Global Voyage

Telephony's Special Report looks at the various strategies North American carriers are taking in entering the international arena - and how those choices are playing out

Since global deregulation kicked off in January 1998 with the signing of an unprecedented World Trade Organization treaty, a wealth of opportunities has opened up for carriers worldwide. In addition to serving customers in their home markets, established carriers now are finding business in other countries - and brand new globally focused players have emerged on the scene.

When it comes to seizing these global opportunities, there's no time like the present, as new data from TeleGeography reveals. TeleGeography, the research firm that carriers worldwide rely on for international traffic statistics and marketshare data, has provided Telephony with an advance look at its 2000 report, to be published next month.

In addition to new opportunities abroad, carriers are facing an increased competition in domestic markets - as shown in the new data (Table 1). From 1997 to 1998, four of the seven largest incumbent carriers - AT&T, Deutsche Telekom, Hong Kong Telecom and Telecom Italia - experienced a decline in the total number of switched international minutes they handled from their home markets.

Total traffic did not decrease - only the incumbents' share. The gains primarily went to companies that emerged in recent decades to challenge the monopolies in their respective countries, such as Sprint in the U.S. and Cable & Wireless in the U.K. Also challenging the power structure are even newer players, such as Star Telecom, which has captured a hefty chunk of German customers by offering aggressive pricing on international calls.

Of course, switched minutes are only part of the service portfolio that carriers offer domestic and international customers. Increasingly, service providers are emphasizing data and other services. MCI WorldCom's On-Net offering, for example, aims to put a customer's international voice and data traffic on dedicated MCI WorldCom facilities end to end - and traffic carried in that manner is not included in TeleGeography's switched minute tally.

Nevertheless, switched minutes continue to represent the majority of international traffic - and revenue - for most carriers. And because carriers are unlikely to reverse the onslaught of competition for those minutes in their home markets, their best alternative may be to replace that business with new business outside their home markets.

Fortunately, many of the top 30 international routes are to and from countries that recently opened their markets to foreign carriers (Table 2). High-volume, recently liberalized markets include the Dominican Republic, Germany, Italy and Mexico.

Non-domestic carriers now can build networks in foreign countries like these - or invest directly in foreign telcos. Whether to buy or build their way into new international markets is a crucial decision for carriers.

Building one's own facilities may offer the greatest potential gains but also entails substantial risks. Finding the right balance and solving financing challenges is critical for carriers that choose to build - including Teleglobe, profiled in an article on page 40.

Alternatively, investing in a foreign telco can minimize the financial commitment a carrier must make in entering new markets. But this strategy may pose a different set of risks - as BellSouth has learned in the volatile regulatory environment of Latin America (see story on page 48).

The risks of either a buy or build strategy, however, may pale in comparison with the risks of not seizing global opportunities while they're hot.