InformationWeek
Defining The Business Value Of Technology
December 22, 1997
Telecom Promise
A new competitive landscape in Europe will improve service, pricing--eventually
"It might be better to describe it as the beginning of deregulation," says Malcolm Wollaston, global telecom manager for 3M Co. in St. Paul, Minn., and deputy chairman of the European Virtual Private Network Users Association, a 65-member group of companies with significant telecom business in Europe.
On Jan. 1, most of the 15 nations that make up the European Union, plus countries such as Switzerland that follow the EU's policy lead, will open their telecom markets to full competition. The telecom
markets in the United Kingdom and Sweden are already among the most open in the world. Recently, France, Germany, Italy, the Netherlands, and Spain set up rules and rates to let competitors connect to the incumbent carrier's network in each country.
But those terms are being challenged in Germany and Italy, and incumbents have been generally slow to cooperate with EU telecom dictates. In France, for instance, Cegetel Enterprises SA-a consortium that includes BT, SBC Communications, and Mannesmann AG-will likely be the only competitive carrier to offer a nationwide voice service for businesses and consumers come Jan. 1, despite the fact that several other carrier groups have been assembled in that country. Add to that the fact that Ireland, Luxembourg, and Portugal are excused from the EU competition dictate until 2000 and Greece until 2001, and it's easy to see why U.S.-based customers are finding it difficult to make or change their telecom plans across Europe.
"It is still very fragmented," says To
m Loane, CIO of Transportation International Pool Inc., a company in Devon, Pa., that rents and leases trailers and trucks. "Anybody who thinks that European Union means anything should realize how many telephone plugs I had to take on a recent trip to Europe."
Especially for companies with operations across Europe, islands of national telecom competition aren't enough. There is little in the way of coordinated, pan-European service.
Some companies, such as Viatel Inc. in New York, have installed their own switches in major European cities and offer pan-European services-over mostly leased lines-from each country's dominant carriers. More significantly, WorldCom, with fiber-optic networks in major European cities, plans to connect those networks as part of a plan to become a partly facilities-based, pan-European carrier.
But WorldCom is just in the early stages. "There's a lot of fiber in the ground, but it's a patchwork of bits and pieces connected together," says Bard Haerland, VP of worldwi
de telecom for Unisys Corp. in Blue Bell, Pa. Unisys and other big telecom customers are still waiting for the newest competitors to show them the network. "I'm having a real hard time getting any meaningful service offerings out of liberalization at this stage," Haerland says. "We hear a lot of plans, but we'd like to see something a little more concrete, like build-out dates with finance planning behind them."
Even as new carriers evolve, telecom managers say they will probably stick with the former monopolies for most of their business. For one thing, the threat of competition is prodding the incumbents to improve service and lower prices, especially for large-volume customers. 3M, which spends $30 million on telecommunications in Western Europe, is unlikely to put its business at risk "with something relatively small and untried," Wollaston says. Besides, 3M can't afford to manage a host of new carriers, he says.
Still, some customers are eyeing Europe's new telecom competitors for specific req
uirements. In the United Kingdom, Bay Networks Inc. recently turned to alternative provider General Telecom for 64-Kbps clear-channel leased-line service between employee home offices and the local Bay Networks office. General Telecom priced the service so low that Bay could justify it for users who needed it just two hours a day. With BT's rates, customers had to use the service for four to six hours a day before Bay could cost-justify it, says Jean Claude Barrier, who oversees Bay's IS operations in Europe.
56-Kbps Across Europe
Douglas Fields, VP of telecom for United Parcel Service in Atlanta, says installation cycles are now shorter, coordination among carriers is improving, and performance manag
ement is better across Europe. Unisys telecom manager Haerland says the incumbent carriers are at least willing to talk about lowering prices, though they want to lock customers into long-term contracts before competitors hit the market.
The inconsistency of service and pricing seems to bother customers the most. Frame relay, one of the most popular U.S. data services, is still hard to find in many European countries, says Loane.
Litton Industries Inc., which wants to expand its European telecommunications to support sales and marketing for a submarine systems group, recently discovered that high-speed Internet connections in Germany are two to three times pricier than in the United States. "The quality is there, but hopefully with deregulation, the pricing will get better," says Jeffrey Calisch, director of IS for the Woodland Hills, Calif., shipbuilder.
Telecommunications isn't likely to improve considerably in Europe until national regulators become strong enforcers of EU law, analysts say
. "If there isn't progress, in 1999 there will be a lot of pressure to create an office that will do pan-European licensing and network interconnect regimes," says Graham Finnie, an analyst with the Yankee Group Europe.
Still, there's promise. Companies look to the success of Europe's pan-European digital cellular network, called GSM, as a model for broader telecom competition. At least two competing carriers in most European countries now provide high-quality GSM services with sophisticated bills that show type of call, type of access, and which employees are using extra services such as voice mail, and for how long. Meanwhile, GSM prices have dropped 20% to 30% in three years.
"We're getting a flavor for what the future will hold," Bay's Barrier says. "We're used to working in a monopoly situation, with just one service provider. We're looking forward to having more than one carrier, bringing lower costs, and being treated like a customer, not just a user."
S.-based multinationals have been longing for the day when they can buy high-quality, reasonably priced telecom services across Europe from a choice of carriers. Jan. 1 marks the dawn of that new, competitive telecom era in Europe. But as with U.S. deregulation, Europe's telecom transformation won't happen overnight.
The threat of competition is having an effect elsewhere. Transportation International's Loane notes that 56-Kbps digital service is more widely available across Europe, often priced in line with U.S. services. "Two years ago, you might only be able to get 9,600-baud analog service," he says.
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