Telecoms users turn to traditional carriers

Following the problems of KPNQwest and WorldCom, users of wide-area networking services are seeking refuge with Europe's former...

Following the problems of KPNQwest and WorldCom, users of wide-area networking services are seeking refuge with Europe's former monopoly telephone companies.

"The big winners emerging from the telecom meltdown are the incumbents," said Richard Elliot, chairman of the London bandwidth exchange Band-X. "Customers now see them with different eyes - as companies that are able to offer greater financial security than the new players."

The former monopoly telephone companies, once part of Europe's network of national PTT (Post Telephone & Telegraph) public administrations, have been criticised in the past for their high prices and poor service. The deregulation of the European telecommunications market over a decade ago opened the doors to a flood of new players, including KPNQwest and WorldCom, which promised lower fees and greater innovation.

Although incumbents such as Deutsche Telekom (DT) and France Telecom (FT) are straddled with billions of dollars of debt, "they continue to generate huge revenues from their cash-cow domestic telephone business and from their near monopoly of the local loop," Elliot said. "And even if some of these carriers have financial problems, their government owners aren't about to let them fold."

European governments are in fact starting to show a greater interest in the partially state-owned telephone companies, now that their share prices have plummeted, along with their credit ratings.

Last week, rumours emerged that the French government was thinking about buying back shares in FT to help stabilise the French operator, which is faced with debts of more than €60bn (£39bn). Although the government said it had no such plans, that denial has done little to quell speculation.

On Monday, the Financial Times Deutschland, Berliner Zeitung and Focus Magazine published reports based on inside sources that the German government is planning to fire DT's embattled chief executive Ron Sommer, possibly before the national elections in September. The government, according to the reports, believes a change at the top would improve DT's share price, which recently sank to €8.14 from an all-time high of €104.

Talk of greater government intervention comes at a time of substantial uncertainty among corporate users, especially those that have done business with the numerous new players now in bankruptcy protection. The shutdown of the Ebone backbone network, owned by KPNQwest, helped destroy what little trust remained.

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