The market for the provision of trans-border telecoms to businesses in Western

Europe remains highly competitive, which is why all but the smallest of service

providers are struggling to register revenue growth above single digits, even though

traffic continues steadily to grow.

Within that context, service providers have managed, however, to launch new

products (Ethernet and VoIP in particular over recent months) and have also

increasingly invested selectively in expanding their footprint, most notably into the

emerging markets in Central and Eastern Europe, and into growing Asia Pacific

markets such as China and India.

The acquisition of AT&T and MCI by, respectively, SBC and Verizon has served to

strengthen their relative positions in the market as they not only benefit from a more

stable financial background, but are also finding a new impetus as a result of these

deals – this is largely helped by the fact that the acquirers had little or no international

presence. By contrast, BT Global Services is gradually absorbing BT Infonet so as

not to disrupt customers’ existing service levels.

Across the board, the international arms of incumbents are being combined with

domestic divisions that serve the largest national customers, giving the likes of BT,

France Telecom, KPN and Deutsche Telekom an opportunity to strip out duplication,

avoid potential internal political wrangles and to develop a single portfolio based on a

unified network. The associated economies of scale also help them to compete with

their smaller and nimbler rivals, as well as being able to position themselves further

up the value chain by offering more consultative and managed services (or ‘solutions’

as they insist on calling them).

The activity in the European market for consolidation has slowed somewhat in recent

months, with the only significant deals being that by BT to acquire Fiat’s Atlanet arm

in Italy and T-Systems’ acquisition of Volkswagen’s gedas IT subsidiary. The market

remains, however, oversupplied and further consolidation is to be expected – the

likely scenario is for there to be up to half a dozen truly global players, a few Europeonly

players, and a number of niche players focused either on a particular part of the

value chain or specialising in a particular service or vertical sector.

Virtual service providers continue to make waves and progress – their ‘infrastructurelite’

business models mean they can focus on customer service. However, their

‘infrastructure-heavy’ competitors keep dismissing them, despite their rapid revenue

growth – only time will tell whether a telecoms service provider can join the big

league with few physical assets. Indeed, if virtual operators continue their growth

paths they might well become acquisition targets themselves as their lack of assets

tends to make them potentially cheap when compared with traditional service

providers.