A handful of global carriers?

Since early last year, when the world's largest telecom markets were opened to foreign competition, there's been a lot of talk about the importance of being a global carrier. But what does that really mean?

In the last few weeks, I've gotten to know some of the new companies that saw opportunity in global deregulation and promptly started constructing networks in foreign lands (see story on page 24). I came to realize that one of the reasons it has been hard to get a handle on the new international marketplace is that it's not a single opportunity. It's a series of opportunities. Start thinking about what it means for domestic local and interexchange carriers, and it's even more complex.

IXCs now have the ability to reduce costs on their existing international call volume by using new alternatives to the settlement rate system. With these new lower costs, carriers also can afford to charge less-and lower prices should mean more business from domestic customers, including multinational corporations and ethnic residential customers.

Another opportunity is in obtaining new customers in foreign markets. Unlike the United States, where long-distance competition occurred more than a decade before local competition, numerous European nations are throwing both doors open simultaneously-and savvy U.S. carriers are getting their foot in. In these foreign markets, as in the U.S., there's money to be made in serving business as well as residential users-although the two strategies will be quite different.

With so many opportunities available, carriers may have to establish multiple business units to make sure each opportunity receives sufficient focus. Yet someone will need to make sure that in pursuing their individual goals, the various units do not sabotage the overall synergy. Recognizing this, it's no wonder global alliances have had such a poor track record.

This time, AT&T and BT are hoping to succeed by establishing a separate joint venture for their global operations. If that strategy works, it could become the prototype for a wave of similar partnerships. Driving those ventures will be the tremendous advantage that facilities in another country can provide telcos in a deregulated market.

Carriers expanding outside their home turf quickly learn that to obtain the best cost structure, they must build-or partner with someone who already has built-as close to the end user as possible. That's a lesson that also will apply to foreign telcos wanting to expand into the United States.

Controlling the last mile to the vast majority of U.S. users, the regional Bell operating companies are really the ideal partners for foreign carriers. But, because RBOCs are not yet allowed to offer long-distance, foreign telcos have been courting domestic IXCs instead. BT apparently is satisfied that AT&T's local market plans will get the partnership where it needs to be.

But what about other foreign telcos that want to be global players? Sprint's alliance with Deutsche Telekom and France Telecom is on shaky ground-and ultimately, one of the RBOCs could be a better candidate to round out the trio. Cable & Wireless needs a U.S. partner, too. And what about the Japanese carriers? Rumors have been flying about them in connection with various U.S. and foreign telcos.

As Ameritech's plan to purchase 20% of Bell Canada reminds us, any carrier's ideal partner is the company that controls the customers with whom one's own customers exchange a high volume of traffic. SBC is likely to scan the Pacific Rim for a partner, while Bell Atlantic looks across the ocean that bears its name and BellSouth eyes the other side of the equator.

Of course, most players will have multiple partners, as some markets will be too important for any major carrier to ignore. Luckily for U.S. telcos, Europe is becoming a single market that soon will be glued together by several Pan-European networks. With the right partner in Europe, a domestic carrier will be able to minimize the number of relationships it must manage.

Ultimately, the telecommunications industry may resemble the airline industry, in which certain companies dominate certain markets, but there are at least two or three alternatives on most major routes. Any carrier that fails to plan for this may risk becoming the telecom equivalent of Air Tahiti.