3/98 CommIntl article on European deregulation [Very bullish on VPNs demand]
totaltele.com
P U B L I C I N F R A S T R U C T U R E
Delayed action
It has taken a long time, but deregulation will soon trigger an
explosion in the European intelligent networking market. Robert
Pratten stands well back as he sizes up the situation
The intelligent network (IN) services market in Europe is set to grow
dramatically in the next five years, more than tripling in size to reach an annual
value of US$15 billion plus by 2002. All telecomms operators will start to offer
IN services such as number translation, personal numbers, calling cards or virtual
private networks (VPN) during the next few years, and the results for the
telecomms industry and business will be far-reaching. But this explosion in the
European IN market is not being driven by software and hardware
manufacturers, nor by users. It is a response to deregulation by telecomms
operators seeking to expand their service portfolios in the face of increasing
competition. It is no longer viable for operators to make money by simply
handling voice traffic.
Although a demand for IN services does exist, the marketeers still have a major
job on their hands to raise user awareness of complex IN services. In general,
there is a high level of awareness of established services such as toll-free and
calling cards among European businesses, while newer or more complex services
such as virtual private network (VPN), national rate and toll-shared are less well
known and understood. IN services are mainly used by larger companies, and
there are few mass market IN services available.
The services themselves
Personal numbering: The IN service of most interest to corporate telecomms
users is personal numbering. In a survey of more than 500 corporate users
across Europe conducted by Schema for its report, Exploiting the Opportunities
for Intelligent Networks, more than 20% of respondents indicated an interest in
implementing a personal number. Yet to date, its European adoption has been
slow. Personal number services represented only 1% of the total IN market
revenue in 1996, and while 56% of respondents to the survey were aware of its
existence, only 5% were actually using the service.
But the increase in the use of mobile phones is pushing up demand for personal
numbers, as users are attracted by the enhanced contactability it offers. By 2002,
Schema estimates that personal number services will represent 11% of the total
IN market in Europe, and will generate revenues of US$1.7 billion. Toll-free and
toll-shared services: The IN services that most users are aware of are toll-free
and toll-shared services. One in four respondents to the survey already uses
toll-free services, and 90% have heard of them. The European market for
toll-free and toll-shared services was worth more than $1 billion in 1996, and is
likely to grow at about 30% a year, reaching an annual value of $5 billion in
2002. More and more businesses are adopting toll-free and toll-shared services
to improve their quality of service. For users, the benefits are clear: free access
encourages customers to call, and shows a commitment to high quality service.
VPNs and calling cards:
Virtual private network
(VPN) and calling card
services, already among
the most-used IN
services (14% and 23%
of respondents
respectively), are also of
interest to non-users.
Potential cost savings
are the factor driving
user take-up of VPNs,
while the perceived
benefit of the calling card
is that it allows calls to
be made from any
location without the user
needing to carry cash.
But despite these
perceived benefits, and despite the rapid growth that is predicted, it is not users
who are driving demand up the supply chain from the bottom. The question is,
then, why so many operators are introducing IN services?
Most incumbent operators have implemented IN to varying degrees in the past
five to 10 years, but it is new operators in liberalised countries that are now
driving the market. And in the most competitive markets of all - Finland, Sweden
and the UK - IN has been implemented by operators of all sizes, including
national, regional, mobile and metropolitan. The introduction of IN services is
crucial to survival in a deregulated, competitive environment.
Europe IN the lead
Perhaps unsurprisingly, the UK is the most well-developed market for IN
services, and will maintain its position at the top of the revenue tables for the
foreseeable future. UK IN service revenues are set to double from 1996 levels
to $4.2 billion in 2002, but as deregulation grows across Europe, the rate of
revenue growth in other countries will increase even more dramatically. Revenues
in Germany, for example, will increase by four or five times, while in Austria, the
increase is likely to be seven-fold in the same period (see table on previous
page).
The UK is already Europe's leading market for call centres and telebusiness, and
for this reason it is a hotbed for number translation services such as toll- free,
toll-shared and national rate. The UK accounted for 40% of traffic and 35% of
European toll-free and toll-shared revenues in 1996. By 2002, the UK will still
account for 25% of European revenue from these services, although other
leading markets will include France (20%) and Italy (18%). IN was originally a
telecomms operator initiative, born from the desire to be independent from
suppliers. Now that having a competitive edge is crucial to survival in the
telecomms arena, the freedom for operators to decide their own destiny and to
reduce the time it takes to develop new services is even more important.
Yet many operators are finding that they are still constrained by the limitations of
their suppliers, and in many cases are still dependent on them. IN service
development can be a costly and time-consuming business. While this situation is
improving, and service development times have been cut by half to six or nine
months, there are still a number of challenges to overcome. One problem that is
likely to be exacerbated by the IN explosion in Europe is a lack of skilled IN
engineers. Many operators are relying on contractors who previously worked for
the longer established PTOs, but these skill pools are being sucked dry. Service
creation is much more complex than many operators first imagine, and without
skilled personnel, it can be difficult to avoid the pitfalls.
Is local number portability the IN enabler?
The commercialisation of IN in Europe has taken a long time and is still very
slow- mainly because the standards regime wasn't efficient. The right
standards just weren't available. "The dream of a golden service didn't
happen. Many of the services that could have been delivered by IN, such as
800/900 numbers and VPNs, were delivered in different ways,"says
Richard Appleton, telco business development manager Europe, Stratus
Computers.
But now, with liberalisation in Europe, there is a need to be able to provide
new services and do it very quickly. Local number portability (LNP) will be
a driving force in introducing IN throughout Europe. Changing carriers (and
therefore numbers) is an inconvenience for residential users, but is very
costly for businesses.
"Our discussions with telcos indicate that people are looking at LNP as a
way to introduce other IN services - such as 800/900 numbers, VPNs,
voice mail, SMS, and so on," says Appleton. "We see telcos looking at this
pragmatically. 'We have to deliver number portability, so let's think of a way
that will recover our investment. I can recover my costs by introducing other
IN services, which I need to do anyway.'
"We will then see a raft of new commercial services - customised to specific
businesses."
Plain or fancy?
In order to develop their own IN services, operators often have to rethink their
business processes. There are two schools of thought on the organisational
approach to service development. Some operators take a formal
customer-supplier view of the internal relationship between the marketing and
engineering departments, while others form multi-departmental teams. The latter
approach may seem more enlightened, but it is often the former that gets the best
results. Service creation environments (SCEs) are being used as a rapid
prototyping tool by many marketing departments. But there are dangers involved:
it may not be possible to transform the stand-alone prototype into a working
network-based solution. A 'fascination with the fancy' can cloud a real analysis of
customer needs.
Few operators have a rigorous enough approach to requirement specification.
This can lead to ambiguities that result in redesign and, ultimately, delays.
Structured testing of new services is also often inadequate with too many
operators leaving fault-finding to 'internal trials', again delaying service launch.
In order to create IN services that work within effective timetables, it is
necessary for operators to invest substantially in service creation systems and
processes. While this may be costly, it must be done now if operators are to
survive in the 21st century. Robert Pratten is a senior consultant at independent
telecomms consultancy, Schema. Copies of the report are available from
Schema. Call +44 171 497 0708 for further details.
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