Post-crash, a little caring and sharing may be on the way; unwieldy consortia such as Inmarsat, Intelsat and Infonet have replaced their committee structures with a slicker corporatized approach - Telecom Planet - Brief Article - Interview

Telecom Asia, May, 2002 by Grahame Lynch

Given the failure of several major telecom business models across the world in the past couple of years, there's has been a surprising lack of self-analysis by the industry as to what went wrong. Very few industry leaders have had much of note to say on the topic except to make a claim that their own company embodies some kind of exception to the paradigm. Some even deny a problem, claiming talk of such things as a bandwidth glut to be a media beat-up.

So, it was somewhat refreshing to hear Australia-Japan Cable CEO Robin Russell abandon the sales pitches typical of telco CEOs at major conferences and examine some of the weaknesses of business models in the submarine cable market.

Russell, who expanded on his views in interview with Telecom Asia, believes that the two major business models employed in the submarine cable market--the private operator model and the consortium model are fatally flawed. He offers a more co-operative hybrid model as an alternative.

The private operator model--best exemplified by Global Crossing--is flawed because to achieve differentiation from the consortia, it attempts to be as close as possible to a full-service end-to-end operator.

This requires participation in the retail market and leads to a situation where the operator begins competing with its own customers. Russell points out that it is difficult to gain the confidence of skittish customers--especially those with access to club cables--in such a scenario.

But the consortium model is flawed because it moves too slowly, Russell argues. Decisions get bogged down in unwieldy committees while strategies that might be in the interests of the majority can be vetoed by one or two malcontents.

The solution, argues Russell, is for the industry to adopt a hybrid of the two models.

The consortium model of having major telcos as key shareholders is worthwhile to the extent that it shores up the financial viability of the cable build and guarantees a revenue flow a simple reflection of the reality that most traffic on major routes is carried by a small number of large and dominant telcos.

But under Russell's hybrid model, these telcos should take a back seat in the operation of the cable and outsource management and strategy to a corporatized, professional leadership structure. This would ensure that the business was run properly and efficiently, especially in regard to servicing non-shareholder customers on an equal and fair basis.

If the cable management owes its loyalty to the cable business rather than the interests of individual shareholders, alternative carriers are more likely to award the cable their business he argues.

Greater co-operation

Russell's idea is, of course, not without precedent. Unwieldy consortia such as Inmarsat, Intelsat and Infonet replaced their committee structures with a slicker corporatized approach, and have consequently been able to withstand strong competitive assaults from the likes of Iridium and Globalstar.

Even in the cable world, miniconsortia have become popular on trans-Pacific and trans-Atlantic routes.

Whereas consortia such as SeaMe-We III and APCN include from between two dozen to over 40 members, cables such as Gemini, Australia-Japan Cable and Southern Cross have typically included just a few key shareholders, reducing inertia in decision-making and enabling a more proactive approach to marketing capacity to non-members.

Russell predicts that existing consortia and private operators will yield to a greater sense of co-operation, even to the extent of combining efforts where telcos continue to act as owners but outsource management to professional and experienced teams of the private operators.

What's good for the submarine cable sector may also be good for the 3G wireless sector--that other great victim of massive capital distortions and misallocation.

Already some European 3G operators have combined efforts to share their network investments, while in other places regulators have actively sought to prevent overbuild by mandating that operators provide capacity to virtual operators.

More co-operation and hybridity would be good for both long haul and wireless operators. Could such a solution also be employed for builders of alternative local infrastructure? Given the phalange of LMDS, copper local loop, WiLL, mobile, powerline and HFC deployments across the world, sensible industry rationalization and cooperation could also have a positive effect in the local market.

Grahame Lynch is a global telecom commentator and author. He can be contacted at www.grehamelynch. com