manager of wholesale services. Welsh will lead IXC’s sales efforts
for wholesale of the company’s private line, broadband, Internet and long distance
switched and dedicated services.


An article in the April 14 issue titled, "The Payphone Industry and the
Internet" incorrectly stated that Payphone Connection is a distributor of Protel Inc.
payphone equipment and enclosures. Payphone Connection is not an authorized Protel

Coyote Captures Long Distance Companies

Equipment vendor Coyote Network Systems Inc. is expanding into network services through
two recent acquisitions.

The company has acquired 80 percent of international long distance wholesaler American
Gateway Telecommunications Inc. for $5 million. It was expected in May to close a deal to
purchase privately held international long distance services provider Interactive Network
Systems Inc. (INET) for $4 million in cash and stock.

The deals will help Coyote expand its business, and will give AGT and INET the
resources to accelerate their marketing strategies and network buildouts.

"The acquisition of AGT is in keeping with our strategic direction to build a core
set of communication companies that provide both the equipment and network services to
enable and deliver voice, data and video solutions," says James J. Fiedler, chairman
and CEO of Coyote, which is based in Westlake Village, Calif.

"By leveraging our switch technology and by interconnecting AGT with [competitive
local exchange carriers] in gateway cities, we believe we can dramatically reduce the
costs of providing telephone service," he says. "The acquisition of AGT is an
example of the type of investment we will make to accelerate our growth."

Houston, Texas-based AGT, whose management owns the other 20 percent of the company,
currently has contracts for more than 31 million international minutes monthly to 11

INET, Los Angeles, sells services to high-volume, commercial and residential affinity
groups. The company is best known for marketing to French and Japanese affinity groups in
the United States.

Coyote Network provides telecom switching systems and network services, and installs,
maintains and sells data and voice customer premises equipment.

News Briefs

Bell Atlantic Carrier Service is stepping up its wholesale carrier services to
long distance providers. The company is implementing process improvement teams with all of
its major carriers and plans to survey carriers regularly for their input on the company’s
services. Bell Atlantic also says it’s making it easier for interexchange carriers to use
the company’s signaling system 7 (SS7) services by allowing customers to link into it at
five locations by year’s end.

Frontier Corp. will provide Network One Inc. with calling card,
800-service, data services and its long distance network in a deal worth $12 million.

The American Society of Association Executives (ASAE) has teamed with Sprint
Communications Co. to provide telecommunications services specially tailored to
associations and their members at special discounts. The new ASAE/Sprint Association
member program offers 5 percent off Sprint’s already discounted rates on long distance
phone calls, Fridays free, toll-free services, paging and Sprint’s FONCARD.

International long distance service provider Telegroup Inc. this month expands
its portfolio to include dedicated and dial-up Internet access services within the United
States as well as website hosting and design targeted at small and medium businesses.

IXC Communications Inc. will provide Excel Communications Inc. with $156
million in private line and switched network services in a new four-year deal between the

US WEST Communications has filed its first long distance application with the
Montana Public Service Commission. The company says it plans to file similar applications
in the remaining 13 states in its region by the year’s end. So far, no regional Bell
operating company has won the FCC’s permission to offer in-region long distance.

FCI France is the latest addition to a growing list of European affiliates
formed by Facilicom International. It will begin providing global
telecommunications services this month.

Telesat, Canada’s premier satellite operator, and Northern Telecom Inc.
are jointly developing satellite-based solutions that will help to bring affordable
telephony to underserved markets around the world. They will leverage new geostationary
satellite technology with substantially increased transponder capabilities that enable
smaller, more cost-effective satellite dishes to be easily installed by users.

UniDial Communications Inc. has acquired Metracom Corp. of Boston in a
stock deal. Financial terms of the deal were not disclosed. Metracom resells Bell Atlantic
Corp.’s local service in the northeastern United States and has more than 10,000 business
access lines currently in service. UniDial resells various telecommunications and data

Teltrust Inc. has filed a registration statement with the Securities and
Exchange Commission (SEC) for a proposed initial public offering of 3.2 million shares of
common stock. Of those, 700,000 shares are being sold by selling stockholders. At press
time, the registration statement had not yet become effective.

Acompany called Mi-Link LLC is constructing a fiber optic link between Albany, N.Y.,
and Montreal, Quebec. The fiber build will occur on the Canadian Pacific (CP) Railway

The company is a joint venture between New York telecommunications provider ChampTel
LLC and Westminster, Colo.-based Mi-Tech Communications Inc., a developer of fiber optic
projects throughout the United States. It intends to sell conduits and/or fibers to other
telecommunications providers and companies that require high-capacity transmission to and
from the Albany-to-Montreal corridor, according to the company.

Trent Trahan, president and CEO of ChampTEL, says building on the CP Railway is the
ideal location to build a fiber optic line.

"By partnering with CP Railway, we will be building the fiber line in a secure and
well-maintained environment," he says.

Engineering of the project has been completed, and the placement of conduit and fiber
cable will take about six months. The project is scheduled to be completed by the fourth

Cable & Wireless Announces New CEO

Rich Yalen recently assumed the post of CEO at Cable & Wireless Inc. (CWI), the
largest telecommunications company in the United States exclusively serving the business

Yalen, previously chief operating officer, also had acted as interim CEO for CWI since
the retirement of Alan Peyser at the end of December 1997.

In his six years with CWI, Yalen has been directly responsible for the Marketing,
Customer Satisfaction and Business Development units, and launched CWI’s Specialized
Calling Service business unit.

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