Pan-European Networks – Searching for direction

In fact, rather than being the cautious and unrewarding play that some predicted, a national and metropolitan – rather than international – focus may well turn out to be to some carriers` advantage, if only because there is less competition in these areas. And this could leave incumbents, still in control of most national local access and with strong domestic revenue streams, once more in a favorable position.

According to Jerome Faul, chief executive at Corvis Algety, a Paris- based subsidiary of optical equipment manufacturer Corvis Corp., approximately 80 % of the fiber in the ground in Europe was not laid in recent years.

Much of that older network belongs to former incumbents, and he argues that it still has considerable potential value. "They have assets they didn`t think they had," says Faul. As demand for broadband services grows, incumbents have the networks in place to serve businesses nationally, and likely without the competition they once faced.

Rickard, at Gartner, explains that national operators` networks make up the majority of older fiber, linking the domestic cities and towns of an entire country – networks for which there is little or no competition. "Every man and his dog linked Paris and Amsterdam, (but) not many people linked (smaller regional towns and cities)," says Rickard. "You can`t buy a failed start-up to link cities in dense national networks," he points out.

Competition in local access is also restricted in European markets where incumbents still have a firm grip on the last mile. "Infrastructure is heavily overlapping in certain areas, but there are hardly any new access networks installed (to compete with) the incumbents`," says Aad van Diepan, executive director, city networks, at Global Crossing Ltd., headquartered in Hamilton, Bermuda.

As a result, even though prices for bandwidth have fallen on some metropolitan routes, such as in Paris, London and Amsterdam, local access has survived assaults on pricing levels much better than long distance. "The local tail has gone up from 15 % to 60 % of (the cost) of the average circuit in Europe," says Elliott at Band-X.

Corvis last year bought French optical company Algety Telecom, which designed optical switches to draw the maximum capacity out of old fiber. France Telecom is currently trialing optical equipment from Corvis Algety. "We are trying to prove to historical operators that they can use fiber from the late 70s and 80s," says Faul. "We see (incumbents) as a major market."

In any event, others say advances in network equipment technology may even render some recently-laid networks near- obsolete. "These (networks laid in the last few years) will be old technology, so there will be a lot of dead assets," says Ohad Finkelstein, chief executive of Interoute Ltd., of London. "`No legacy`: there`s a very limited amount of time you can say it. Once you put in a network it`s legacy."

So which European network operators stand to win out? Incumbents BT, France Telecom and Deutsche Telekom all have huge debts, with France Telecom in June earning the dubious honor of most indebted company in the world with debts of EUR61.6 billion. In spite of this, and even though big strides have been made by new entrants over the past 12 months (CWI, 24 September), when it comes both to inspiring customer confidence in their longevity and a secure revenue base, it seems national operators still have the edge, particularly in retail markets.

"The winners in the short term are national operators," says Elliott at Band-X. "Despite the appalling stress of 3G (investments) ... they are big battleships that can take a lot of battering. The smaller players are like lightweight yachts in the wind."

Increases in data traffic on incumbents` networks in recent months point to future growth. "France Telecom`s data traffic increased 50 % in the first half of this year," claims Faul at Corvis Algety. "Sooner or later, this will have an impact on the network. We`re facing a period where operators have decided to delay investment (...) (but) since traffic is still growing, it will have to start again."

Analysts note that newer pan-European operators still standing are more likely to survive if they have deep pockets – or backers with deep pockets. But clearly it`s not as straightforward as that.

Wholesale services may be an appealing, simple business model that requires a lean sales and support team, but the largest margins come from delivering value-added, targeted services to end-users. "There is a greater elegance to being a pure-play wholesaler, but it helps to have a cash-cow," says Rickard at Gartner.

KPNQwest, Interoute, Storm Telecommunications and Global Crossing all have been gearing up enterprise services, having grown up out of a wholesale business model.

KPNQwest NV, of Hoofddorp, the Netherlands, started business with the customer base of enterprise Internet service provider EUNet International BV, and has also built up Internet protocol virtual private network services (IP VPNs). Today, almost 50% of its revenues come from retail enterprise rather than wholesale business, according to Keith Westcott, managing director of KPNQwest U.K. Storm Telecommunications Ltd., of London, is aiming its Ethernet transmission services at banking, broadcast and film companies, partly because these are centrally located in big cities and pose fewer problems to connect to Storm`s network, says Andy Wood, chief technical officer at Storm.

One of Storm`s selling points, he claims, is its Internet protocol-based Ethernet network. "Ethernet is cheap, agile and (corporates) understand it," says Wood. In spite of this, former wholesale operators have yet to convince analysts that they have the expertise and manpower to provide and support enterprise services to compete with those of established global service providers Equant NV, of Amsterdam, and Infonet Services Corp., of El Segundo, California. "I don`t see many (new entrants) making a break into the big league of corporate services," says Rickard.

For one thing, restructuring to provide value-added enterprise services, which require much bigger sales and support teams than wholesale, is made more difficult currently by the need for many operators to cut staffing costs.

"It`s very different selling (enterprise services)," points out Young at Ovum. "They need back office (and) customer support. They weren`t set up to do that. They have to move up the value chain. Whether they can do it convincingly is another matter (...) particularly at a time when they are retrenching and downsizing."

In addition, operators not only have to create and support new services, they also have to assure customers they are going to be around long enough to provide them.

Those new entrants that say they are fully funded claim it is now easier to attract high-spending customers. Interoute, for example, whose services include managed IP VPNs is being considered by "more and more AAA customers that didn`t come to us a year ago," claims Finkelstein.

It says it has been forced to change its strategy as its former customer base of Internet start-ups has fallen by the wayside. "We have had around 20 % disconnect, so what we have been doing is to move the focus away from the dotcoms and on to France Telecom, Deutsche Telekom, AOL and Yahoo!," says Jeremy Barnes, director of IP services at Level 3.

"These are more mature companies with more protracted sales cycles, but over the last 5-6 months we have started to see that kick in," he says.

Most worryingly for new entrants still operating, the market is now focusing firmly on quick returns on investment at a time when it is difficult to predict when demand for the amounts of capacity on offer will occur. There is no guarantee that demand will pick up in time to salvage investments in networks that have already been laid.

"The (telecoms) business is behaving like the property sector. There are speculative builders (...) but demand will come too late," says Elliott of Band-X. "Whereas (U.K. building development) Canary Wharf could lie fallow between the building boom of the eighties and demand at the end of the nineties, (telecoms) network builders face decay."

Even though Deutsche Telekom, for example, is deeply in debt, it still may consider purchasing pan-European capacity. "Deutsche Telekom doesn`t have an international infrastructure installed. It`s indebted, but this stuff may get very cheap," points out Neil Rickard at Gartner.

Deutsche Telekom last year bought a 50.1 % stake in Debis Systemhaus, the IT unit of car manufacturer Daimler Chrysler, for an estimated EUR6.1 billion. This gave the German operator pan-European services expertise, but no network to back it up, says Rickard.

Once Telecom Italia sorts out its domestic affairs, most significantly the takeover by Olivetti, it too should consider investing in a cheap pan-European network, says Rickard. "Telecom Italia ought to be looking for an international strategy, period," he says.

Spain`s incumbent, Telefonica, may also decide that this is a good time to broaden its European reach, having focused its attentions in recent months on the Latin American market. Another potential buyer of network assets may be Cable & Wireless plc, of London, which still lacks dense coverage in parts of Europe and has the cash reserves to buy, according to Rickard.

But divesting interests may not be straightforward. Before network operators and service providers can sell assets, it has to be clear what they own, which until now has been notoriously difficult to ascertain. During the scramble for network build-out some operators performed swaps of fiber and ducts that often served principally to inflate the size of their networks.

"It`s a difficult market to be selling anything in," says Richard Elliott at Band-X. "There`s not only a ridiculous speculative build ... (but also) sales were puffed up by swapping. That falsely inflates the impression of the market size." Because of this and plunges in the value of equity, there may not even be many bargains. "There are not that many brilliant assets just because companies are going belly up," says Keith Westcott at KPNQwest. "With the exception of Viatel, none had very big networks."

Ironically, the string of bankruptcies and chapter 11 filings may now serve to clarify the extent of European network infrastructure. "The activities of administrators and bailiffs is forcing some transparency," says Stephen Young at Ovum.

As a result, there is considerably less competition in providing dense national and metropolitan coverage. "If you have a regional network in France, then you would get a much better price than between Paris and London," says Rickard at Gartner Group.

Competition in dense metropolitan area network (MAN) provision is further reduced by the fact that two MAN operators in the same city may not operate along the same streets. Whereas two long distance networks between Paris and London will take the same path, two metropolitan area networks in one city could cover different roads, thereby creating two separate networks and bypassing two different customer bases.

Some industry observers believe there will be further build out of MANs. Even so, Rickard believes operators will now look to the few companies with dense metropolitan coverage to meet their needs, rather than digging themselves. "Many people have built half-hearted metro networks: GTS, KPNQwest, Level 3, typically, built a single ring, (whereas) COLT and WorldCom have tens of rings in the cities they serve," he says. "Operators that built smaller rings won`t build any more and (...) will buy from those that have deeper MANs. The big will get bigger and the small will stop still."

Operators such as Global Crossing Ltd., of Hamilton, Bermuda, which initially built metropolitan area networks as an extension of its long distance backbone, may also now look to utility companies to provide coverage both nationally and in the metropolitan areas, according to Aad van Diepan at Global Crossing.

Fibernet Group plc, of Basingstoke, England, which has focused on providing dense national coverage, beginning in the United Kingdom, is one company that hopes to keep building. The company recently lit its data network in Germany, where it plans to offer local area network integration and transmission to banks and financial companies, as well as national access networks for carriers and ISPs. Fibernet has also part-built a French network. "Next on the radar is Italy and Spain," says Nigel Pitcher, marketing manager at Fibernet.

500 Milliarden Dollar vernichtet

In der zweiten Hälfte der neunziger Jahre verbuddelten Telekommunikationskonzerne weltweit Glasfaserkabel im Wert von einer halben Billion Dollar. Inzwischen sind die optischen Netze kaum noch etwas wert, die Investitionen sind größtenteils futsch.

Viatel Rises Again: Phoenix or Flop?

The new Viatel aims to win share by leveraging a dramatically lower cost base and a pure data focus‹but this of course will depend on its creditors writing off substantial sums. This is broadly the same approach to that taken by U.S. energy conglomerate Dynegy, which entered the European market by buying the assets of ailing pan-European operator iaxis at a knock-down price. However, as Yankee Group analysis has found, the European wholesale market for wide-area connectivity and IP transit services is moribund. Despite highly aggressive pricing, buyers are not placing orders, and there is growing evidence that quality of service is becoming the real differentiator in a jaded market. Indeed, there are indications that in a European market shorn of its weaker players, survivors may raise prices in return for a commitment to network robustness and service flexibility.

Glasfasern sind ein Reich der Finsternis

Eunetworks übernimmt 50% des Viatel-Glasfasernetzes für 35 Mio. Euro

„Der Erwerb des Fernstrecken-Glasfasernetzes von Viatel schließt unseren Infrastrukturaufbau in Europa ab. Unsere Citynetze sind somit komplett verknüpft. Wir können nun Unternehmen, Netzbetreibern und Diensteanbietern sichere, hocheffiziente und durchgehende Verbindungen in Europa anbieten“, erläutert Noel Meaney, Chief Executive Officer. „Indem wir unseren Kunden individuelle Glasfasernetze liefern, profitieren sie von einer Kommunikationsinfrastruktur, die praktisch unbegrenzte Kapazitäten zum Festpreis sowie 100 Prozent Ausfallsicherheit bietet. Somit können unsere Kunden hoch breitbandige Verbindungen und bandbreitenintensive Anwendungen effizient und sicher nutzen.“

„Die Nachfrage nach den Citynetzen, die wir schon 2003 übernommen haben, ist inzwischen rasant angestiegen“, erklärt Albrecht Kraas, CTO bei Eunetworks in Frankfurt im Gespräch mit Portel.de, „weil etwa seit der Jahrtausendwende mehr Daten- als Sprachverkehr über die Netze läuft.“ Die Kunden von Eunetworks sind große Unternehmen, Netzbetreiber und Diensteanbieter mit großen Bandbreiten, hoher Netzkomplexität und hohen Anforderungen hinsichtlich der Anwendungen. Anteilig versorgt Eunetworks dabei laut Kraas inzwischen etwa genauso viele Unternehmenskunden wie Netzbetreiber mit Netzwerkkapazitäten. Der Anteil der Internet Service Provider sei vergleichsweise gering.

Um den Anforderungen der Kunden gerecht zu werden, entwickelt das Eunetworks-Team maßgeschneiderte Netzwerklösungen auf Basis von Gigabit Ethernet, 10 Gigabit Ethernet, WDM, SDH, IP und IPVPN. Jede Kundenlösung wird üblicherweise mit 100 Prozent ausfallsicherer Redundanz konzipiert und von einem in Frankfurt/Main angesiedelten Network Operating Center rund um die Uhr (24x7) überwacht.

Abgerundet wird das Angebot durch eine Reihe von „Managed Services“ einschließlich Hosting (Co-Location, Applikationen), Storage (Backup/Restore, Replication) und Security (Firewalls, IPS, IDS), die von Rechenzentren (die insgesamt über 15.000 qm Fläche verfügen) in Amsterdam, Dublin und Frankfurt aus erbracht werden.