Rattled by Phone Outages, Banks Consider Radio Links
The recent rash of telephone service failures in some large U.S. cities is causing bankers to consider using the airwaves to transmit data.
This summer there have been telephone service outages in San Francisco, Pittsburgh, Los Angeles, Baltimore, and Washington because of software malfunctions in telephone company computers that route calls.
Although the outages have not resulted in notable losses at financial institutions, experts say the incidents have led many banks to question their reliance on the public telephone network for much of their computer-to-computer communications.
Reliable, Cheap Service
Communications networks based on radio waves and satellite signals typically promise network reliability of greater than 99%, while undercutting the prices of land-based networks by as much as 50%.
Such performance improvements have led a number of institutions to move away from sending data over land-based phone lines, most notably Fleet/Norstar Financial Corp., which signed a contract last week to send data processing information from 900 banking offices to a central processing site via satellite.
In addition to satellite transmission, their are now other alternatives to terrestrial phone lines.
Last year a number of credit card processors, including Visa U.S.A., Citicorp Credit Card Services, and National Data Corp. signed agreements with Digital Radio Networks, Inc., Tysons Corner, Va., to provide a card authorization service to merchants using cellular radio technology.
And earlier this week, Buffalo-based Bydatel Corp. announced the formation of a joint venture with Comtek Inc. to sell communication equipment that sends data over FM radio frequencies to financial institutions and other businesses.
"This is virgin territory in a lot of ways - both for banks and for us," said Joseph E. Wolfson, president and chief executive officer of the newly formed Bison Data Corp. in Buffalo.
Among the present users of the radio technology offered by Bison Data is the MAC automated teller machine network, owned and operated by CoreStates Financial Corp., Philadelphia.
Although the company, which will begin operations in two to three months, declined to give pricing information on their product, banks using the product have reported that the investment paid for itself in about nine months.
In addition, company officials maintain that the fixed cost of the FM boxes is attractive to banks because they will eliminate the monthly payments that most institutions now make for their leased phone lines.
Michael R. Zucchini, chief technologist at Fleet/Norstar Financial Group said that the telephone companies "are attempting to meet the pricing competition of the satellite and radio networks, but you still see a lot of volatility in their pricing."