While other US operators sought to boost market share through
mergers and acquisitions in 1998, US WEST adopted a
diametrically opposite approach. In June 1998, the company
completed a split into separate telco and cable companies.
The new, leaner US WEST remains focused on its core
territories and aims to remain independent for the foreseeable
future. US WEST has virtually focused all investments on its 14
state operating territory. "They offer a diverse range of
services from traditional voice telephony and data services to
wireless services, "commented Tom Aust, a telecoms equity
analyst at Chase Research.
The company may not have the most expansive international
policy, but US WEST has been one of the leaders in offering
high-speed Internet and data services. It has a "Megabits"
service, which offers customers speeds from 256 kbps to 7 Mbps.
Customers receive their own private link to the Internet, their
existing phone line, increasing security and reliability. These
services are available in numerous cities in US WEST's core
region and will bring high-speed Internet use to millions of
homes and offices and not just high-end users. Aust considers
US WEST to have led deployment of the latest technologies: "For
some time the telcos did not develop very good technology. It
was still in the laboratory. US WEST has taken the technology
out of the laboratory and rolled it out into commercial
applications. They have shown that it can be done and on a
cost-effective basis. They have been very innovative and that
has been a strength for them."
However, the operator's investments in DSL could be affected
by regulation, as Aust explains: "The problem with DSL is that
it presents some very difficult regulatory questions. If you
deploy it in a regulated environment, you may not achieve very
good returns. The returns are no longer guaranteed by the
regulator. The regulators are still exercising influence and
control over pricing, but there are now competitors in the
market. Some of these businesses that have tremendous
potential, such as broadband in the home, could be a terrific
business in the long term, but you need to be sure that you are
able to structure your operations, products and pricing so that
it is competitive and you can win in the market."
In an exclusive interview, the president and CEO of US WEST
Sol Trujillo talks about the operator's digital strategy and
the US market.
How do you view the recent era of consolidation in the
US? What are your opinions of the SBC/Ameritech and GTE/Bell
Trujillo: We have now entered into a time where
different people's strategies are beginning to play out. In the
case of US WEST, rather than continuing to try and consolidate
multiple sets of assets, we actually split our company in June.
We split off all our cable properties and other investments
from what was formerly the telephone company, but what was
really a company well beyond being just a local telco. Other
companies have chosen to get bigger by acquiring more like
assets - here I am employing the literal sense of the word,
meaning two telcos that are simply expanding geographically and
have more of the same. Some companies are pursuing that
strategy. In the case of US WEST going forward after our split,
I have a strong belief in becoming a next-generation company, a
company that is very focused on data and the wireless assets,
but really moving into the environment of an IP-centric
company, which does not necessarily require old assets. It
requires new assets in the new IP-centric world, as well as
lots of innovation and speed to market in order to compete
Can you expand on the reasoning behind the split of US
WEST and the US WEST Media Group?
Trujillo: We were two businesses under one umbrella
sharing a single balance sheet, a single board of directors,
and going in opposite directions strategically and
competitively. It didn't make any sense to continue, because
there was too much conflict associated with public policy,
choice of partners and balance sheet resources. This indicated
that we would be better off independent from each other, so
that each company could pursue its strategy aggressively and
not feel constrained in the market.
In an era where most companies are merging and getting
bigger, US WEST split became a much leaner operation. What
advantages can you perceive for US WEST from its smaller
Trujillo: The single biggest advantage is speed. I
believe that I don't have many people sitting in meetings
worrying about organization charts and which person from which
company is going to be running which part of the business. Such
activity is very distracting for a management team. I do want
our people to be focused on the set of customers, applications,
services and suppliers that we need to be partnering with in
order to get capabilities delivered. I believe that speed is
absolutely imperative in a hyper-competitive market. And
differentiation is also obviously very essential. So if you are
focused on speed and innovation - in addition to executing on a
quality product, which is true of many RBOCs, and not just US
WEST - I think that this constitutes a tremendous advantage in
the market. That is what size means to us. That does not mean
that we don't intend to get bigger. That does not mean that we
don't think we can't get bigger in the right way. I believe
that we are not at a disadvantage today, especially in view of
the strategies that we have pursued.
Do you believe that US WEST could merge with another
operator over the next few years?
Trujillo: Well, that is not our plan. Our plan is to
operate and compete effectively and continue to expand our
business. I guess that the interesting part of today's world is
that it is getting much more competitive than it has been
historically. I would say that it is hyper-competitive in
certain segments of the market. But at the same time, as
consumer needs are changing and technology is enabling us to do
much more, I think that we have some pretty significant growth
opportunities in our core operating area: in our case, in the
14 states where we operate.
Secondly, because we have been a very significant player in
the data space, we have been expanding our capabilities
nationally. I believe that there will be further opportunities
for us to continue to expand nationally and potentially
globally in the time frame that you referred to.
What are your views on DSL (Digital Subscriber Line)
technology? What are the goals behind offering "Megabit
Services"? How many customers will have access to this
Trujillo: Right now we have equipped a significant
number of our central offices with what we call D-slams, which
is the equipment that you place to provision the service
ultimately all the way to the home. But we have equipped enough
where today we can probably serve 5 million to 5.5 million
customer lines. We have access or we are providing access to
that many customers. Now clearly there are some limitations
with the DSL technology. But I firmly believe that over the
next 12-18 months many of those problems will be solved with
advances in this technology. But we are being very aggressive
and plan to continue in this vein when offering high bandwidth
services to our customers.
Could you explain the strategic importance of the
relationships you have with suppliers such as Cisco, Oracle,
Sun and Microsoft? How are these partnerships helping you
attain your goal as a leading data provider?
Trujillo: I would say that these relationships are
very important. We intend to be quick to market. Quick to
market means that where it is extremely important, we will be
first to market. In other cases, where it is not imperative, we
will be early to market with that capability. I firmly believe
that you have to pick world-class companies that understand and
share the vision of where you want to be and want to go. These
are very good and well- focused companies in terms of
I don't know if you are a hockey player or fan, but I like
referring to an interview one time with Wayne Gretsky. Some
would say that he is probably the greatest player in a very
competitive sport. Asked to describe the key to his success,
Wayne Gretsky provided a very simple answer: "I always move to
where the puck will be". As opposed to moving where the puck is
or was. And I think that business is very similar. The
companies that are very successful know where to be, as opposed
to where the action was.
Which other suppliers are you working with?
Trujillo: Clearly we continue to work with Lucent and
Nortel, because I believe that they are also starting to become
very focused on this next-generation set of capabilities. We
are also working with some of the suppliers of computers and
devices, owing to another focus of mine. Ultimately when you
think about an Internet-based or web-based world, the
simplicity of how you can get things done is going to be
facilitated to a large extent by devices. And it is the
software that loads or feeds into the devices.
For example, almost a year ago we reached an agreement with
Dell Computers. They would load into their modems the card or
chip or whatever would be required, so that when a customer
ordered one of Dell Computers' Dimension PC products, if the
customer said that he or she received Megabit Services DSL
services from US WEST, Dell would load the DSL card right into
the machine. When you unpacked your machine, you could
literally plug it into the telephone jack and play. To me that
is very important. Thinking about the whole supply chain, how a
customer ultimately turns up service, it needs to be simple.
In my opinion it is our job to essentially recreate in an
IP-centric world the dial-tone model, where you can walk into a
room and intuitively see a device, know how to use it and make
it work and access all the things that you want. In short, we
need to deliver what I call "web tone". We are very focused on
enabling that kind of vision.
Could you explain what you mean by the term "the new
economy"? What role will US WEST play in the new economy?
Trujillo: The new economy is clearly being defined in
this country, but it is happening in countries all around the
world. The information-based economies are here. If you look at
the percentage of workers today that are technology workers, if
you look at the percentage of workers today that are dependent
upon being networked, either networked within their company
Intranets or Internet-based networking and extra-based
networking, we have redefined how commerce occurs today. And we
are only seeing the beginning, given all the things that US
WEST is doing, as well as what literally thousands and millions
of other businesses are doing, and what consumers are doing in
Probably one of the most noticeable phenomena during the
holiday season late last year was the amount of shopping
conducted over the Internet and how easy it has become for
people. Instead of getting into their cars in cold weather and
driving to a mall and fighting for parking spaces, doing all
the traditional things that everybody has gone through, people
can now stay where they are and order everything through the
Internet from wherever and buy whatever they need. The business
model for commerce is changing very rapidly. There will be even
more change into the future. This is really driving a different
focus in terms of our economy, a movement from traditional hard
physical asset-based investments to centres of intellectual
capability, including the programming and software development
that enables all this and the networking that ties it all
together. To me that is what the new economy reflects.
How do you view the role of the FCC? With US WEST
moving aggressively into DSL, what particular problems does
this present for the regulator? Is there not a possibility that
the regulators will still exercise control over pricing?
Trujillo: It is unfortunate that the FCC thinks it
needs to play a role, simply because the market is very
competitive and very capable. Consumers, who should be the
focus of the FCC, are demanding the development, deployment and
investment in new telecommunications and data products and
services. If you are in downtown Denver, Colorado or in Butte,
Montana, you want those services as a consumer. Under the
current FCC view of the world, they disincentivize investment
for anybody other than those people who live in dense quarters
and population centres. That is really unfortunate, since
consumers are affected. How are we going to deal with this
situation? Clearly, the way we will have to deal with it is to
act like our competitors. We will have to invest where the
density and incentives are.
How do you view opportunities to provide long-distance
services within your 14 state region? How important to your
overall strategy is it to offer long-distance services? When do
you think that you will receive regulatory approval to do
Trujillo: It is clearly very important, since many
customers expect single providers to offer them a whole bundle
of services. Clearly, the biggest companies in the market -
companies I refer to as the gorillas - AT&T with a market
capital of some $150-200 billion and MCI WorldCom with a
similar market cap, are out there totally unconstrained and
able to offer whatever service they want. Long distance is an
important element for most customers in the global world in
which we live. They live a much different life than 30 years
ago, relative to travel, relationships, how they shop and buy,
which means that long-distance access is very important.
As to when we will be able to offer full long-distance
services, I would say very emphatically that we will have
earned the right to offer long distance some time in the first
half of 1999. In fact, we will be able to go to our regulators
in our states and to the FCC and openly state that we are
meeting the check list requirements. I would say that hopefully
at some point in 1999, when we have gone through the processes
of the regulators at state and federal levels, we will receive
approval in one or two states. In 2000, we look to receive
approvals in the rest of our territory. I would like to
emphasize that we will have earned the right to do that, but
this is a political process.
What are the goals behind your wireless operations?
How many subscribers do you currently have? What are your
growth projections for 1999?
Trujillo: We have only been in the market for a
little over a year now with our wireless PCS business. But we
have penetrated the market more deeply and rapidly than any
other player, whose results we could track in the US market. At
year's end, we had more than 185,000 customers. I am very
pleased. I don't know if you are aware of the fact, but we have
figured out with some patented technology how to integrate
wireless and wireline service. Think about the model that we
all grew up with over the past 10-12 years, since cellular came
to market. That is, you could buy a stand-alone device with a
stand-alone telephone number. That device had its own
stand-alone features and capabilities. Over time we all became
relatively prolific users. We had a device we could carry
around. We generally had one in the car. Maybe in some families
the spouse had a device as well. Pretty soon everybody was
trying to keep track of lots of numbers.
Meanwhile, voice mail was also becoming very popular. But you
had to have a voice mail box for every device. Pretty soon not
only did you have a separate telephone number to keep track of,
you also had to check multiple mail boxes for messages, which
is not a fun, simplified experience for most consumers. When we
conducted research, consumers said that they wanted someone to
solve this problem.
We have gone to market with an integrated value proposition.
We can give customers a single telephone number and a single
voice mailbox and the same features and functionality for both
their wireline and wireless phones. Only at US WEST can you get
that kind of capability. And customers really do like it.
With that in mind, what kind of services would you
like to offer in this area? How do compete with AT&T's
digital one offering?
Trujillo: We compete very well. AT&T's digital
one rate offer is really aimed at the high-volume,
high-frequent traveller market segment. And it is an attractive
offer for that segment. That is not the market segment where we
see the biggest opportunity for US WEST. When we started
rolling out our PCS service, wireless penetration was at about
6-8% of the population. This means that there is another 90
plus per cent that we could target and their calling patterns
won't provide them with an advantage under AT&T's digital
Is US WEST going to deploy a more aggressive
international strategy in the next couple of years? With
companies such as BellSouth and SBC pursuing aggressive
international expansion programmes, will US WEST change its
Trujillo: The answer is yes. We are very focused and
this is our first priority, on domestic opportunities in the
US. But many of our customers have come to us and said that
they like what we do here and want us to serve them wherever
We also think opportunistically, given the competencies that
we have developed in the data arena and in the innovation and
integration of multiple networks, whether they be LAN networks,
voice networks, wireless networks, and delivering innovative
services. We believe that we can in fact expand globally and in
some cases partner with various companies that have approached
us. And we are sorting through what is the best strategy for US
WEST at this point in time.
Do you expect any major announcement this year on a
Trujillo: I would prefer not to speculate on that
issue at this point in time. But I do spend a significant
amount of my time right now thinking about this.
What did you learn from the partnership with Time
Trujillo: I would point to a couple of things. We
learned that partnership is a full-time activity. When you have
partners, you have to make sure that there is alignment of
interests - alignment of financial interests - and a lot of
communication and work is required. I would say that those are
principles that we all nod our heads to when we hear them. But
it is a lot easier to say than do.
Will US WEST continue to focus on its core
territories? Or will the company seek to have more national
ambitions in the future and go beyond the 14-state
Trujillo: Well, again let me just say that my first
priority is clearly to pursue the opportunities in our region.
Let me provide a little more clarification. Today, a typical
customer might spend $30-35 a month, which is the average bill
for a consumer in the home. This is due to the fact that we
have been restricted from providing long distance. Hopefully at
some point the gating of the system that has been put in place
will come to an end and we will be able to get into the
business of providing long-distance capabilities, which could
be worth up to $10 billion in our region. That is how much
revenue is generated through InterLATA long-distance services
in our 14 states alone and I am referring to calls that
originate in these 14 states and end up somewhere else. That is
a huge revenue stream that we can compete very effectively for.
In addition, we are expanding our wireless PCS offering across
many of our markets in the 14-state region. So if you take a
customer that goes from $0-50 a month, that is a significant
Overlay on that the opportunity for customers to receive their
Internet access from us, obtain this high-bandwidth capability
from us and have it integrated and simplified, all for $40-50 a
month on top of what we already generate. In addition, in the
first half of 1999 we will be rolling out in Phoenix the
provisioning of a cable TV service over a technology called
VDSL. If that proves to be successful, you can look in the US
at a typical spend of $40-50 a month for most cable customers.
This is done on a digital network with multiple channels and is
a lot better than what you get from cable TV companies today.
So there are significant opportunities for us to pursue in our
region, when you add long distance, plus wireless, plus
web-tone and video. However, that is not the end of the story.
The rest involves taking many of these same capabilities and
expanding them nationally and internationally.
It has been claimed that US WEST suffers from the fact
that it has one of the most rural populations of the Bells. Has
this factor hindered growth or have you actually benefited from
a less competitive environment?
Trujillo: Our environment is very competitive. In
some cases we have been slightly surprised. If you had asked us
what our hypothesis was three or four years ago on where
competition would first emerge, we all clearly said that it
would be in the business market. And that is what has happened.
We are extremely competitive in the business segment. We also
faced competition not only in the big cities, which would have
been part of the hypothesis: we also have competition in medium
and small-sized markets.
Competition is pretty robust in our region. The economics for
our competitors may not be as attractive as in Chicago, Boston,
Dallas or San Francisco, but that has not deterred competitors
from appearing and offering services.
According to analyst reports, US WEST is ranked the
lowest of the largest carriers in terms of operating
efficiency. How do you view this evaluation and what steps are
you taking to overcome this problem?
Trujillo: I would say that on some categories we are
ranked near the bottom or in a couple maybe at the bottom. In
other categories we are ranked at the top. So I would say that
it depends on what part of the operation you are referring to.
Let me start by looking at operating efficiency in total and
density - urban and rural. Obviously if 10 million people live
within a limited geographical area, you will be much more
I could dispatch a technician to a building, and that
technician would only have to drive 10 minutes to the building
and spend all day in the building handling multiple orders. In
the case of US WEST, if you put a technician in a truck, they
have to drive to each location: as we are not a densely
populated area, you would naturally assume that efficiencies
are not going to be the same.
The same applies to capital. Our average loop length is
probably two times the rest of the RBOC average. Our capital
efficiency won't be quite the same. So it probably doesn't make
much sense to compare us with the other RBOCs or say that we
should be exactly the same or at the top, because the same
principles apply to our competitors as well. For example, if I
was competing in down town Chicago, New York, Boston or San
Francisco, I could be much more efficient. But if I am
competing with US WEST in Albuquerque, New Mexico, my
efficiencies will be dramatically different. So it is all
relative to your competitors.
Secondly, when you look at operating efficiencies and compare
on a like-to-like basis, such as business offices, sales
centres, operation centres, we benchmark at the top of the
class, where we have non-geographic differences. We manage
those parts of our business very well. As a matter of fact, we
are at the top end of comparisons.
How do you view analyst projections that US WEST will
lose 20-40% of its core local business owing to increased
competition? How will you compensate for such a loss?
Trujillo: One of the first questions you always have
to ask is which segment of the market do you lose? And we will
lose market share. That is a phenomenon of the competitive
market. But if the high-value customers continue to do business
with US WEST, because we have a better value proposition and
the capability to integrate and simplify with a single bill,
single customer care and a single sales channel, I would argue
that the upside could easily exceed the declines.
With the remaining customers that we have, we plan to grow our
relationship pretty dramatically, when going from a $30-35
monthly relationship to possibly $200 a month.
There is still plenty of opportunity for us to grow our
business. Instead of spending their money with company A or
industry B, they can spend with US WEST and do this in a
simpler and easier- to-use manner. That is point number one.
Point number two: we will be expanding our business beyond our
14 states, creating other opportunities and taking new market
share with new products, services and capabilities that we will
What kinds of pricing packages is US WEST putting
together to retain customers?
Trujillo: In terms of pricing, we are being as
innovative and opportunistic as we can be, given regulatory
restraints and requirements. Clearly regulators still play a
role in approving a lot of our pricing in terms of what we do
in the market. But we are bundling and packaging products
together, offering deal packages for our customers.
In the very competitive spaces like wireless, where there are
in general six operators in every major market in which we
compete, we are very aggressive and competitive in our pricing.
This is reflected in our sales results and our penetration and
share acquisition results in the market.
Today in the long-distance space we are very limited in terms
of the geography where we can carry calls, but we are very
competitive, offering essentially in many markets 9 cents a
minute for each intra-LATA long-distance call. We are being
innovative in our pricing of packages and services, simplifying
the decision-making process and increasing the value
proposition for consumers.
Have you made any significant changes in the way in
which you market certain products?
Trujillo: In broad terms, the biggest change we have
focused on is around innovation and integration as part of our
marketing discipline. An example is the way we solved the
customer problem of wireless and wireline never working
together. US WEST has now solved that problem.
Regarding webtone, it is still not an easy experience for many
today to get on the Internet, in terms of what every consumer
has to go through. Then once you are on the Internet, getting
to the place consumers want to go can be difficult. US WEST is
the leader in offering simplified solutions to our customers,
where you have single button, single push capabilities to get
where you want to go much more rapidly than today. So I would
like to emphasize the notion of innovation as a critical
We are also learning now offering packaging of products,
services and capabilities. Consumers do not want to be buying
stuff all the time. They want to order meals from menus,
packages of services. They don't want to have to figure out how
to make it work themselves. So packaging becomes important in a
A third area concerns channels and how you make yourself
available to customers and pro-actively attack the market and
go after customers against your competitors. We have been
expanding our channel capabilities, not just in the traditional
business office, where customers call us and place their
orders, but being pro-active in the market with direct and
indirect channels and on-line channels, so customers are very
much in control and can gain access to the things they want.
Finally I would say that our people and the methods of
compensation represent a unique element at US WEST. We have
struck provisions in our contracts with our union here, the
Communications Workers of America, that are unique to US WEST
and the industry.
We have put in place performance-pay related plans. We have
seen dramatic improvements in productivity in our sales
channels over the past two or three years. Now we are able to
use performance pay for our network organization.
If you visit some of our sales channels, you will find that
people like this environment and they can make more money if
the company does well. It is a nice partnership for a
competitive market. So you can see a whole series of factors
centred around channels, people, products and innovation. And
obviously, behind it all is this notion of being able to
enhance our capabilities around data bases and knowing our
customers well, so that we can offer solutions that are unique
to that customer, given his/her lifestyle and needs.
What opportunities do you perceive for US WEST in
digital TV? What strategy are you employing in this area?
Trujillo: In the space of digital TV, we do have a
digital network. So that helps to start with. We are not like
many of the cable companies that have an analogue network and
are placing end-points on their network that they call digital,
and then they have to go analogue to digital and back to
analogue for transmitting signals over their network.
Second is this notion of DSL technology. In the first half of
1999 we intend to roll out in Phoenix a video offering that
will enable us to offer up to 120 channels of digital delivered
service. And it can be delivered primarily over much of our
existing network. Clearly it will be an attractive offer, since
our network is already a two-way network, which has been built
and engineered to very high-quality standards.
So in terms of a classic or traditional offering of delivered
broadcast programming, we can now do that with a digital
signal, which will be very compatible with the new digital
sets. A digital signal over a digital set is just a very
dramatic experience. It is a changed experience for the
consumer. On top of that it creates the opportunity for us to
offer not only a stand-alone video offer, but also an
In other words, if you want to do your high-speed data work
over that same delivered service into the home, you can. If you
want to get your traditional voice telephony, you can do that
too. For example, you may be sitting down, watching a big
soccer match that everybody has been waiting to see on a Sunday
afternoon and at the same time expecting an important call.
In my case I don't want to be interrupted by all the calls
that come in sometimes. I want to see caller ID integrated into
my TV set, so that I can scan and see which calls are coming in
and know which one I want to get up and answer and not
interrupt the game for all the unnecessary calls.
US WEST is the only company that will provide that kind of
integrated capability where you can watch your programme and at
the same time have the full value of telephony services and
data services available to you.
Meanwhile, someone can be in another room on the PC doing
their work and someone else in another room checking their
voice mail. That is a true integrated service and represents a
different experience for the consumer
Could wireless alternatives, especially in view of the
deployment of digital technology, pose an increasing threat to
US WEST's core revenues? More and more people seem to be
eliminating wireline service in favour of wireless. Surely
there is a major risk of migration of wireline revenues to the
Trujillo: I think that is probably correct for
certain market segments over the next five years. That is why
you will find US WEST very aggressive in the wireless space as
we are today. I think that you will find that the simple
substitution of wireless for wireline isn't enough: you must
have the features, capabilities, the ease of use and the access
to all the things that you want to do. It must be of high
quality. Again you will see US WEST in that space in a
leadership role as we already are today.
What are your hopes and ambitions for the company over
the next five years? Where do you hope to position the
Trujillo: Number one. We intend to continue creating
shareholder value in an aggressive fashion for those that do
own our stock. Indeed, our total shareholder return has
exceeded 120% over the past two-year period. We intend to
continue bringing, on behalf of our customers, new products and
capabilities that enhance our customers' lives.
We have a "tag line" - a promise that we communicate to our
customers - that says "life is better here". And we intend to
deliver on that promise to our customers, by simplifying their
lives, giving them more in terms of capabilities and also
growing our relationships with existing customers, as well as
new customers, as we go forward.
We also intend to expand our reach and scope in terms of our
business, both in terms of the scope of our products, services
and capabilities, and our reach in terms of geography,
domestically and within that five-year period, in a more global