Telcoms suppliers: Saint or sinner?

Misplaced faith in a telco that later goes bankrupt can disrupt the business of its users. So how reliable is your supplier?...

Misplaced faith in a telco that later goes bankrupt can disrupt the business of its users. So how reliable is your supplier? Danny Bradbury looks at ways to minimise the risk while saving money

If you had barged into the UK offices of telecommunications supplier Carrier One in March, you would have seen a frustrated Andrew Hague standing at the front of a long queue. Hague runs a company called Billing Online, which provides hosted billing services for small-time calling-card operators. He had been using Carrier One's network to host his own equipment, and when the supplier ran into trouble, Hague was the last to know. Alarm bells only began ringing when Carrier One's German arm told him that it had fallen out with the UK operation because of an outstanding debt. "At that point, it became clear that there was trouble," Hague says. "People we knew well started to leave and they advised us to get our kit off the network."

Hague's relationship with Carrier One was important to him, because he was using the telco's network to manage his own calling-card servers. It was the first time that his company had run a calling-card business itself, rather than providing hosted billing services for other calling-card operators. As the rumours got worse in the run-up to Carrier One UK's bankruptcy, he began to look for other providers. Unfortunately, by the time Hague went to collect his servers from Carrier One's UK network operations centre, the administrators had already been called in. "I went personally to get our own equipment. The doors were locked and I was escorted off the site by security guards," Hague recalls. Although he could prove that he owned the equipment, red tape made it impossible for him to retrieve it through official channels. Luckily, he managed to get a meeting with the head person from the receiver that day, who helped him to get his equipment back, thus saving his business. "When I came out of that meeting, the corridor was full of people," Hague says.

The rest of us also have to ensure that we are not among the unlucky masses left without services as the administrators pick over the carcass of a former telco. Should your service provider pull the plug, there are various things you can do to help minimise the effect on your business.

Perhaps the best advice is to avoid unstable suppliers in the first place. But in an era when large carriers seem just as prone to bankruptcy as their third-tier counterparts, simply picking the big names is not as effective as it once was. Any IT department worth its salt will look at issues such as the mean time between failure and the quality of the contract, explains Martin Heath, managing director of the communications and content consulting group at Atos KPMG Consulting, but not everyone takes a good look at a company's accounts. He recommends running checks with credit agencies, and an examination of a potential supplier's cashflow.

Not everyone agrees with him, and with good reason. After all, WorldCom US fell into Chapter 11 bankruptcy after not reporting its finances as it should. Other companies in the telecoms sector, such as Qwest in the US have also come under investigation, and confidence in corporate reporting is low. Ken Greene, managing director of iPass, a point-of-presence provider that sells its roaming access services to ISPs and corporate customers, explains that the level of detail you have to go into to fully verify a company's financial viability makes such due diligence a resource-hungry task. Duncan Black, director of corporate solutions strategies at Cable & Wireless, adds that there is simply no point if you are using a commodity leased line that you can change in 20 days.

Whether you agree with Black and Greene or not, disaster stories such as that of Carrier One and KPNQwest, which pulled the plug on its eBone network in July after a promising start, will drive many companies to rely on redundancy. Using more than one supplier is a good way to protect yourself if one should fail, but there are questions to ask there, too. For example, do you want to provide a redundant back-up service to all your locations, or would it be more cost-effective to stick to critical locations such as regional offices, leaving more remote branch offices to fall back to dial-up as a last resort? Black also argues that some companies with particularly critical communications needs may want to examine their multiple suppliers to ensure that they are not using the same exchanges or circuits.

Ideally, says Black, appointing a second supplier for your critical core infrastructure enables you to simultaneously upgrade your network. Buying an infrastructure that supports multimedia convergence for applications such as voice over IP and videoconferencing will enable you to switch the majority of your critical communications to that network, using the existing one for back-up purposes, he argues.

Black has his own agenda, of course, as a supplier of such multimedia-capable infrastructure. But nevertheless, there is a definite advantage to moving your equipment away from more proprietary technologies towards convergence-friendly standards. The obvious one is IP. Ahal Besorai, chief executive of telco InClarity, argues that it is important in the current rocky telecoms climate not to buy something that cannot be easily upgraded or ported between companies. Buying IP-capable telco equipment makes it easier to move between suppliers, agrees Greene, or to use multiple ones without fear of incompatibility. Most people these days use IP-ready network kit, but IP-compatible voice equipment is still a slow seller, primarily because a failure to deliver on the hype has led to low confidence in the market.

Adding a new supplier to your existing telecoms infrastructure gives you a chance to negotiate a new contract, while renegotiating your agreements with existing suppliers. With such a huge price drop in telecoms bandwidth over the past few years, many contracts are well overdue for a rethink. Figures provided by Band-X, an exchange for trading IP and voice bandwidth between carriers in the international market, show an average drop of 6.2% per month in the European market for 155 megabit per second STM-1 optical bandwidth as resold by telcos. Consequently, Band-X chairman and co-founder Richard Elliott advises companies to take out short contracts. "You have to have an optimistic view about network pricing to take a three-year contract," he says, but adds that any contract for less than a year is not worth signing because of the legal hassle of renegotiating and resigning. Also, beware of "evergreen" contracts, which automatically roll over if they are not cancelled by a certain date, he advises.

Heath explains that when renegotiating contracts, you can groom your network, consolidating your assets to save money. For example, if you find a collection of 64 kilobit per second leased lines, it makes sense to move to a single T1, which could provide equal bandwidth for less money. He reckons that he can save many companies between 10% and 15% of their telecoms infrastructure through this sort of rationalisation.

The problem is that if you are a large company with many sites, you could have literally thousands of voice circuits and data ports installed, and managing those assets is difficult. You may have circuits that you are paying for that don't exist, and vice versa, warns Heath. "In the heady days of the past five years, a lot of companies have gone for growth on their telecoms networks," he explains. "They'd try to get whatever they can from whatever supplier could provide it, and they often didn't even turn stuff on." Black explains that another reason for the unmanaged growth of company telecoms networks was that single departments would buy their own telecoms infrastructure to avoid the bureaucracy of upgrading the whole company network to support new systems. Such quick-and-dirty networks are rife, he warns.

Network tools are one way to help to document and consolidate your network assets, but a lot of it is detective work, warns Heath. "Some of it involves going down into the basement and trying to work out what you've got," he says. Matching these physical assets with entries in the general ledger is not a task that many companies will savour.

Customers that want to retain strategic control over their telecoms infrastructure while handing the logistics to someone else may want to consider managed services. Sirocom is a virtual network operator that repackages bandwidth from multiple back-end carriers into managed services, with availability agreements for customers. The advantage of this approach, according to managing director Simon Rogan, is that customers are indirectly dealing with multiple suppliers rather than a single carrier, which spreads the risk. There is always the danger that a managed service provider could itself go out of business, but in that situation, the customers would still be able to carry on their relationships with the back-end providers directly. Renegotiations might be necessary, but services would not suddenly cease.

Planning a bankruptcy-proof telecoms strategy is probably impossible in the current climate, but with a little foresight you can reduce the risk to the point where it is negligible. The real trick here is to fold cost savings and performance enhancements into the bargain. It's your call.

IG Index spreads its risk with Netscalibur
Alan Jackson was not a happy man as he logged into with his operations team one day in June. The Web site was run by a team of disgruntled network operators for eBone, the Europe-wide network operated by his service provider KPNQwest. The Web site displayed a counter telling him when the network was due to be switched off. Jackson had not long been the head of IT services at IG Index, a UK-based spread betting company that takes bets on equity futures.

The joint venture between Dutch communications firm KPN and the US telco Qwest had filed for bankruptcy at the end of May, just two weeks after Jackson joined, and it had left him in a pickle. "Forty per cent of our business is Internet-based," he says. "KPNQwest was its own provider, and a year ago you'd never have assumed that it was going to go to the wall."

He read about the bankruptcy on a news Web site, but when he tried to contact KPNQWest for details, his account manager there became increasingly dismissive. "In the last conversation we had with him, he was halfway up the mountain and basically said that it was nothing to do with him any more," he recalls.

The pantomime surrounding KPNQwest's eBone network lasted from that point until its final demise at the start of July. For two months, Jackson had to contend with an industry crying "Oh no it isn't! Oh yes it is!" as the receivers repeatedly threatened to turn off the network, before securing multiple reprieves. Luckily, he had taken action early on.

IG Index had no alternative supplier when Jackson joined, but as soon as he started the job he began to sound out secondary service providers. One company on the list was Netscalibur, a managed service provider with which he'd dealt before. When KPNQwest finally filed for bankruptcy, he accelerated the process and called Netscalibur in.

Netscalibur buys links from other suppliers and resells them as a packaged service, which was one thing that attracted Jackson. He didn't want to put all his eggs in one basket by buying a service from a single backbone provider again. Netscalibur worked throughout the night with Jackson's team to put a temporary secondary link in place in case the 34mbps KPNQwest line went down before more permanent infrastructure could be laid. Luckily, it was never needed. The bankrupt provider's network continued to operate until just after Netscalibur provisioned a new primary line from Colt.

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