KPNQwest, Level 3 Execs Stress Bandwidth Plus

LONDON (03/15/2000) - If a network provider is to survive in these competitive times, bandwidth alone is not enough: applications hosting and e-commerce must be part of the picture. So said rivals KPNQwest BV Chief Executive Officer and President Jack McMaster and Level 3 Communications Inc. Executive Vice President of Global Services and Systems Colin Williams, speaking at the Beyond Networks conference here yesterday.

"The death of the proprietary networks is already in view. In the future, we will not be able to see the line between content and bandwidth distribution.

Having large, dense bandwidth is only the opening ante," McMaster told the conference.

In what McMaster jokingly referred to as a "ham and egg act," they couldn't have been in stronger agreement. Both said that the most successful companies will have ASP (application service provider) and e-commerce services layered on top of dense bandwidth applications.

"Applications hosting is emerging. Communications and IT are converging," McMaster said.

Level 3's Williams also said he strongly believed that while offering dense bandwidth is important, network providers need to expand on what he called a horizontal model.

"The opportunity to create value is moving to a horizontal model," Williams said.

"I'm afraid this is not much of a debate up here as Colin and I seem to be in full agreement," McMaster added.

Williams pointed to the recent merger agreement between Vodafone AirTouch PLC and Mannesmann AG as proof of the strength of horizontal business models over vertical business models. Mannesmann had argued for mobile and fixed line vertical integration, while Vodafone stated its strategy was to add access to data and the Internet over its mobile telecommunications service. [See "Vodafone AirTouch Unveils Mobile 'Net Strategy," Jan. 11.] "In the case of Vodafone and Mannesmann, horizontal integration won out," Williams said.

Both McMaster and Williams said end-to-end broadband networks that stretched over continents are a key aspect of providing network service, but that broadband is becoming an elastic commodity. "Optical technology performance is doubling every nine months. It is important that we as an industry get to grips with how fast our costs are changing," Williams said.

Williams highlighted industry cost compressions, saying that between 1997 and 2000, the industry saw a 45 percent decrease in costs and 65 percent decrease in prices. "The combination of rapidly dropping costs and prices, and the increasing demand is a key dynamic in the communications industry," Williams said.

"The implications in looking forward are, if you're not going to upgrade constantly, you're going to be in real trouble. Multiple conduits and riding the cost curve is the answer," Williams said.

McMaster added that the ability to increase bandwidth has to be the foundation of a horizontal business model. "This is not a game for people who don't have deep pockets. The question is: what would you do with the bandwidth to change the business model?" McMaster said.

Both McMaster and Williams stated that the industry had no need to fear an abundance of bandwidth. "There have been projections that we will need 2M bits per person -- I don't think that's a lot -- and that requires a 75T-bit network across Europe. We'd need ten of (KPNQwest's) networks to get to that," McMaster said.

"My team is now happily using terabits to forecast demand," Williams added.

McMaster said that the "great new data grid" being built across Europe and the U.S. by a variety of companies is bringing a revolution to the network industry in terms of a bandwidth perspective. "The advantage will be going to those who install end-to-end systems with cross-continental reach. Everything we do from an economic viewpoint has to be scalable, scalable, scalable," McMaster said.

This scalability must be present not only in the networks, but also the applications offered over those networks, as well as the business models and the management teams running the companies, both McMaster and Williams said.

"Companies willing to spin their assets and let go of vertical models will succeed. You have to see that the whole thing will be driven by ASPs. It isn't just about opening a hole and filling it with fiber," McMaster said.

Level 3, in Broomfield, Colorado, can be contacted at +1-720-888-1000, or at http://www.level3.com/. KPNQWest, in Hoofddorp, the Netherlands, can be contacted at +31-23-56-87-676, or at http://www.kpnqwest.com/.

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