U.S. Invasion

As emerging markets blossom and globalization flattens the world, the top carriers from each continent are reaching increasingly into one another's territory, following the flow of their multinational corporate customers. And for any global carrier, the U.S. is a market that can't be ignored, which is why recent months have seen increased activity among international carriers in the U.S.

The influx of those international carriers into U.S. markets can be good for the wholesale businesses of U.S. carriers, upon which those international carriers rely for local connectivity. But U.S. carriers also compete against those same global carriers on U.S. soil.

Rather than just serving the U.S. locations of their own compatriot customers, international carriers are increasingly looking to take a greater share of the U.S.-based enterprise telecom market, and they're investing in infrastructure and acquisitions to help them do it.

“They are moving a little in the direction of saying, ‘Let's also consider U.S.-based companies that have a significant tie to or requirement in our country,’” said Alex Winogradoff, vice president of research for Gartner, adding that the movement is modest at this point and doesn't represent a dramatic surge.

U.S. carriers, in turn, are responding not only by reaching into overseas markets themselves but by stepping up competition here as well. For example, global carriers typically only target U.S. customers for whom they can originate or terminate at least 50% to 70% of the customer's traffic on their network, Winogradoff said. Any less than that and the margins are too thin due to their dependence on U.S. carriers for access. Over a year ago, AT&T had said it would not serve customers if less than half their traffic originated or terminated in the U.S. But in the last few months, according to Winogradoff, AT&T lowered that bar from 50% to 25% after making some network investments that allowed it to profit more from such business.

Going forward, as the economic downturn takes its toll, international carriers may be able to wean themselves from U.S. carriers somewhat by buying U.S. network assets on the cheap.

“You will see more assets being bought up by companies who have cash on hand,” Winogradoff said. “This is a great time to do this.”

Theoretically, a large global carrier could acquire an American one, such as Time Warner Telecom or XO Communications, which is already proving its value to those global carriers by doing a lot of business with them. Last October, XO announced having expanded the U.S. network of T-Systems, a unit of Germany's Deutsche Telekom, to six new markets: Atlanta; Boston; Columbus, Ohio; Denver; Houston; and Seattle. In January, XO announced a deal with Pacific Crossing for a trans-Pacific link. “Customers in Asia can be directed to cities across the United States via XO's more than 1-million-mile stretch of network fiber, eliminating costly toll charges,” XO said in a press release.

Such an acquisition would give a global carrier a base of business customers probably further down market than it normally would prefer to go. But it's happened before, such as when India's Reliance Globalcom acquired Yipes Communications, which gave the global carrier instant presence in the U.S. that it is building upon today. — Ed Gubbins