Telecom leaders ponder rough road to IP future

Like the proverbial elephant in the living room, the downturn in the telecommunication market was undeniable for Sprint Corp., WorldCom Inc., British Telecommunications PLC (BT) and France Télécom SA officials speaking at an industry conference here, though they all promised IP (Internet Protocol) networks would lead the way out of the slump for the major players that survive.

Furthermore, consumers in Europe can expect to benefit because it will be the services and applications provided over those IP and developing 3G (third generation) wireless networks that will not only breathe life back into the telecommunication markets but will also force the telecom companies themselves to focus on the needs of its customers, according to the speakers at the Financial Times' World Telecommunications Conference here on Monday.

"I'd like to acknowledge that we have had some significant challenges (in the telecommunication market). But we are not so much at a crossroad as we are changing course. Established companies have been trading small to medium to large corporate customers like pairs of trousers and not focusing on their needs," said Len Lauer, the president of Sprint's global markets group.

Chris Earnshaw, BT's group engineering director and chief technology officer agreed that future growth would be, in part, about satisfying customers. "There is an understanding that there is no magic silver bullet. But future applications will be an important stimulus for the use of broadband. We now ask, what are those applications going to be? What are we going to use broadband for?"

Like Lauer and Earnshaw, the other speakers in the morning session, Jean-Louis Vinciguerra, France Télécom's senior executive vice president, and Lucy Woods, senior vice president for WorldCom EMEA (Europe, Middle East and Africa) acknowledged their companies' large debt loads must be reduced, that their efforts at global joint ventures failed and that no financial good news is expected in the European telecommunication market in 2002.

But despite the financial losses, debts and the failure of former joint ventures between the large telecommunication companies -- Global One Communications Inc. for France Télécom, Sprint and Deutsche Telekom AG, and Concert Communications Co. for BT and AT&T Corp. -- they have all learned important lessons and still believe that offering services over IP networks will be the path to future good fortune.

For example, as of June 30, France Télécom reported a net debt of 64.9 billion euros (US$58 billion). By October, however, the group was reporting revenue growth of 7.3 percent for the first nine months of the year compared to the same period in 2000, as a result of its ongoing expansion in the wireless and Internet services, Vinciguerra said.

"We will (scale back and) focus on expansion within Europe for the next two to three years. We will focus on wireless and Internet services. And we think, that as far as France Télécom is concerned, we can achieve our debt reduction program. We won't have to go the KPN route," Vinciguerra said.

Dutch telecommunication provider Koninklijke KPN NV has been forced to lay off over 6,000 employees as part of a restructuring bid to reduce its 22.3 billion euros (US$20 billion) of debt. The company has not only seen its share price crumble but its long-term prospects have become unclear as the company continues to look for a partner to merge with.

"I think consolidation is happening, but (how it happens) will depend on the market. Global One was a very specific segment of the market and that didn't work. Consolidation will come market by market, or segment of market by segment of market. I believe we will end up with three, four or five big players in Europe," France Télécom's Vinciguerra said.

Lauer agreed with Vinciguerra that the telecommunication market will continue to consolidate -- though not in the way that has been previously anticipated with international joint ventures -- and that many of the smaller carriers will not survive.

"A smaller group of telecom companies will emerge in the next few years. There will be clear winners and clear losers. Right now, it is easy to see who those losers are as companies begin to file for bankruptcy, but it won't be long before the winners begin to emerge -- and those winners will most likely be those who were around before the dot-com boom," Sprint's Lauer said.

U.S.-based companies, such as Sprint, WorldCom and AT&T will have to build their own infrastructure in Europe while working with smaller players, Lauer said.

"When we stepped out of Global One, we began to focus on a facilities-build strategy. In the future, we need to think globally and act locally," Lauer said.

In October, Sprint announced it had completed its fiber-optic IP network connection across the Atlantic Ocean and extended its SprintLink Internet backbone into 11 cities in Europe. In February, Sprint unveiled its plans to work with a subsidiary of Swedish telecommunication company Telia AB to provide Internet services to Europe, initially with 2.5G bps (gigabit per second) of network capacity and upgrading to 10G bps capacity.

"We are striving for the same architecture worldwide which, for customers, means fewer hops, fewer stops and faster service. We are positioning ourselves to be a key IP network provider. Businesses need solutions providers, not just transport providers. How do we solve customers' business problems? It's really about applications ... critical business applications hosted by the network provider," Lauer said.

According to Lauer, another potential cash cow will be in IP VPNs (Virtual Private Network), though as WorldCom's Lucy Woods pointed out there are still service issues that need to be addressed with IP VPNs. "Things like billing issues are things that we need to be good with as well as with security when it comes to IP VPNs," Wood said.

Woods stressed the need for telecom companies to offer new services over its networks. "It is time for hard choices and those choices are neither high tech or new. Gone are the days of price-only competition. We need to stand our ground on price. New products will continue to bring opportunity and the huge opportunity of broadband has yet to arrive. Every day, voice (revenue) declines and data/IP revenue streams increase," Woods said.

BT's Earnshaw said that demand in the U.K. for ADSL (Asymmetric Digital Subscriber Line) network connections has been steadily increasing and that in the past two months alone, orders have jumped from 2,000 per week to 4,000 orders for ADSL per week.

"Broadband, like hot water, is not absolutely essential, but it is extremely inconvenient to live without," Earnshaw said.

Online services and applications for things such as music and games will be an important stimulus for the use of broadband as users begin to realize what broadband can do for not just for businesses, but on a personal level as well, Earnshaw said. "If you look at what large corporations like Oracle (Corp.) and Microsoft (Corp.) are doing, broadband is clearly going to enable a different sort of world," Earnshaw said.

Sprint forecast that its strongest growth will be in wireless and IP, with IP services representing 6 percent of its revenue by 2005, up from 1 percent in 2000, and wireless accounting for 57.6 percent of its revenue by 2005, Lauer said.

But though the speakers were united on the need for wireless as well as broadband services and applications over IP networks, there was division between the European incumbents -- France Télécom and BT -- and the U.S. rivals.

Woods pointed to a joint letter sent last month by 13 telecommunication companies to the European Commission (EC) complaining that incumbent telecommunication companies are failing to allow new entrants fair access to the telephone lines that lead directly to people's homes and to businesses.

"We are confident that (the letter) will have an effect within the EC and will force the EC to regulate. The incumbents in most countries in Europe are the only ones offering DSL (Digital Subscriber Line). Regulation needs to be efficient and effective. We need to think and act as a mature industry that's worth investing in," Woods said.

"It is still not possible for a newcomer to stand up here without addressing regulation and all the old chestnuts. There are bottlenecks in access and termination and here regulation is still essential," WorldCom's Woods said.

Before Woods became an employee at WorldCom two years ago, she had worked at BT for 18 years, she said. "As someone on both sides of the table, high-level nudging of the incumbents won't work."