December 6, 1999

Printer ready

Global Outsourcing Grows
Three deals, worth $1.2 billion, prompt a question: Is it time to let carriers manage your international network?

By Bob Wallace

Related links:

Global E-Commerce

And from our sister publications:

Tele.com The World Stage Tele.com Local boy goes global--And Back Again

orget empty promises of one-stop shopping and failed global alliances. A new generation of telecommunications megacarriers-fortified by multibillion-dollar mergers-may have figured out how to serve multinational companies doing business globally.

Three large businesses apparently think so. BP Amoco, Delphi Automotive Systems, and General Motors last week collectively committed nearly $1.2 billion over five years in outsourcing contracts with MCI WorldCom and AT&T, saying the deals will improve their core business processes and help with E-commerce initiatives. The carriers are building and managing global IP networks for each customer. The companies are either using or considering other services, such as Web hosting, virtual private networks, and managed firewalls.

"The real benefit of the network is that it will serve as the underpinning for our E-business agenda," says Peter Dudley, group telecommunications manager at BP Amoco, in London. "We're in a fast-moving business and need the bandwidth and functionality of the network to be successful with E-commerce."

More businesses are likely to follow, according to Tom Nolle, president of CIMI, a consulting and research firm. "Any company with more than $50 million in annual revenue needs to seriously consider international network outsourcing to enter global markets quickly," Nolle says. The need is especially pressing overseas, given the complexities of managing cross-border networks. "I expect all of international networking to be outsourced before even 20% of networking is outsourced in the United States," he adds.

Global service offerings aren't new; carriers have tried and failed in the past to make them appealing. But their offerings have improved. AT&T, Equant, and MCI WorldCom are building networks in many countries where regulatory restrictions have loosened. That gives them end-to-end control of fiber-optic capacity, switches, operational systems, and billing, rather than having to coordinate with foreign telecom partners as in the past. All three new customers say this was a key selling point.

The carriers are also offering more services to a broader audience. In the past, global offerings were limited to leased-line and switched-digital services for the largest companies. Now, MCI WorldCom and AT&T have established outsourcing units that design, build, and manage global networks for midsize and large businesses. Also, customers can select from a variety of services, including Internet access, Web hosting, VPNs, and frame relay. And the carriers are helping companies extend E-business initiatives with consulting services that help customers enter the global marketplace.

There continue to be some downsides. AT&T and MCI don't operate infrastructures in every country, so they'll have to deal with foreign telecom companies in some cases. Plus, customers must give up some control of their networks, and the offerings aren't geared toward small businesses.

Still, the trio of global outsourcing customers say they're sold on the idea, even though the one-stop-shopping concept hasn't always lived up to promises. All three cite several benefits, including reduced communications costs, a single contact for all troubleshooting, and the ability to avoid overseas staffing shortages.

BP Amoco's five-year, $650 million outsourcing deal with MCI WorldCom will reduce the number of bills the energy company receives worldwide from 1,000 to one. Plus, the uniform network connecting 1,200 sites on six continents will facilitate BP Amoco's E-business initiatives. That's particularly important to its new electronic-procurement team, which is working on about 100 projects. BP Amoco plans to shift the purchase of basic catalog items to the Web by year's end, saving about $200 million annually. It's also testing online sales of oil products in Australia. The company says deals closed by a salesperson cost $400 each, as opposed to 40 cents for an E-commerce transaction.

Like BP Amoco, E-business initiatives have driven Delphi Automotive Systems to its $160 million global outsourcing deal with AT&T Solutions. Delphi's network will link nearly 300 sites in 37 countries, cutting annual communication costs by about 30%.

Delphi CIO Peter Janak calls the global network "a fundamental element" of the company's goal of optimizing ties with suppliers and customers. "Today, many use low-speed lines or fax machines to communicate with us," he says. "The new network will provide the increased bandwidth we need to work more quickly together as speed is the name of the game."

GM says its new network, provided under a $350 million outsourcing deal with AT&T Solutions, will yield the bandwidth needed to support its fledgling

E-commerce efforts. But enhanced collaboration to produce cars more quickly, coupled with reduced costs, topped its list of business priorities. "Now that we have all of the GM world on a common computer-aided design system, the next step is to move data back and forth between designers, which has been inhibited by bandwidth," says Bob Chaffin, director of finance and contract management for the automaker's information services and systems unit.

The carriers have made a variety of acquisitions that have helped convince customers to sign up for their services. But the key to attracting more businesses will be how well-and how swiftly-they integrate those acquisitions. AT&T is a month away from completing its $5 billion buyout of IBM Global Network, which broadens global coverage and adds up to 6,000 skilled workers-40% outside the United States. The deal also gives AT&T a platform to offer remote-access services. In September, AT&T and BT unveiled a joint venture, dubbed Concert, that will provide access to more cities.

MCI and WorldCom merged last year and have since been building networks in other countries, complementing WorldCom's previous global buildouts. "We're spending $7 billion in facilities buildout in 1999 alone," says Tony Russo, senior VP for MCI WorldCom's Global Solutions unit. Its ownership of UUnet, the world's largest Internet backbone provider, gives the carrier extensive Web-hosting capabilities.

Global outsourcing has worked well for Bank One Corp., which signed a $1.4 billion outsourcing deal with AT&T Solutions in October 1998 to upgrade its network. "We were growing a lot through mergers and acquisitions and needed to integrate the networks of the institutions we acquired with Bank One's own growing IT infrastructure," says Mike Keller, chief technology officer of the Chicago bank. Among the benefits: AT&T Solutions manages the infrastructure, Keller says, and its fees are based on network usage. -with additional reporting by Larry Greenemeier

Back to This Week's Issue
Send Us Your Feedback
Top of the Page

---