Keep telecoms options open

The failure of KPNQwest and WorldCom have demonstrated that no telecoms provider - big or small - is safe. So don't let your...

The failure of KPNQwest and WorldCom have demonstrated that no telecoms provider - big or small - is safe. So don't let your supplier's downfall bring down your business too.

Over the past couple of years the telecoms market has been a difficult place to be. Problems seemed to start small, with newer players becoming the first casualties of restricted financing and general dips in market pricing.

However it didn't take long before the larger players started to feel the bite of the telecoms downturn, until finally the mighty have started to fall alongside their weaker compatriots. The failure of Concert, then KPNQwest and then the current financial difficulties of WorldCom have shown that in the telecoms world, size is no longer an assurance of success.

For those out there who think the worst must surely be over now - think again. The companies that are alive today are, broadly speaking, those with enough cash to see them through the rough times.

A quick scan of the business press shows that telcos are still reporting lower than forecast earnings and even losses where maybe they had made small profits the year before. More job cuts, lower profits and more telcos going out of business is the gloomy prospect for 2003 and beyond. A little more downward pressure on pricing and a little less flexibility from investors could see these cash-stable companies turn into more financial casualties.

Yet many of the casualties of this recession aren't even in the telecoms market. Customers which have signed contracts with service providers expect, quite rightly, to have these services for the length of the contracted period. But when the service provider goes out of business this can have a massive detrimental effect on their customers' businesses.

If the worst-case scenario happens and a network is switched off, then all voice and data communications to its customers will stop. This could well include the corporate intranet going down so employees can't do the 101 tasks that keep even the smallest business running efficiently. Maybe salespeople and resellers can't access price lists and product availability information needed to clinch that important deal. Maybe it is as simple as not being able to process online orders or even update the Web site. Whatever the scale of the problem, it can make a significant negative impact on the success of the enterprise.

There will always be other service providers in the market eager and willing to take on customers of their failed rivals. But unless contingency plans are made in advance of the failure, smaller enterprises in particular may find themselves near the back of the queue, making it precious days or even weeks before full service is restored - which could be disastrous.

Realistically there is no way to make 100% certain that your service provider will not go out of business, but there are steps that the enterprise can take to minimise the damage if things do go wrong.

The first step is to spread the risk - don't use a single service provider for all voice and data communications. This may seem obvious, but there are subtleties involved. Many service providers extend or enhance their networks using other service providers' infrastructure or services. This means there is always the chance that if one service provider goes out of business, even if it doesn't supply services direct to an enterprise, it may well have a negative knock-on effect on some or all of the enterprise's service providers.

The key here is to ask questions at the earliest stage of service-provider selection. Who owns the networks that are being used to transport the enterprise's traffic? What provision has been made for back-up in case of a network being closed down?

Enterprises should also be sure to have a good "get out" clause in the contract. This should allow the enterprise to end the contract in the case of their service provider not delivering against agreed service level agreements or getting into financial or other difficulties where bankruptcy or sale is a very real threat.

On a more pragmatic level, always make sure you have back-ups for key routes and locations. An ISDN connection for mission-critical traffic can be enough for a short-term solution while your back-up service provider fires up the new broadband connection. Consider using "snail mail" services such as UPS and FedEx to send large volumes of data on disc or hard copy overnight.

But perhaps most importantly, don't trust anyone. The big-name failures over the past year have shown that no single service provider is totally invulnerable.

The important point now is to keep things going on an even keel, spread the load around a bit and be prepared in case the worst should happen.

Maureen Coulter is a senior analyst at Gartner
This was last published in November 2002

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