WANTED: Real global telecom choice

America's Network, Sept 1, 2000 by Grahame Lynch

Multinational users continue to demand real choice. Existing global carrier offerings are hamstrung by corporate musical chairs, inadequate liberalization and a trend toward economic harmonization that may drive corporate decentralization

The age of globalization, or more correctly, the second age of globalization, is with us. World trade as a percentage of economic output continues to achieve highs only previously reached at the turn of the 20th century, when the economics of European colonialism held sway.

For North American telecom operators, globalization presents two major opportunities -- the increased ability to acquire foreign operators and the potential to provide both global and foreign domestic services to multinational customers. The demand is there. The top 50 US multinationals generated something like $800 billion in revenues from their offshore operations last year.

The question is whether established operators have the smarts to adequately exploit this market.

Anyone who doubts the rapid rush to the global, networked economy only has to look at stock markets. Over the past 12 months, the world's major stock markets have been engaged in an unseemly rush to merge, partner and align themselves. The highest profile merger is the proposed union of the London Stock Exchange and Deutsche Borse in Frankfurt, to be headed, interestingly, by former UK telecom regulator Don Cruickshank.

Others are also in on the game. Exchanges in France, Belgium and the Netherlands are merging to form Euronext. Zurich's exchange is merging with a small London exchange, Tradepoint, to form Virt-X. The American Stock Exchange has formed a joint venture with the Singapore Stock Exchange.

And NASDAQ has pursued all manner of hookups, including a proposed merger with its German equivalent, Neuer Market, and alliances with major exchanges in Asia.

TRIUMPH OF THE NETWORK

As The Economist recently noted, these mergers are guided by the idea that communications technology overrides geography. The merger of trading operations will increase liquidity, thus increasing the exchange's attractiveness and creating a positive network effect. Technology allows traders to operate from anywhere, leading to a situation where only the biggest, techno-savvy exchanges can survive.

But are existing telecom operators up to the task in providing this emerging global financial community with the reliability and affordability it requires? Traders who experienced days-long network outages at the London Stock Exchange in early April this year and the Chicago Board of Trade in mid-August last year probably don't think so.

In fact, the only operator to have achieved optimal credibility in the global financial sector is obscure extranet provider IXNet, which was recently bought by Global Crossing.

IXNet has secured 2,000 financial customers to its service, which combines telecom capacity with vertically geared services such as desktop stock information provision. As IXNet executive Drew Kelton explained to this writer last year, the key to IXNet's success is its emphasis on customer-centric reliability over one-size-fits-all technology provision. For example, IXNet is skeptical about use of IP and compression for voice, preferring to stick to proven tie-line technology.

IXNet's purchase by Global Crossing will see its existing patchwork network replaced by a reasonably contiguous backbone. This should be a plus for customers. But for the most part, the multinational user still has to deal with a variety of suppliers and networks.

NO CHOICE

"At present there is very limited real choice. What business wants is effective choice and reasonable prices," says Diana Sharpe, chair of the International Telecom Users Group, a Brussels-based lobby group that names American Express and Shell among its members.

Sharpe says that telecom liberalization has only created limited competition to date. Speaking in Paris, she said: "Today, competition can only be found in the centers of a few major cities and on the routes between them. It is fine here in the 4th Arrondisement (of Paris), but extremely limited at home in rural Suffolk."

British telecom lawyer Allan Fischer-Madsen agrees that global carriers still have a long way to go before they provide true competition. "It is only the beginning of the end of the tyranny of distance. Its death has been much exaggerated. The vast majority of tariffs still depend on distance and where they cross national borders the prices can jump out of all proportion," he says.

"It is possible to find high levels of competition in London and Frankfurt-am-Main and between the two cities. It is a different matter beyond the suburbs, in smaller towns and the countryside. Equally, there are many segments of the market, such as large corporations, SMEs, residential and so on, not all of which have yet seen the benefits of competition."

Global carriers disagree, and claim to have the customer references and revenues to back them up. There are at least seven significant global operators -- WorldCom, Concert, Global One, Cable & Wireless, Equant, Infonet and Global Crossing -- servicing a multinational customer market worth as much as 10 billion dollars annually. Exact figures are hard to define, because no two operators report their revenues in the same way.