With less than a year to go until the European telecomms market is fully deregulated the major players in the main countries still have a long way to go.
BT and MCI have to get the EC and US authorities to give the thumbs-up to their intended $20 billion merger, Deutsche Telekom is slowing down its joint venture partnerships because of its major flotation plans and huge debts, while the US contenders have their own company reorganisations to resolve.
But beneath all the fuss and politics, what will total liberalisation mean to users? True, there will be a plethora of suppliers to choose from, offering access to everything from videoconferencing and virtual private networks to cable television at competitive rates. And prices are likely to drop further - since deregulation in the UK in 1984, prices of long distance calls have fallen by 70 per cent. However, customers are likely to benefit from all this only if they work and live in areas considered rich pickings by the operators.
According to Robin Bosworth - a partner at Schema, a consultancy that advises telcos on market strategies - operators going into new markets, whether BT into Germany or France Telecom into the UK, have a number of issues they need to consider. One is whether they want to use the national carrier?s infrastructure and share revenues with them, or dig up roads and lay their own networks. The answer lies partly in the type of services they want to offer and to whom. For instance do they want to target international organisations with low cost overseas calls and private lines, or do they want to go the consumer route and compete with the cable operators who can offer packaged telephony and TV?
Schema calculates the entire PSTN market to be worth #5.7 billion a year, #2.6 billion of which is from business users and #3 billion from consumers. In the business market international calls are worth #700 million and trunk calls #900 million. Local calls are worth #1 billion.
There is little wonder, then, that new operators tend to congregate around large cities where the infrastructure is mature or investment in new networks can be covered by the many organisations that are likely to buy your services. For instance, the financial square mile is full of telco suppliers. ?Everyone is targeting the top 500 companies that each spend millions of dollars on telecomms services,? said Bosworth.
?However, smaller sites with fewer than 100 staff are not served as well because they are spread all over the UK. No-one is serious about small businesses or the residential market,? he continued. This is short-sighted since 73 per cent of the trunk call market is made up of such organisations.
Operators have to face the cost of putting an infrastructure in place, which could amount to hundreds of thousands of pounds, and then the challenge of competing effectively with carriers well established in the area. ?It takes two years to get something out of the door let alone gain market share,? said Bosworth. He believes the operators need to be more realistic about market share they can win. For instance, it is costly and a waste of time to target both business and consumer users. ?Even if you get a licence it doesn?t mean you?ll make money," said Bosworth. A 20-30 per cent market share forecast would be sensible. But then Mercury, which was unleashed into the UK years before the rest of the pack, has barely gained 10 per cent of the market.
The choice of which market to target is made even more complex by the differences between countries. The UK and Sweden were the first European countries to become deregulated and competition is fierce. At the moment everyone is vying for a significant base in Germany, the biggest market in Europe but where liberalisation has been slow. Germany is followed in terms of market size by France, UK, Italy and then Spain.
Many suppliers are targeting multinationals with end-to-end data and voice services such as virtual private networks, which lower the cost of leased circuits by 20 per cent, frame relay, packet switching and ATM. ?Telecomms suppliers want to be able to say to big multinationals like Ford, we can look after your networks across the world,? said Bosworth.
To do this suppliers are signing joint venture deals with operators in other countries. The large national operators are investing in emerging carriers in Europe while buying shares in north American operations. The strongest alliances are Concert, made up of MCI and BT; Global One, which includes Deutsche Telekom, Sprint of the US and France Telecom; plus World Partners, consisting of AT&T/Unisource and several companies around the Pacific Rim.
The fourth contender is Cable & Wireless, which is weaker than the other three, but has refocused through recent mergers on the cable space. According to the December issue of research company Ovum's bulletin ?Telecomms Alliances?, Cable & Wireless finished 1996 as an analysts? darling, in marked contrast to the slatings it suffered earlier in the year. Things have looked up since the formation of C&W Communications, which is made up of serveral cable concerns, plus the strengthening of its German activities following the addition of RWE as an alliance partner. Ovum believes C&W is likely to merge with Nynex - already a partner in the cable joint venture - giving its a much needed boost in north America while a rumoured tie-up with Global One would mark the end to any aspirations it might have as an independent player in multinational services, but would add to its market weight.
World Partners is a loose grouping of suppliers while Global One lacks significant UK presence. This may change if Deutsche Telekom purchases a UK operator, as it is widely tipped to do - Mercury could be a good catch. For the MCI/BT collaboration, catching a significant partner in the Far East is a primary goal. Last week BT shares shot up on the news that the chairmen of the two giants were in Japan meeting with officials of Japanese carrier NTT, which is also facing deregulation. BT refused to comment on whether it visited NTT but confirmed they were in Japan.
All these activities and speculations indicate that the race is on and everyone is jostling for position - but with less than 12 months to go, anything could yet happen.
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