Forget interoperability

The global corporations won't wait. Sure, interoperability of communications networks has come a long way - especially with the emergence of Web-based technologies, TCP/IP foremost among them. But it won't improve fast enough or be good enough for today's large enterprises. They've had a taste of true global connectivity, and they want more.

Forget about interoperability. Globalization has driven demand for network performance beyond the capabilities of the patched-together networks that wrap the globe today. These businesses crave seamlessness and high performance at an attractive price - now. They can be served through end-to-end, global area networks (GANs), which better enable the internetworked enterprise. We're already seeing this push from companies such as Level 3 Communications, Equant, MCI WorldCom and the AT&T/BT venture, which are putting in place the network assets entailed in a GAN.

The GAN will evolve as the result of a continual cycle. As networks become more global, more reliable and more cost-efficient, two things are happening: As the barriers blocking business in far-flung locales come down, large corporate users of global networks will accelerate the globalization of their operations. The more network performance improves, the more these enterprises will be able to unbundle some of their own value-chain components.

Some industries will become more modular. High-quality communications via GANs will allow desktop-to-desktop services, enabling large businesses to link their operations with those of low-cost, best-in-class suppliers of value-chain components. In a sense, an enterprise's communications network will begin to substitute for integrated ownership along industry value chains.

But GAN providers should not modularize. Although dozens of such carriers exist in a variety of structures, during the next five to 10 years, a handful of more focused, standalone GAN providers will emerge.

The challenge for a GAN provider is to assemble the network infrastructure and the skills necessary to offer an integrated communications solution. The service set will include network design and integration, network management, customer premises installation and maintenance, Web hosting and applications hosting. The GAN providers' business will transform from network-asset-based to human-capital-based.

Global corporate customers will want to purchase unified communications solutions. Competitive differentiation for GAN providers will come not from price or location, but from the reach, depth and quality of solutions. The capital markets already have caught on to this notion, as illustrated by the stock performance of Level 3 and Equant.

Clearly, commoditization of network services threatens the core telecom business. The network capacity business increasingly will be characterized by bandwidth trading. Many traditional carriers, fearing they will lose corporate traffic to competing platforms, are pursuing mergers and alliances to protect this core business. This is the wrong strategy. They would do better to move up the value chain into the more human-capital-based services.

Are there threats from outside telecom? IT professional service firms are well-positioned to provide some of the information management services GAN users will require, but it is unlikely that these companies will acquire their own network assets.

Recall that IBM and EDS recently sold the global network components of their businesses to focus on IT. The buyers, AT&T and MCI WorldCom, respectively, acquired thousands of highly skilled network technicians and professional services work forces that already are deployed globally.

Of course, to be one of the handful of global communications providers will require a hefty investment to assemble the right resources - as much as $30 billion. And clearly, not all those aspiring to serve the large business market will survive in the space. Carriers that cannot reasonably expect to survive should avoid competing and taking away customers and resources from an unsustainable position.

To succeed, the key is to operate, not interoperate.