Home - Key Questions - Fixed Networks: Section 1 - Question 1

Section 1: Questions regarding the incumbent telecoms companies and the new facilities-based operators

Question 1: Who will win: incumbents or new facilities-based operators?

One of the most remarkable features of the new telecoms industry that emerged in the mid-1980s after the liberalisation of markets in Japan, the UK and US has been the entry of a group of vigorous and aggressive new operators. In fact these new operators entered in two main waves.

First came the original new entrants such as DDI, Japan Telecom and Teleway Japan competing with NTT in Japan; Mercury (a subsidiary of Cable & Wireless) competing with BT in the UK; and MCI and Sprint competing in long-distance services with AT&T in the US.

The second wave, referred to here as the new new entrants, included WorldCom, Qwest, Level 3 and Global Crossing in the US, and COLT and Energis in the UK. Japan has had fewer new new entrants and they have made less impact than their counterparts in the US and UK.

The rapidity and success with which the new new entrants entered the industry and the aggression with which they have expanded, both nationally and globally, are some of the striking characteristics of these companies.One of the most successful of these companies has been WorldCom, established only in 1983 in the little known location of Hattiesburg, Mississippi. By the end of 1999 - after a series of dramatic acquisitions including both the US original new entrants, MCI and Sprint - WorldCom could claim to have one of the best global footprints which puts it in a good position to emerge as one of the strongest telecoms companies in the new millenium.

A similar story (though with some important differences) applies to Qwest, a new new entrant that was established in 1988 by US billionaire Philip Anschutz. In 1999 Qwest acquired US West, one of the Baby Bells that was separated from AT&T when the company was divested by the US government in 1984. In the UK the entry of COLT and Energis in 1992 and 1993 respectively followed a similar pattern. Significantly, all of these companies, and others like them, have been amongst the best-performing on the stock markets of the US and Europe.

Faced with direct competition from the new new entrants, and not receiving the same level of support from capital markets as these rivals, the incumbents have been busily re-inventing themselves. Examples of this re-invention process have included the following:

• downsizing in terms of total employment
• maximising incumbent privileges
• building new data networks and modernising existing ones to minimise the disadvantages of their legacy networks
• expanding into new networks such as mobile and cable
• entering into alliances, often cemented by investments, as a way of expanding globally
• introducing new services, largely in Layer V (see Industry Mapping 2 - Products and Services by Layer).

But who will win the battle between the incumbents and the new operators? Or will both be able to survive and prosper under the selection criteria of the new telecoms industry? Or will victory go to some incumbents and new operators while others will fail? Even more importantly, in view of the analytical objectives of this site, what are the determinants of victory and failure?

If you wish to express your views on questions such as these go to the Workshop (Area 1). To compare your visions with those of others go to Vision Check.