Data Communications Service Providers in Europe

Wholesale Fiber Route Providers Seeking End Users. There is an ongoing debate as to whether wholesale fiber route carriers (e.g., Colt Telecom, Telia International Carrier, Interoute) make good end-user data communications service providers. In our opinion, the business models do not mix, and historically, carriers attempting to do both have proven to be failures (e.g., Global Crossing, KPNQwest). Gaining market share is critical for establishing long-term viability, and due to the significant investment required to increase POP coverage and reach, data communications carriers (e.g., AT&T, Equant, Infonet) will continue to lease fiber rather than lay their own. Conversely, during 2002-05, fiber route carriers will have no chance to build out point-of-presence and direct operations to compete in the end-user market. However, in 2005/06, we expect surviving fiber route carriers to increase competitiveness in metropolitan areas and business parks throughout Europe, as local-loop costs drop significantly, due to regulatory pressure and proliferation of alternative access interfaces (e.g., SDSL).

Presence Criteria. The key presence criteria for data communications service providers are market awareness/reputation, geographic coverage, and market share. All three criteria require significant investment to establish an optimal POP portfolio and direct operations for sales, marketing, and support services to promote and deliver services. A large portion of the carrier scores will be derived from META Group end-user client interactions that reveal perception, spending, and strategic importance of the carrier to the business. Of secondary importance are vision/strategy and investments, which combined dictate the carrier's spending, particularly in the area of improving operational efficiency (e.g., enhancing operational support systems for better network manageability) and services that provide users with more visibility of application performance. The least weighted criteria are business drivers, channels/partners, and industry focus. We believe business drivers are similar across the competitive landscape, and no industry vertical (with the exception of Equant's relationship with SITA for the airline industry) provides a higher source of revenue than any other. Although many carriers do have indirect channels to sell and support services, we believe that leading suppliers must have direct presence in a local market to be successful.

Performance Criteria. End users are seeking carriers with an even mix of financial viability, value pricing, and high-quality services, but it is increasingly difficult to find suppliers with this balance. We believe that networking buyers must focus on network reliability and stability, giving highest priority to financial viability and service quality, and then negotiate the best price for services. The financial subcriteria will focus on carrier total net income as a means of establishing profitability, cash assets, and the ability to pay off long-term debt. Service quality subcriteria scores are based on META Group client service-level performance, with an emphasis on the carrier's ability to meet end-user commitments over the term of a contract.

The technology subcriteria of the study rank carriers according to their ability to provide multiple data connectivity options (i.e., PLC, FR, ATM, NB-VPN) and their efforts to deliver services reliably. Service execution emphasizes the carrier's operational support systems initiatives to gain higher operational efficiencies as well as cross-platform billing systems to offer customized billing options to customers. The improving carriers will invest in improvements to management systems and personnel skill development programs for operating cost reductions and flexibility. This study gives agility the least weight, because the current market demands stability over speed to offer new services.

Business Impact: Corporate globalization efforts must shift to lower-risk communications suppliers instead of pursuing low-cost providers that bring uncertainty to long-term planning initiatives.