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European diversions in telecom

Free trade arrived with the new year for the telecommunications industry when the World Trade Organization's international telecommunications treaty took effect.

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The agreement could slash the cost of an overseas phone call by 80% and make it easier for U.S. carriers to invest abroad. The treaty also makes it easier for overseas companies to invest in the U.S., which has about 40% of all global traffic.

So, faced with the prospect of competition from strong players at home and with the attractiveness of high volumes in the U.S. market, should we expect foreign carriers to compete heavily for local residential and business customers?

Through investments and alliances, European carriers already have a presence in the United States. Three major international consortia loom large on the global telecom landscape, including:

* Global One: Launched in 1996, Global One is a joint venture created by Deutsche Telekom, France Telecom and Sprint.

* Concert: Launched in 1994, Concert is an alliance between MCI, BT and several other European companies. Concert is considered the strongest of the global partnerships. However, the pending merger of WorldCom and MCI will have a significant effect on Concert. Much will depend on the ability of WorldCom, MCI and BT to agree on a common focus for Concert.

* WorldPartners: Launched in 1993, WorldPartners is an alliance between AT&T, KDD of Japan, Singapore Telecom and Unisource.

Clearly, the European telecom carriers already have links with major U.S. carriers. However, for a number of reasons, they will not have a major impact on local competition in the near future.

With deregulation, incumbent European carriers face significant competition in their own markets. The number of alternate European carriers is estimated to grow tenfold, and new carriers have already started operating in most large European markets.

In the face of this competition, the incumbents will invest to develop broad packages of services-such as cable, Internet, wireless-on their own turf to retain their customers. British carrier Cable & Wireless, for example, has pulled back from some recent foreign investments and is acquiring domestic cable companies, most of whom also offer telephony. Cable & Wireless clearly wants to stay in position to challenge BT in the U.K.

Additionally, the attractive U.S. market was not the primary reason that European carriers developed global alliances that included U.S. players. Rather, the key driver was to develop a global delivery capability that would enhance their position with their own multinational customers.

European influence, while not necessarily having an immediate effect on local competition, should be factored into the market for the large multinational corporations-those prized business customers who annually spend an estimated $100 billion on telecom service.

A U.S. presence-which all the major alliances have-is a critical component of any marketing and branding strategy for a global player.

The need to concentrate at home and invest significantly in new services and programs might suggest a slowdown in overseas investment by the European carriers. However, in the past few years, the "greener grass" in the neighbors' markets has proved irresistible to many of the biggest carriers.

Rather than European companies moving into the U.S. local exchange, it may be more likely that foreign investment in wireless will increase.

If their financial markets stabilize, look for Asian investors in U.S. wireless markets.

This year, global carriers will add new local partners to expand reach and brand. However, as they add partners, the carriers will face a major challenge in providing the seamless service that their target customers demand. The international corporations want unified pricing plans and contracts, single multinational account teams and standard product offerings across their locations. Loose alliances, no matter how powerful the individual partners, will find it difficult to deliver all of these things.

With so many challenges facing them, don't look for these major alliances in your local residential market anytime soon.

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© 2014 Penton Media Inc.

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