Home - Key Questions - Fixed Networks: Section 7 - Question 16

Section 7: Questions regarding national systems

Question 16: Why are the most globally aggressive new operators from the US?

Most of the globally aggressive new operators in the new fixed telecoms industry are American. The leading example is probably MCI WorldCom which most telecoms analysts agree has the best global footprint of all the operators. WorldCom, having consolidated its position in the US with a string of acquisitions including MCI and Sprint, is now in a position comparable to that of AT&T.

Guided by the strategic conviction that its competitive advantage will come from its ability to carry most of its traffic end-to-end, from sender to receiver, the company is also expanding its network in Europe, Japan/Asia Pacific and Latin America. Furthermore, it is doing this mainly on its own, helped by its high share price that facilitates mergers and acquisitions, rather than, as most of its incumbent competitors are doing, through minority investments and alliances. Although MCI WorldCom is still behind the leaders in Europe who have prioritised the construction of pan-European networks, the company is making rapid progress. In Japan it was the first foreign company to be given a Type I carrier’s licence following regulatory changes and it is rapidly pursuing a strategy of developing connected wide area networks in the major financial and business districts in Tokyo and Osaka that will allow it to address more than 80 per cent of that national business market.

Other aggressive new operators that have moved quickly into global markets include Qwest, COLT, Level 3, Global Crossing, Viatel and Global Telesystems (GTS). Qwest, for example, having completed its high capacity network in the US in 1999 then established a joint venture with KPN, the Dutch incumbent, in order to develop a pan-European network. COLT, City of London Telecommunications, was started as a purely European operation in 1992 by the largest mutual fund in the US, Fidelity, which had previously established Teleport, a US-based competitive local exchange carrier (CLEC), which was later sold to AT&T at a substantial profit. In 1998 and 1999 COLT was one of the best performing shares on the London Stock Exchange and its CEO, Paul Chisholm, one of the best paid executives in the UK. By the end of 1999 it was receiving more of its revenue from continental Europe than from the UK and boasted one of the best pan-European networks.

GTS started as a small private network funded by the financier George Soros in order to connect academics in the US and Russia. The network rapidly expanded throughout Russia and, responding to a widespread demand for internet and data communications, was extended into Eastern Europe. GTS in the late 1990s then acquired Esprit, itself establishing a rapidly expanding pan-European network, as well as Hermes Raitel, a network funded by a consortium of European national railway companies. Similar stories can be told of other US new operators such as Global Crossing, Level 3, Viatel and Carrier 1.

There are very few such examples of globalising European or Japanese companies. Even the European incumbents, led by BT from a country that liberalised its telecoms markets much sooner than its European counterparts, have moved much more tentatively than these US companies to develop pan-European operations, let alone networks in other parts of the world. As noted, they have tended to do so largely through minority investments and alliances rather than through building or buying their own fully controlled networks.

Japan also has few telecoms companies comparable to the new US operators, although KDD, traditionally the major Japanese international operator, has several international ventures and NTT, only given regulatory permission to globalise in 1999, is now making some decisive moves in Asia Pacific, the US and Europe.

Clearly, the explanation for this important phenomenon has to do with national systems rather than with the behaviour patterns of individual telecoms companies. But this begs a further question.What is it about the national system in the US that has bred such globally aggressive new fixed operators? This important question is explored by posing several hypotheses.

• Hypothesis 1 is that the early liberalisation of telecoms results in the emergence of vigorous new operators that, with strongly competitive national markets on which to base their learning, rapidly globalise their activities. The major problem with this hypothesis is that the UK and Japan liberalised their markets at the same time as the US – in the middle of the 1980s – but did not breed the same type of globally aggressive new operators.

• Hypothesis 2 is that this phenomenon was the result of the virtually unprecedented bull stock market that existed through much of the 1990s. This hypothesis has the advantage of perhaps explaining the absence of globalising new operators from Japan where, after the bursting of the bubble economy in 1989, the stock market languished, at least until 1999. However, it does not explain why the UK has not incubated more such new operators. Indeed, the London Stock Exchange has been the source of much of COLT’s growth, yet COLT is a US owned company. Why have UK and European capital markets not nurtured more European globalisers?

• Hypothesis 3 is that the US is simply better at producing the entrepreneurs who, in the Schumpeterian tradition, have the visions and the make up that allow them to effectively seize new opportunities. Clearly people such as Bernie Ebbers of MCI WorldCom and Philip Anschutz and Joseph Nacchio of Qwest fit into this entrepreneurial mould. But has Europe failed to do an equally good job in producing its own telecoms entrepreneurs? Does the exception prove the rule, most notably in the case of Chris Gent of Vodafone, who masterminded the company's acquisition of AirTouch in the US and the unprecedented acquisition of Mannesmann of Germany? There is a good deal of evidence of strong home-based entrepreneurial talent in national European markets as examples such as Thus (formerly Scottish Telecom) and Atlantic Telecom in the UK, Olivetti in Italy and Mobilcom in Germany indicate. Energis, the subsidiary of the English National Grid, is another example of an entrepreneurial company which, under the leadership of Mike Grabiner, has recently begun to move more aggressively into Europe.

But is entrepreneurship really the main explanation for the US lead in aggressively globalising new operators?

What is the explanation for this undoubtedly important phenomenon?

Do any of these three hypotheses offer an adequate explanation?

Is there an explanation consisting of a combination of these hypotheses?

Are there other relevant theories and do they stand up to examination?

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.