Fixing TelecomFixing Telecom

The controversy that erupted last week concerning who will lead Sprint overshadowed an even more significant development in the telecommunications industry: The nation's top long-distance carriers all have named new chief executives in recent months. In the wake of financial scandals, budget cuts, massive layoffs, and free-falling stock prices that have ravaged the industry, business-technology managers expect the new blood to bring improvements in customer service, product development and delivery, and innovation.

Sprint, the No. 3 long-distance carrier based on revenue, offered its top job to BellSouth Corp. vice chairman Gary Forsee, although that deal is hung up in a court battle over his noncompete clause. David Dorman, an industry veteran, in November was named CEO of AT&T, the country's largest long-distance carrier. Michael Capellas, former head of Compaq, took the helm of troubled WorldCom in December. Qwest Communications International Inc., which had its own scandals and financial scrapes, appointed Richard Notebaert as CEO in June.

"These changes will provide a jump-start for the industry," says Satish Mahajan, CIO at the American Automobile Association. "The industry hasn't been as innovative or as customer-driven as we want. I look forward to some major innovations and changes in the way they do business."

"The carriers are finally getting it," says Oray Auzenne, director of network technology services at Farmers Insurance Group. "The reason those new leaders are there is to actually focus on customers."

The new executives have the task of revitalizing companies that serve nearly every business in America. Their copper and fiber cables carry most of the nation's long-haul voice, data, and Internet traffic. Collectively, the three biggest long-distance companies take in about $90 billion a year, nearly twice as much as Microsoft, Oracle, and Sun Microsystems combined.

Although the industry as a whole faces big problems, from heavy debt to declining prices and weak demand, each company has its own unique issues that its new leader needs to address.

"The successors have come up through the ranks," says Richard Malone, a principal with telecom consulting and research firm Vertical Systems Group. Most of them--Capellas is the exception--have spent at least some of their careers developing data, Internet, and managed services, and getting them to market quickly. They also know that long-distance voice services can no longer provide the steady stream of profits they once did.

Sprint, for instance, "has a lot of high-quality technology, but it's not selling or positioning it right," says Johna Till Johnson, president of Nemertes Research. Sprint's managed-services group earned second place, behind Hewlett-Packard, when information Research surveyed business-technology managers about their outsourcing relationships (see "Analyzing The Outsourcers," Nov. 18, p. 30).

Analysts expect Sprint and BellSouth to reach a compromise over Forsee, whose contract with BellSouth prevents him from working for a competitor for 18 months after leaving the company. He's likely to face resistance in changing a company that has had the same chief executive, William Esrey, since 1985. But Forsee is no stranger to change. He's held executive positions at Southwestern Bell, AT&T, Sprint, Global One, and BellSouth.

Dorman's biggest challenges at AT&T are to better commercialize technologies developed at Bell Labs and improve service, which will require automating business processes such as handling complaints or reporting network problems. With 20 years of software-development, product-development, and management experience at Sprint, Pacific Bell, Concert, and most recently AT&T, Dorman understands the problems. "CEOs hired from the outside are good for the short-term stock price, but on average they make things worse than CEOs hired from the inside," says Robert Sutton, a management and engineering professor at Stanford University.

One problem: AT&T can be too rigid when negotiating contracts. "A large bank kicked AT&T out because the lead salesperson was told he could make a deal, and the person above him knocked it out," analyst Johnson says.

At WorldCom, Capellas must do more than restore customer confidence after its financial scandal and bankruptcy. He must integrate scores of disparate operational systems that came with the nearly 100 companies WorldCom acquired. That's the only way it will be able to create a single billing, order-entry, and provisioning system, which is necessary to respond quickly and accurately to customer needs. The former Compaq CIO and CEO, who left the computer maker after its merger with HP, has experience that could serve him well in his new role.

AT&T and WorldCom already have made some progress, says Lynn McGuire, CIO at Andrews & Kurth LLC, a law firm with offices throughout the country. "Both companies seem to be more willing to listen and are more responsive than they have been," he says.

At Qwest, the only long-distance company that merged with a large regional Bell operating company, Notebaert first must repair a reputation tarnished by a Securities and Exchange Commission investigation and poor customer service. He's working to improve customer service by boosting employee morale, spending time in Qwest service centers talking to frontline workers, and responding to 10,000 E-mailed employee suggestions.

The new leaders take the helms of their companies at a time when focus has shifted from growth to cost-management and improving productivity. Although the carriers still spend billions each year to upgrade and expand their networks, each has cut capital spending by 50% to 75% in the past two years.

"Capital investments are being driven by returns in productivity," says Dave Bent, CIO and VP of Acterna LLC, a communications test and management company. If they spend that money wisely, the new leaders may one day be known for more than just turning around their companies. They may get credit for turning around the entire telecommunications industry.