article

Overdue Diligence

Posted: 05/2002

Overdue Diligence
Resellers Evaluate Where to Migrate Business

By Josh Long

LAST FALL TRANSPOINT COMMUNICATIONS INC. partnered with Qwest Communications International Inc. after its primary underlying carrier’s balance sheet started to make investors antsy. Transpoint is among several resellers that began migrating business to additional underlying carriers since Global Crossing Ltd. filed a petition for Chapter 11 bankruptcy protection, say industry observers.

That wholesale customers — including competitive local exchange carriers, long-distance companies and Internet service providers — would partner with several underlying carriers seems obvious in today’s quirky market. But, then again, with whom should they partner?

Resellers say bankruptcy filings and news headlines profiling the financial pitfalls of telecom providers make them and their business customers skittish. That’s not surprising when one considers that even the once-supreme telecom titans are in a pinch.

Among the recent headlines this winter:

  • Williams Communications Group Inc. announced it was considering filing a petition for Chapter 11 bankruptcy protection.

  • Sprint Corp. raised $5 billion in a bond sale to pay off short-term debt that has worried credit rating agencies and investors.

  • WorldCom Inc. has designed a plan to thwart a takeover as its stock has fallen below $10, although it says it was not aware of any such attempt.

  • And Qwest, one of the four regional bell operating companies, was cut off from the commercial paper market before Moody’s Investors Service and downgraded its debt rating to one level above junk bond status.

Yet analysts say even if some of the largest communications companies consolidate, their networks will remain operational. Would wholesale customers then have a reason to be worried? “It depends on who consolidates with whom,” says ATLANTIC-ACM wholesale analyst Taher Bouzayen. “Even though two large communication companies’ networks could be complementary from a geographic point of view, several operational and cultural challenges are likely to arise, therefore undermining keys wholesale areas such as provisioning and network quality/reliability.”

Resellers were monitoring the news wires closely in March to evaluate Global Crossing’s financial quagmire. A COO representing one of the country’s largest long-distance resellers says the company sent a memo to its agents the day of the bankruptcy filing, assuring them their customers’ service would not be interrupted. The long-distance company was continuing to give Global Crossing new wholesale business and had other underlying carrier agreements to migrate traffic in a few days if the network were to shut off, according to the COO. But the executive later asked to retract his statements, explaining the fate of Global Crossing seemed to change by the hour.

Analyst Bouzayen says his research firm has found that wholesale customers on average use four carriers to haul their traffic. Yet “having too many carriers (over four) becomes really hard to manage from an operational and financial point of view.”

Transpoint COO Ralph Metz says his company had only one underlying carrier agreement with Global Crossing until late last fall. The reseller inked an agreement with Qwest after its agents expressed concern about the sole relationship.

The Yankee Group wholesale analyst Seth Libby says a New England-based reseller marketing to large enterprises that used Global Crossing’s network made the same decision to partner with an additional carrier.

Redundancy is not the only reason companies use multiple suppliers. Bob Schneberger, president and CEO of telecom consultant Schneberger Enterprises Inc., says he always advises his clients to partner with more than one carrier for several reasons, including being able to negotiate the best domestic and international prices.

But despite the collapse of so many telecom providers during the past two years, some companies still do business with a single wholesale provider, Schneberger said.

Has Global Crossing’s bankruptcy filing changed their minds? The consultant says he has observed no indication that companies — including Global Crossing wholesale customers that may be migrating their business to another provider — are beginning to partner with multiple carriers.

TelecomEXPRESS, a Telecom South America subsidiary, uses the Williams network exclusively in the United States. As of early March, Williams still was pursuing options to restructure its balance sheet, including a possible Chapter 11 bankruptcy filing. “We don’t have a sense or a feeling of pressing need to abandon the relationship,” said Telecom Express president and CEO Karl Faller during a mid March interview.

Faller said he had plenty of “heart-to-heart” telephone conversations with concerned business customers regarding the future of Williams. But “the company has “not had a customer say to us, ‘Yes, we want that circuit to Hong Kong or Australia or Europe but we don’t want to be on Williams to get to New York. Now if a customer comes to me and says, ‘We don’t want to be on Williams,’ then I’m going to have to face that issue. That hasn’t happened yet.”

It is not clear if a carrier will emerge as the No. 1 recipient of new wholesale business due to communications companies migrating their traffic.

Bouzayen says network operators including Sprint, Qwest and WorldCom are snatching the wholesale business that bankrupt carriers have lost. Qwest and WorldCom declined comment. However, Sprint executives cited recent wins. One CLEC based in the Northeast migrated about $800,000 a month in toll-free traffic to Sprint as a result of a bankruptcy filing, says Jim Steffens, wholesale marketing director.

In monthly deals ranging from $150,000 to $500,000 a month, several other communications companies are in talks to migrate their traffic to Sprint, he adds.

 

Links
ATLANTIC-ACM www.atlantic-acm.com

Global Crossing Ltd. www.globalcrossing.com

Moody’s Investors Service www.moodys.com

Qwest Communications International Inc. www.qwest.com

Sprint Corp. www.sprint.com

TelecomEXPRESS www.telecomexpress.net

TeleGeography Inc. www.telegeography.com

Telia North America Inc. www.telia.na.com 

Transpoint Communications Inc. www.transpointcom.com

Williams Communications Group Inc. www.williamscommunications.com

WorldCom Inc. www.worldcom.com

The Yankee Group www.yankeegroup.com

 


Leave a comment

Your email address will not be published. Required fields are marked *

The ID is: 69299