Julian Hewett
Chief Analyst
| BT and Vodafone go for fixed-mobile convergence together Taken from EuroView Daily, 18 May BT made not one but two hugely important announcements in fixed-mobile convergence. Firstly it announced a partnership with Alcatel, Ericsson, and Motorola to accelerate the development of its convergent handset, project Bluephone, which will launch by the end of 2004. BT also announced that Vodafone is to be its new mobile partner to support this development. Comment: This is huge news for BT's future revenues, its partners and customers. BT full-year revenues are expected to show a decline year on year. Growth in similar incumbent operators is all coming from mobile, but of course BT no longer has a mobile arm. With fixed and mobile services merging, BT had to do something substantial and quickly. The deal with Alcatel, Ericsson and Motorola is interesting because BT is pulling together the expertise of these companies to build the solution required. Alcatel and Ericsson are leaders in both fixed and mobile solutions (and heavily involved in the development of BT's 21st century network project), and Motorola brings a lifetime of mobile experience. As a consequence, BT's fixed network will become more convergent with mobile requirements. Successfully pulling this off will be a coup for all parties. But it's the deal with Vodafone that will take all the headlines, and with good reason. This deal is much more than a simple MVNO deal of the type BT already has with O2 for business and T-Mobile for consumers. In effect, BT has cemented its position as the predominant fixed carrier of mobile calls. As for Vodafone, the deal commits BT into providing an efficient transport network, and also offers leverage from BT's predominant position in the UK fixed market. Once again, both parties seem to be winners here. But what about customers? Well, it looks like they will be happy too. Business customers desperately want their myriad of different devices to talk to each other in a more seamless way. These announcements offer hope that this vision is within touching distance rather than a distant hope. For residential customers it means mobile phones become smart and select the most cost efficient platform to connect to. This is good news for both business and residential customers. There are few details available yet. Many things will need to be worked out. In particular, the critical issue (in calling-party-pays markets) of who pays to deliver a converged call on a mobile network? Analysts like Ovum have been talking about fixed-mobile convergence for some time. Now it's coming, nothing will ever be the same again. (Mike Cansfield and Eden Zoller) EuroView subscribers can read more analysis in this week's EuroView Opinion.
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German Toll Collect will never be a winner Taken from EuroView Daily, 19 May Deutsche Telekom CFO Eick said yesterday, at the annual shareholder meeting, that Toll Collect would remain a loss maker for the entire duration of the 12-year contract. This loss is said to be fully covered through reserves of euro 590m already set aside for 2003 and 2004. Comment: This was to be a high-tech prestige project for the Toll Collect consortium and for the German government alike, but it has turned into an embarrassing story of unrealistic expectations and calculations. Even more so now, since we learn that Austria has managed to introduce a similar road-fee system in less than one year, which has now been running for three months. It's based on microwave (rather than satellite) technology, is operated by a team of only 10 people, and generates around euro 50m per month for the Austrian government. Ironically, the microwave technology for the system was developed in Germany! (Katharina Grimme)
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EDS BPO contract with Abbey under threat Taken from EuroView Daily, 15 May According to articles in the press, UK mortgage bank Abbey (previously Abbey National) is considering terminating its landmark GBP 270m BPO joint venture with EDS as the bank attempts to get its house in order pending rumoured take-over bids. The press articles suggest that the BPO venture has not been successful and is a potential impediment to a future bid for Abbey. EDS and Abbey have issued a joint statement that they are 'reviewing existing mortgage operations (and) looking at a range of options'. Comment: The BPO joint venture, announced in May 2001, was a landmark deal for EDS, marking their UK entry into the mortgage processing BPO market. The JV, named EDS Credit Services, started life as 'the UK's largest third-party service provider of retail mortgages and personal loans' as a result of Abbey's business alone. But the aim, of course, was to attract business from other mortgage providers with the objective 'to become the largest mortgage service provider in Europe'. However, EDS Credit Services has yet to sign any other clients. This is often the trouble with outsourcing deals (both IT outsourcing and BPO) that start life as a JV. Rarely do they progress to full commercialisation unless and until the services provider bites the bullet and acquires the share of the client JV partner and runs the business alone. This is indeed the path that Accenture and BT took when the formed the HR BPO JV, e-peopleserve, back in June 2000. Accenture subsequently bought out BT's share in February 2002. As Abbey is now apparently finding, these JV's are also a potential liability when looking for a suitor. In any event, EDS must be really disappointed that it has not been able to make the JV work, especially as BPO is the fastest growing segment of the UK IT services market. EDS really doesn't need any more bad news - but we'll have to see how this saga plays out. (Anthony Miller)
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Meeting global networking captains Taken from EuroView Daily, 14 May On Wednesday, we met Allen Timpany, CEO of global virtual network operator Vanco. We've met Timpany several times, and he's always impressed us as being a down-to-earth, no-nonsense sort with a strong belief in the company he founded (and in which he owns 33 million shares). Vanco's annual report is out on Monday, and includes some impressive figures. Turnover has increased by 45% year-on-year, while the company has been profitable at the operating level since its inception. Having made several entrepreneurial investments, Timpany came to believe that a virtual model - with a focus on services rather than infrastructure - was the best model for profitable growth in the ICT industry. He came across Vanco in 1988 and, as the saying goes, liked it so much he bought the company, and has been there ever since. We quite like Vanco's 'network lite' model. We believe that the company will succeed in the market for off-the-shelf managed network services. But we can see inadequacies in this model for the growing managed solutions market where customers are looking for multi-service offerings that are integrated at the customer interface. We are also concerned that Vanco's position might be vulnerable because others can copy its model. Timpany says that, although barriers to entry might be low, barriers to success are high. He pointed to 20 separate differentiators that Vanco has already developed that a new entrant would have to invest in from scratch. Asked whether he believes there is a ceiling on the kind of growth Vanco is experiencing, Timpany firmly says no, as you would expect, although he implied that contracts over $100 million per annum were difficult to serve profitably. He believes that there is nothing about the model which makes it inherently limited, and in fact stated his belief that Vanco will be as big as Infonet (2003/4 revenues forecast at $620 million) in 3-4 years. (Jan Dawson and Fash Darabi) Taken from EuroView Daily, 17 May On Thursday, Infonet's new EMEA President - fast talking Harry van Streun - paid us a visit. van Streun has been with Infonet for 13 years, starting in their Dutch operation, and rising to lead EMEA from February 2004. This is an important position in Infonet when you realise that EMEA accounts for 54% of the whole organisation. We liked his direct and open approach - apparently he enjoys the internal nickname of 'bulldozer'. Infonet's European business has been growing more slowly than the rest of the business, and he wants to put that right by applying lessons from the successful Dutch subsidiary. In particular, he says that Infonet needs more energy in EMEA. He's clearly trying to speed up decision making. This includes simplifying the EMEA organisation structure. In particular, putting authority nearer to the customer. As we have so often commented, having a strong country structure within Europe is so important. Infonet's business splits 75% network services and 25% 'communication solutions' (which, for Infonet, means video / multimedia, mobility, and security). van Streun sees communications solutions - integrated with network services - as a key differentiator versus his competitors. Communication solutions is growing very rapidly, and van Streun sees this business reaching the same size as network services within a few years. The day before, we met the CEO of Vanco, Allen Timpany. He claimed that Vanco would be as big as Infonet in 3-4 years. We put this to Harry. 'Yes, I like their model. Yes, they could become as big as we are now - but not now that I'm here!' (Julian Hewett)
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Regulation in CEE: many challenges ahead The fourth and final article in our series on telecoms in Central and Eastern Europe (CEE) EU entry has already had an impact on telecoms regulation in the 10 accession countries in CEE. Governments and regulators have already started working towards a regulatory framework that would incorporate the new EU regulatory package, which became effective in July 2003. Most of them already are well positioned to complete the adoption within the next 6-12 months. The effort required by the accession countries over the past few years has been enormous. They had to move through market liberalisation and partial or total privatisation of the incumbent, to a regulatory framework that has been designed to deal with more mature telecom markets and all the challenges this brings. For many, this has all happened in the space of the last 2-3 years. This has already put regulators and legislators, as well as telecom operators, under enormous strain. Adoption should bring about a more stable and forward looking regulatory framework, capable of taking telecom markets forward. The pace of adoption must, of course, be tailored to each individual market. However, we believe that the biggest challenge lies somewhere else. While the implementation of the EU framework will definitely bring some benefits, it will be the way that national regulators use the new powers that will shape region's telecom markets. In this instance, CEE regulators will have to look less at the rest of Europe and more at the operating conditions inside their markets. At the same time, awareness of the mistakes and problems in the rest of Europe should give them guidance. The EU has already spent some time looking into the barriers to future competition in the infocoms sector, and how to remove them. Some of the lessons learned here could be very valuable in avoiding false starts. At the heart of the matter is the crucial issue of interconnect regulation. Local loop unbundling and wholesale broadband regulation will require clear guidelines, both on terms and conditions and on pricing. A more creative approach will be required, especially in the area of interconnect pricing, to ensure that the rural/urban gap in terms of teledensity is not neglected. Stimulating investments in lower return areas will be key to ensure that high capacity infrastructure is deployed. Last but not least is the issue of mobile regulation. Mobile operators are already the main providers of basic voice services to the people in the region, ahead of their fixed counterparts. They are also willing to play a big role in developing the broadband infrastructures. Regulators should acknowledge the role of wireless technologies and networks in the region and ensure the incentives to invest are not removed. This also requires clear guidelines on spectrum use and standards. CEE regulators have the opportunity to enable markets to jump ahead of their present EU members' counterparts on many innovative issues, such as wireless broadband. But continued investments and growth will only come if the regulatory framework is seen as stable and predictable. (Serafino Abate)
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