Overview

Whenever a new service is introduced, one can expect that the costs and pricing models are going to be at their highest levels. Over time, as mass production takes place and more systems and services are implemented, the pricing begins to fall. There is nothing new here, except that the timing of this model has been somewhat slow in occurring and shifting. Consider that the use of fiberoptics initially made its way into the telecommunications industry in the 1960s. Furthermore, the development of worldwide standards in the form of SONET and SDH took almost 30 years to be implemented. At the point when SONET became a standard (followed soon thereafter by SDH), the pricing models began to shift. The industry saw the influx of new fiber-based architectures in the long-distance marketplace with companies like Sprint, Williams Telecommunications, MCI/ WorldCom, and AT&T. These carriers were fast to install their infrastructure because the model brought a new form of cost-efficiencies into the long-distance arena. The long-distance market is very lucrative. In the late 1980s (shortly after SONET became a standard), the long-distance portion of the industry amounted to approximately $80 billion in North America alone. The profitability was extraordinary, with carriers making between 30 and 40 percent profits.

At the local loop, however, things were different. Telephone companies were slow to implement because of the cost implications and the fact that they depreciate their infrastructure over a 25- to 30-year term. The local dial tone market during the same period amounted...