President Clinton signed the Telecommunications Act of 1996 into law in February 1996. The law modified earlier legislation, primarily the Communications Act of 1934. The legislation regulates broadcasting by over-the-air television and radio stations, cable television operators, satellite broadcasters, wireline telephone companies (local and long distance) and wireless telephone companies. The general intention of the Act was deregulation and competition. The Act removed barriers between telecommunications companies, thus fostering competition.
The deregulation was also intended to offer consumers a choice in local phone service. By 1999, 98% of homes had no choice in local service (Wikipedia, 2005). Passage of the Act resulted in several mergers including AT&T’s purchase of TCI Corporation, the merger between Bell Atlantic and NYNEX, the merger between Qwest and US West, the merger between SBC and AT&T, and the merger between Sprint and Nextel. The purpose of this document is to discuss regulatory issues facing the telecommunications industry.
In this document, we will discuss a list of best practices in the telecommunications industry used to address regulatory issues, best practices used in other industries to address regulatory issues and how best practices are adjustable to solve regulatory issues other industries. Regulatory Issues The goals of the Telecommunications Act of 1996 included deregulation of the telecommunications sector and increased competition. The Act did deregulate the sector and increase competition, but the Act created regulatory issues.
The regulatory issues include but are not limited to compliance issues, organizational issues and liability issues. For the purpose of discussion, we will focus on the recent merger between Sprint and Nextel. Compliance Issues In December 2004, Sprint and Nextel agreed to merge in a $35 billion deal that would create the nation’s third largest wireless telephone service provider (CBS News, 2004). The Federal Communications Commission (FCC) approved the merger in August 2005. The approval of the merger is contingent on the company’s compliance to FCC conditions.
The first condition involves the FCC analysis of the impact of the merger on roaming. The FCC specified that Sprint Nextel may not prevent its subscribers from reaching another carrier and completing calls via manual roaming, unless specifically requested to do so by a subscriber. The FCC plans to hold a separate proceeding to examine whether the current roaming requirements applicable to mobile telephone carriers address current market conditions and developments in technology. The second condition involves Sprint Nextel’s voluntary commitment to meet certain milestones for offering service in the 2.
5 GHz band, unless circumstances beyond its control prevent the merged entity from reaching those milestones. The first milestone requires the company to offer services using BRS/EBS spectrum to at least 15 million Americans within four years of the effective date of the order consenting to the merger. The second milestone requires the company to serve an additional 15 million Americans within six years. The third condition involves Sprint’s spin-off of local wireline business, Sprint Local Division.
The interests in the local wireline business will be transferred to a new local wireline company that will receive an equitable debt and asset allocation at the time of its proposed spin-off so that the company will be a financially secure, Fortune 500 company. This effectively removes Sprint Nextel from the local wireline business. Organizational Issues The financial aspects of a merger are not the only considerations that make a transaction successful. Organizational issues including “people issues” can make the difference between realized opportunities and meeting unfulfilled expectations.
The merger between Sprint and Nextel involve two companies in the same industry meaning many functions in the new Sprint Nextel will overlap. Because mergers setup off rapid change, the company must address organizational issues up front in order to gain a competitive advantage and enhance shareholder value. The organizational issues facing Sprint Nextel include identification of risks, development of measurement tools for use during the transition, development of a long-term human resources (HR) strategy including organization structure, processes, employees and technology. Liability Issues
The Sprint Nextel merger has liabilities including substantial financial liabilities. Although the transaction was titled as a merger of equals, Sprint Nextel was created by Sprint’s purchase of NEXTEL Communications. Through its purchase of NEXTEL, Sprint assumes all debts and outstanding legal claims against the former NEXTEL Communications brand. The total debt of Sprint Nextel after the merger is $17. 4 billion (CWA, 2005). The company plans to associate $7. 25 billion debt to the newly created local wireline company created because of the FCC condition to spin-off local services in all states. Best Industry Practices
In order to survive in a competitive telecommunications service environment with regulatory issues, telecommunications companies are interconnecting networks. Interconnection allows communications to occur across networks, linking competitors so customers of different networks can communicate with one another (FCC, 2005). For example, when a T-mobile customer from Oklahoma crosses to Kansas, Westlink Communications takes over, and when he reaches Colorado, he will pick up Cingular wireless, and then T-mobile again. The deployment of advanced wireless services complies with the FCC condition involving roaming.
Based on the conditions associated with the approval of the Sprint Nextel merger, we can expect pending mergers between AT&T and SBC, and Verizon and MCI to follow the groundwork laid by the FCC. The Sprint Nextel merger was the first between inter-exchange communication carriers (IXC). Industry watchers believe the pending mergers will ultimately receive regulatory approval, but with more conditions from the FCC (Networkworld, 2005). To address organizational and liability issues associated with a merger or acquisition, companies often use an outside consulting firm, such as Mercer Human Resources Consulting and Accenture.
Mercer’s clients include British Telecom, Cisco Systems, Nortel Networks Corporation and many others. Accenture’s clients include Cingular Wireless and BT Telecom. By working with Accenture, Cingular and AT&T Wireless achieved accelerated achievement of merger benefits estimated at $50 million per month (Accenture, 2005). An outside consulting firm that specializes in mergers and acquisitions can work with a company to provide a comprehensive HR integration approach, which in turn reduces or eliminate many organizational issues and identify Best Practices in Other Industries
In this section, we discuss best practices used in other industries to address compliances, organizational and liability issues. For this discuss, we will use the merger between Blue Cross and Blue Shield (BCBS) of Illinois and Texas. Prior to the merger, both organizations determined in order to stay competitive they not only had to achieve the economies of scale provided by a merger, but they had to do it quickly. The BCBS executives collaborated with Accenture to outline the business case for a possible merger. They identified more than 60 opportunities.
Of the 60 opportunities, 15 were further analyzed and projected to yield over $150 in net benefits (Accenture, 2005). The case led to a definitive agreement to merger under the Health Care Service Corporation (HCSC) umbrella. The companies used Accenture’s experience with mergers and acquisitions to create a Transition Management Program. The program reduced the time to consolidate by 4-6 months, generating an additional $20-$25 million in savings (Accenture, 2005). In this example, Accenture provided BCBS the methods, tools and approach to merging the two companies.
In both the Sprint Nextel and BCBS mergers, regulatory law affects organizational choices. For example, in the Sprint Nextel merger, a condition for approval was the spin-off of local wireline services into a viable financially solid, Fortune 500 Company. Given this condition, Sprint Nextel must ensure it adequately plans the correct allocation of assets, debt and employees to its local services division. Additionally, as a condition of the merger approval, the company must provide services in the 2. 5GHz band in the specified amount of time.
As you can see from the conditions of the Sprint Nextel merger, regulatory law definitely affects organizational choices. Best Practices Applications In this section, we review possible uses for the previously discussed best practice in other industries. So far, our examples were in the telecommunications and healthcare sector. No matter what the sector, companies planning a merger or acquisition need the right method, tools and approach. Additionally, the companies need to build a solid case to justify the merger or acquisition.
Even the most skilled merger and acquisition companies, like Cisco, consult outside agencies such as Mercer and Accenture. These outside companies can help guide the merger or acquisition from beginning to end. The services are driven by a results-oriented approach that is specific to an industry. Conclusion Changes in market conditions, technology, and government regulations continue to revolutionize video, voice, and Internet communications services, which make up the telecommunications industry. The Telecommunications Act of 1996 promoted competition and reduced regulation (Loube, 2003).
The deregulation of the industry coupled with the increasing demand for service encouraged rapid growth through the assurance of lower prices, great service, and introduction of new technologies. This year, more than 61% of Americans now have cell phones, almost twice as many as 2000 (New York Times, 2005). By reading this document, you learned about best practices used to address regulatory issues in the telecommunications sector. Additionally, you learned about best practices used in other industries to address regulatory issues. Lastly, you learned about how best practices are adjustable to solve regulatory issues other industries.
References Accenture (2005). Cingular Wireless Merger Integration. Retrieved October 22, 2005 from http://www. accenture. com/xd/xd. asp? it=enweb&xd=industries\communications\communications\case\cingular_integration. xml Business Week (2005). Shifting telecom landscape. Retrieved October 24, 2005, from http://www. businessweek. com/magazine/content/05_09/b3922046_mz011. htm CBS News (2004). Sprint-Nextel Deal? Done! Retrieved October 23, 2005, from http://www. cbsnews. com/stories/2004/12/11/tech/main660486. shtml Communication Workers of America (2005). Sprint Local Telephone Spin-Off.
Retrieved October 23, 2005, from http://cwa-union. aflcio. ga0. org/sprint/page. jsp? itemID=27269619 Loube, R. (2003). Universal service: How much is enough? Journal of Economic Issues, 37(2), 433-440. Mercer Corporation (2005). Merger and acquisition integration strategy. Retrieved October 23, 2005, from http://www. mercerhr. com/service/details. jhtml;jsessionid=ADGI00GQ2AVY2CTGOUGCHPQKMZ0QYI2C? idContent=1000340 Networkworld (2005). Sprint/Nextel was the easy one. Retrieved October 22, 2005, from http://www. networkworld. com/weblogs/wan/009706. html Wikipedia (2005). Telecommunications Act of 1996. Retrieved October 23, 2005, from