KPMG case2

PricewaterhouseCoopersCASEDISCUSSIONBUSINESS/STRATEGYInterviewCaseStudy#2TelekenesisInc.PricewaterhouseCoopershasrecentlyproposedon,andappearstohavewon,amajorengagementtocreateaninformationtechnologystrategyforTelekenesis.PricwaterhouseCoopershasworkedforTelekenesisinthepast,buthasnotdoneanysignificantworkforoverayearandahalf.ThisisPricwaterhouseCoopers’firstsubstantialengagementwiththecompany.CompanyBackgroundTelekenesiswasformedin1992byexecutivesfromfourformerRegionalBellOperatingCompanies(RBOCs)andtwoprincipalsinSiliconValleytechnologystart-ups.Oneoftheprincipalsisfromastart-upcompanythatpioneeredanewkindofwirelesspropagationtechnology.Telekenesiswasfoundedontheprinciplethatthecurrenttelecommunicationsindustryispopulatedwithcompanieswhoarealmostcongenitallyincapableofoptimizingtheirformoforganizationandculturetomeetthecompetitivechallengesofthe1990s.Thefoundersbelievethatlocallooptechnology,whichreliesoncommunicationdeviceswhicharepeersinalargetechnologycommunity,whereeverydevicehasapermanentandunchangeableidentification,isthesilverbulletofthetelecommunicationsindustry,andthattheRBOCsarenotreadyorwillingtoexploitit.Locallooptechnology(LLT)isconsideredbyRBOCmanagementtoberadical,unprovenandunreliable.TelekenesisInc.ismodestlyprofitable,with$131,000,000insalesandapproximately200,000customersspreadoutoverfouradjacent,mostlyruralgeographies.Approximately90%ofitssalescomefromfoursmalllocaltelephonecompanies.Thecompany'sstrategyistousetheoperatingexperienceandcustomerpositioningofthefourlocaltelephonecompaniestodevelopandimplementlocalloopwirelessserviceorLLWS(oftenpronouncedlaws).Theconceptbehindthisserviceisbasedonthefactthatthecurrentphonecompaniescontrolwiringtoandfromacentralofficefacility.Thisfacilityisineffectabigswitchingbox.Thecentralofficeactslikeabighubwithmanyspokesradiatingfromit.LLWSeliminatesthecentralofficeandsubstitutessimple,unobtrusive,premiseswirelessrelayequipment.Thereisatleastonelocalloopserverfacilitythatissomewhatanalogoustoacentralofficebutnotneededtomaintainservice.Theserverfacilityisusedtomonitorqualityandprovideatrapforbilling.Localloopwirelessservicesarefullyintegrated.Theyincludetelephoniccommunicationaswellascellular,pager,on-demandvideo,andhighwayservices.Highwayservicespermitcompanieswithinthelocallooptocommunicatewitheachotherasiftheywereonalargeuniversallocalareanetwork.Computerslocatedinbothhomeandofficeareimmediatelyinterconnectedbythelocalloop.Importantly,thereareliterallynowiresinvolvedinanyoftheseservices(exceptofcourseforpluggingintothewalltogetelectricity).Physicalcustomerhook-upsarenon-existent.Customersaregrantedaccess,andservicesandinformationaresecuredthroughsoftwareinterfacesinLLWSdevices,suchastelevisionsets,laptopcomputers,pagers,etc.TelekenesishasanumberofarrangementswithsoftwareandhardwarevendorstocreateLLWSdevices.Understandably,theindustrydiscountsLLWSasanotherhightechCaliforniafantasy.BellCoreengineers,whileacknowledgingthefuturepotentialoflocallooptechnology,disputeTelekenesis'sclaimsthatthebandwidthandqualityisactuallypresentinproduction,commerciallyavailableproductstobeinstalledintherealworld.Telekenesis'doctrineistocompletelyconvertall200,000currentsubscribersofthefourlocalphonecompaniesatonce,withnophasein.Eachofthefourlocalcompanieswillbeconvertedseparately.Telekenesisboughtthefourlocalphonecompaniesinordertohavelargescalepilotsitesforlocalloopwirelessservices.Telekenesis'fundamentalbusinesspropositionisthatthechangingregulatorylandscapewillallowittocompetewithlocalBelltelephonecompanies,providingahigherperformance,lowercostalternativetotheexistinglocalphonecompaniesforlocalandlong-distancetelephoneservice,paging,cablet.v.,andcellularphones.IndustryTrendsTheearly1980swereatimeofturmoilforthetelecommunicationsindustry.Forthefirsttimeinhistory,AT&Twasderegulatedandlostitsmonopolystatus.ThismeantcompetitionforAT&Twherenonehadexistedbefore.Long-distancewasthearenaofcompetition.Telecommunicationsincludesmuchmorethansimplymakingaphone-call.Itencompassescabletelevisionserviceandnetworkconnectivitywhichbringsinteractivetelevision,shoppingforums,educationandinformationservicesintothehome.Thephonelinesthatthetelecommunicationscompaniescontrolenablecomputerstocommunicatefromremotelocations,andcangatherinformationfromdatabasesandnewsservicesaroundtheworldwithinseconds.Thepossibilitiesforprofitsinthisarenaarepracticallylimitless,andthesphereofcompetitionisexpanding.Upto1994,onlylong-distancecarrierswereincompetition,butlocalcallingareasaregoingtobeopenedupforcompetitioninthelate1990s.TelekenesisOrganizationTherearecurrentlythreebusinessunits:1)residential,whichisdividedintotheplainvanillacustomersthathaveonlyonephonelineintothehouseandnoadd-onssuchascellularphones,pagers,additionallines,etc.and2)residentialcustomerswhohaveadd-onservicesandaregoodcandidatesfortakingadvantageofthenewtechnology;and3)smallbusiness.EachofTelekenesis'sbusinessunitshasaPresidentwhoreportstotheCEO.Inaddition,R&DandTechnologyAssurance,essentiallyaqualitymanagementprogram,alsoreportdirectl