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216 Chapter 9

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/
TEAMFLY
WorldCom, and AT&T. These carriers were fast to install their infra-
structure because the model brought a new form of cost-efficiencies
into the long-distance arena.The long-distance market is very lucra-
tive. 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 extraordi-
nary, with carriers making between 30 and 40 percent profits.
At the local loop, however, things were different. Telephone com-
panies 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 to $115 billion in North America, yet the incentive to
invest was limited. Many of the companies held back because no one
saw a need for high-speed fiber to the consumer’s door. Besides, only
one provider existed for the local loop. When changes began to occur
in 1996 with telecommunications deregulation at the local loop, the
picture also changed dramatically for providers:
1. Newer markets were opened.

2. Many new competitors appeared.
3. Telephone companies had to offer the local copper to the
competitor at a reduced price.

With this competition, the carriers were faced with the risk of los-
ing their installed base of customers unless they changed the way
they provided services. SONET became a mainstay for large corpo-

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