Getting their skates on - Opinion

CommunicationsWeek International, Feb 4, 2002 by David Molony

The telecoms industry is getting ready for a new era of competition. This next, crucial phase of market development, post the failing liberalization programs in Europe and the United States, will be led by a new generation of service providers and communications services aggregators. They understand that the next wave of competition will not depend on building infrastructure, but on getting and using existing networks in a variety of innovative ways.

We think this will produce a massive surge in connectionless competition, where virtual networking meets with the dominant network providers in a new kind of business model. No more fighting for colocation space at the local exchange. No more gruelling contract negotiations with operators and regulators.

The possibilities for this business model are in stark contrast to the problems of capital-intensive projects like Enron Broadband Services and Global Crossing. Connectionless competition could be the key to unlock the real value in these networks because it shifts attention to the retail market and away from the wholesale trade, which has in a sense exhausted itself.

Like free skaters in an ice rink, the next generation of service providers will hardly be aware of the complex interconnected network that generates and regenerates their working surface. All they want is freedom and flexibility to move about quickly and effortlessly, solo or in partnership. They'll develop and adapt their performance as they get more familiar and confident with their medium.

These companies can succeed where Internet browser resellers failed because they address the real, physical networking requirements of content and applications providers--they recognize that the most advanced Internet service needs a bit of legacy network outdoors, even if it doesn't want to be distracted by it.

Participants in our network hosting roundtable (see p. 10) thought this inability to match legacy network with applications technology was one of the key points of failure leading first to the dot-com crash and later the telecoms capacity crisis.

Competitive operators like Riodata, in Germany, are remodelling their business or marketing plans based on virtual networking arrangements. Transact Communications, in Sydney, is offering what it calls an open access model for content providers. It will arrange the physical networking among Australia's broadband carriers, into which local media and applications developers will be let loose.

There are also opportunities to cater to the connection-less operator, like Bulldog Communications, with its wholesale DSL idea. Telecoms software and middleware developers like ECT, in Munich, will sell intelligent networking software to operators to produce the virtual switching and operating effect.

These next-generation entrants are still willing to compete, even though the first round has gone so emphatically to the incumbents. Colin Williams, former chief executive of city business operator MFS, in London, is now leading a new Internet peering venture called PacketExchange, which could help smaller ISPs get on terms with big players. At Level 3 Communications, where Williams spent some time, he saw how a big company can spend money. His new venture is doing everything but: it has bought its office PCs at auctions on eBay.