E.C, Phone Home

Europe, Inc., is here. In 1992, the 12-nation European Community comes into being. The EC along with the seven-nation European [...]

March 1 1992 by Rosario P. Romanelli


Europe, Inc., is here.

In 1992, the 12-nation European Community comes into being. The EC along with the seven-nation European Free Trade Association form Europe, Inc., a powerful economic bloc that in 1989 posted a gross domestic product of $5.3 trillion. As the former Eastern European nations move to a free market economy, there is no doubt that their growing economic clout will be added to that of their neighbors to form an even larger challenge and opportunity to U.S. companies.

Europe is a market in which U.S. companies must participate in order to survive. U.S. companies that do not move now into the European market risk being swallowed up by overseas competitors here in their home market.

While there’s no doubt that Europe is being perceived as an opportunity by corporate America, the planning process for a company’s participation in the new Europe is often incomplete. Executives devote time to studies on financing, licensing, patent, personnel, tax, real estate, and distribution concerns, but too often they give little attention to the one service that ties it all together: the voice, data, fax, and video links connecting their firm’s expanding empire.

THE EUROPEAN TELECOM ENVIRONMENT

Many companies are surprised to learn that the task of implementing a pan-European telecommunications network is quite different from that in the U.S. This is in spite of the efforts of the European Community Commission to create a harmonious and liberalized telecom infrastructure. If for no other reason than intelligent short- and long-term planning, it’s important for U.S. executives to be familiar with the European telecom environment as it is today and as it may evolve in the future. This will assist in communicating corporate needs and expectations to telecom departments or service providers-the international service carriers.

The European Community Commission, recognizing how essential a unified telecom structure is to the success of the European Community, issued in June 1987 a “Green Paper” calling for the restructuring of the region’s fragmented telecommunications marketplace. In general, the paper calls for the introduction of European-wide competition to lower costs and speed the introduction of new technology, and it removes the barriers that currently prevent a larger European market so that European businesses may achieve the economies of scale necessary to compete in the larger global marketplace.

The directives of the Green Paper call for the elimination of restrictions placed on terminal equipment such as office switchboards, data transmission, and other equipment connected to the public network. They also call for competition in value-added services such as information networking and processing, and for cost-based tariffs. On the other hand, they permit the national telecommunications administrations (NTAs) to preserve as a monopoly basic telephone service.

The open network provision of the paper is intended to facilitate open and efficient access to Europe‘s public telecommunications network. These same recommendations are being considered by EFTA nations and those countries that comprised Eastern Europe. They will also greatly assist American companies wishing to build a European network to support their ventures overseas.

MAKE THE RIGHT CHOICE

From a U.S. executive’s viewpoint, the Green Paper recommendations seem obvious. We’ve been operating under nationwide standards for years, and since 1984 we’ve enjoyed an increasing freedom of choice as more and more competitive-and compatible-services come on the marketplace.

But the Green Paper calls for a dramatic departure from traditional thinking on the part of European administrations, which historically were very parochial in their outlook. The pre-EC environment was one of self-interest; there was little incentive to embrace technological advancement or to form service alliances with other administrations. Without competition there was no pressure for lower pricing.

Old habits die hard. For this and other reasons a truly competitive pan-European telecom infrastructure is something yet to be achieved.

Some countries such as Britain, Germany, and Sweden are liberalizing faster than others. Some have more advanced infrastructures and service offerings than others. Few are considering opening basic telephone service to competition, and some are more concerned about holding off local competition while ignoring international competition.

In terms of corporate management, there are continuing discussions that could lead to severe restrictions on the transborder transmission of personal data including mailing lists and personnel records. Germany already has strong laws regarding this. Getting the okay to install equipment matching that which exists at home through the “type approval” process can be a frustrating exercise. Moreover, there are vast differences in the quality of the public data networks in operation throughout Europe, just as there are wide variations in the availability and quality of facilities management or outsourcing services that have taken much of the burden off managing a company’s domestic network.

TURNING UP THE HEAT

This roller coaster of good news/bad news can end on the upbeat. There are factors other than Green Paper directives that are helping nudge the more reluctant administrations into the ’92 frame of mind.

One is national interest. Countries that do not offer liberalized telecommunications laws may find themselves at an economic disadvantage as international commerce gravitates to those countries that do. Robert Wilkes of Brown Brothers Harriman says that the development of a telecommunications infrastructure is a high priority in many countries because it is perceived to be an engine for economic growth. This thought is confirmed by the increasing commercial presence of the European administrations in the U.S. Many NTAs have opened offices in our major commercial centers.

Customers are being heard. George Dellinger of County NatWest Securities thinks users are driving open the barriers and that concern over infrastructure and competitiveness has spilled hack to the regulators and politicians.

In the long run, competition will be the master regulator of all as the guiding force behind rebalancing telecommunications costs and the introduction of competitive pan-European networks. Innovation is driven faster by competition than by regulation. For example, once the cost of portable telephone service becomes attractive in the U.K., customers will use it to bypass the local loop telephone service. This may actually stimulate public networks in much the same way that cellular radio stimulated the mobile communications business.

WHERE TO GO FOR HELP

While the outlook for the European telecom environment is encouraging, progressive companies must implement their networks under today’s mixed bag of rules, regulations, and service offerings. As a chief executive, you have a critical role in this activity because it is your responsibility to clarify your company’s long-term plan for Europe so that your telecom professionals have a clear picture of what the network is expected to do and know when and where it will grow.

Involve your telecom staff in the planning process. If they’re doing their job, they should be able to provide meaningful suggestions to head off potential problems. Senior executives of companies must communicate business vision to the telecom personnel so that they can implement the networks to best serve the company.

If you don’t have a telecom staff on board, assign the responsibility for the network to a planning group and give them the authority to participate and contribute in your planning activity. The planning group can seek outside assistance from several sources, and best of all, these are the same sources used by the telecom professionals.

Your first source should be a U.S. international service carrier (ISC) totally familiar with the European marketplace. The ISC is a U.S. company licensed to carry traffic internationally and is responsible for establishing the full circuit by working with the NTAs at the distant end. Many expansion-minded companies are finding out that a success record domestically does not automatically qualify a U.S. long-distance carrier as an expert in building international networks. Because of this, you should make sure your carrier has in its employ or as its representatives foreign nationals or citizens in the countries you seek to target. These should not be transplanted Americans who may be employed overseas merely on a temporary basis.

The reasoning for local representation is clear. In building overseas networks, cultural as well as technical and regulatory perspectives must be addressed. The best way to do this is to involve local people who are tuned to the local regulations, who are involved with the local administrations, and who are in the best position to represent you in getting approval to install the equipment you need in the nations the network is to serve.

Continuing liberalization in Europe is opening opportunities for your U.S. ISC to provide the distant end of your international circuit, a service that historically was provided by the overseas NTA. In the U.K. and Germany, for example, new regulations now permit U.S. ISCs (and others) to obtain high-capacity circuits from the NTAs and break them down into smaller capacity units needed by the end users. There is an opportunity for cost savings here, but more importantly, there is an opportunity for better network management. If your ISC has technical facilities in Britain and Germany, it can provide enhancements on one stop shopping called end-to-end service or full systems integration. Other countries will probably join Britain and Germany by liberalizing their regulations.

A second important resource is the overseas NTAs. They are aware of the importance of U.S. investment in their countries. The participation of an NTA in your overseas network will be governed by the plans you have for that country, from providing simple telephone service to serving as a hub for your European network.

A third resource is a qualified international telecommunications consultant. Consider using the Society of Telecommunications Consultants and editors of telecom trade journals as a source of recommendations.

THE TELECOMMUNICATIONS HUB

Companies planning a significant presence in Europe may want to consider a telecommunications hub to facilitate overall network management. Step one would be to determine if a hub will contribute to efficiency, and step two is to select a hub location.

As the name implies, a hub is a focal point for a telecom network. Historically, hubs have been co-located with corporate headquarters with private lines and switch services branching out to key company, supplier, and customer locations.

This makes sense for a national network with common rules and regulations covering telecom usage. But to carry the huh concept overseas where languages, regulations, and service quality are not (yet) universal requires different thinking. For example, if your company requires only a few contact points in Europe, and has only sporadic traffic to these points, a hub is probably not a good idea. But if you envision a European network, perhaps with nodes in several countries that in turn access multiple points in those countries, then a telecommunications hub should be looked at closely.

ONE STOP SHOPPING

In your discussions on hubbing international networks you’ll hear about something called “one stop shopping.” It’s a service under which your U.S. carrier can serve as your company’s representative in coordinating the many aspects of your network with the distant-end administrations. These can include transport, equipment, installation, maintenance, and billing. The service can relieve you of a host of administrative and technical concerns about your network.

However, the ability of the larger U.S. international carriers to continue to provide one stop shopping service is being questioned by some industry experts. For example, Ron Bell, who heads telecommunications for British Petroleum, notes that from a practical point of view, genuine global one stop shopping isn’t going to happen because most of the major players are going to be in competition with each other.

On the other hand, smaller independent ISCs are less likely to be viewed as strong competition by the European administrations. As these smaller carriers install overseas facility management and technical operations centers, they become capable of providing true “end-to-end” service for your company’s European operations. End-to-end service, which means your U.S. carrier provides both ends of the circuit, is better than one stop shopping, where the carrier serves only as an agent in your behalf.

PRICING AND CONTRACT FLEXIBILITY

A big benefit of deregulation in Europe is that it is beginning to open doors to negotiations for better deals. No longer are you stuck with a “prix fixe” menu where the price is high and the choices limited. Moreover, if you already are operating in Europe under contract terms and conditions that you believe to be unfair, there may be opportunities to reopen discussions. Thomas Ramsey, an international telecom specialist with the Washington law firm of Squire, Sanders and Dempsey, emphasizes that contracts between customers and administrations containing provisions that appear to run contrary to Green Paper directives should be reviewed. Opportunities to renegotiate terms and conditions may exist either through the relevant NTAs or through EC mechanisms.

Thanks partly to competition and partly to efforts by the U.S. Federal Communications Commission, many European NTAs are lowering their artificially high international rates to bring them more in line with costs. At the same time, however, European domestic rates are edging up. This “balancing” of local and long distance charges may or may not be beneficial to your operations, but they should be analyzed to see how operations may be affected. They could also influence the site of your European hub.

Never have the opportunities to participate in the European market been so exciting, nor have tasks in building an international telecom network to support this participation been so challenging. Companies grappling with designing an international network are working with a fast-moving target where the rules of the game change almost daily. As a CEO, you should encourage your managers to take advantage of the expertise that is available by seeking out the ISCs and NTAs who understand your requirements, who will work with your company in developing a system that meets your current and future needs-and who are there to help during its ongoing operation.


Rosario P. Romanelli is vice chairman of TeleColumbus USA, an international telecommunications firm and a subsidiary of the Switzerland-based TeleColumbus AG. He was previously CEO and chairman of WorldCom, a TeleColumbus company, which had estimated 1991 revenues of $90 million.