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- Financial markets force operators to focus on core business

- Revenue generation and cash conservation key to survival

- Underlying market demand for Internet services remains

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CAMBRIDGE, UK, July 20, 2001 - Prioritizing cash conservation and revenue generation ahead of network deployment and asset acquisition has to be the core to any telecom operator's business strategy in the current climate. This is one of the main conclusions of a new report, Back to Basics: New Entrant Carrier Strategies in a Bear Market, published this week by Analysys, the global advisor in telecoms, IT and new media (www.analysys.com).


"It's the availability of cash that needs to be the focus of telecom operators' attention, not investment strategies," says Ross Pow, managing director of Analysys Research and co-author of the report. "If you want to find winners, look at their balance sheets not their network maps."


The new report provides a concise explanation of the causes of the crash and describes the strategies that those left in the market need to adopt in order to survive and eventually thrive. The analysis is illustrated extensively by company case studies, with comments from their senior management. These companies include Telewest, Ebone, KPNQwest, IXEurope, XO Europe and WorldCom - all of which have recently been successful in gaining new finance.


The report observes that as new and existing telecoms operators (TOs) raced to roll out networks in anticipation of rapidly increasing Internet traffic, it was inevitable that they would suffer in the wake of the rush away from stocks in the closely allied dotcom sector. The harsh economic realities of the market have forced TOs to focus and specialize.


"Paradoxically, current conditions have made life simpler for TOs," says Pow. "Rather than implementing business plans that have to match all sorts of competitive options, operators can slow down network roll-out, concentrate on their core business and focus on getting a higher return from existing customers."


For those operators with healthy balance sheets, the depressed market sentiment has changed their longer term outlook for the better, according to the authors. Suddenly, the many competitive carriers that emerged during the boom and threatened to grab market share no longer had the funds to support expansion or, in many cases, to sustain a viable business.


"The market has seen a significant change from an integrated structure to a vertically specialized one," argues Pow. While Analysys observes that this may be just a temporary phase before carriers return to their previous emphasis on achieving scale and gaining ownership of infrastructure assets, the current trend towards an industry of complementary specialists could become a permanent structure enabled by a range of emerging technologies. The market is taking a realistic view of the impact on the telecoms sector of the key drivers of bandwidth demand, technology development and regulation.


"While bandwidth demand continues to drive relentlessly upward, it has not generated the expected extra revenues," states senior consultant Tim Ollerenshaw. "Similarly, it has proven difficult to generate revenues from new technologies, as DSL (digital subscriber line) so graphically illustrates. Nor has regulation always managed to live up to expectations in enabling new players to establish themselves quickly.


"18 months ago, attitudes towards these issues helped to inflate the market bubble - now the bubble has burst, one worrying source of ambiguity for operators' CEOs and CFOs has disappeared," added Ollerenshaw.


For those operators that can trade through the current crisis and survive, Analysys concludes that more profitable times are ahead. "It's important for carriers to separate the froth from the fundamentals," says Ollerenshaw, "as although many of the values and preconceptions associated with the Internet bubble have fallen from favour, the underlying economics of demand for Internet and Internet protocol (IP) services remain, despite current conditions."


Beyond the reality of falling unit bandwidth prices, Analysys forecasts continuing growth in global IP data revenues, with steady increases during 2001 continuing into 2002, and a marked upturn from 2002 to 2006 in line with increased backbone traffic generated from data, Internet and Web services. Analysys forecasts that the global market for IP carrier services may be worth as much as USD225 billion by 2006.


Figure 1: Estimated global fixed Internet carrier services revenues, 2000-2006, is available to journalists on request.


Analysys concludes that in addition to giving priority to cash conservation and revenue generation, there are two other critical elements to newly emerging strategies. First, there is the need to focus on a restricted set of services where competitive advantage can be achieved and not attempting to straddle the whole value chain or exploit every opportunity. Second, IP needs to be the primary technology around which the service portfolio is based.


Back to Basics: New Entrant Carrier Strategies in a Bear Market provides a compelling exposition of the factors behind the high-tech market crash. Through interviews with CEOs and CFOs of operators which have successfully gained new financing, Analysys has analyzed how players are realigning their strategies and restructuring their objectives to achieve cash generation rather than growth.


The report is published by Analysys Research and will be available in two packages, priced at: £1000 (US$1700), which includes one paper copy + one hour analyst support; and £1250 (US$2125), which includes electronic access + one paper copy + one hour analyst support. For more information please telephone Analysys Research on +44 (0)1223 341300 or email research@analysys.com.


About Analysys

Analysys, the global advisor in telecoms, IT and new media, works at the forefront of the communications revolution, delivering advice and insight to established and new entrant players. From offices in Cambridge, London, Glasgow, Madrid, Milan, Munich, Paris, Kuala Lumpur, San Francisco and Washington DC, Analysys staff provide strategy and systems consultancy, information services and start-up support to the companies which are creating the networked economy. Analysys Research reports, online services and conferences provide authoritative coverage of this convergent industry, based on an unrivalled ability to fuse real-world experience, rigorous research and forward-looking analysis.

For further information visit the WWW: http://www.analysys.com


Media contacts

Jo Ager
Analysys Research
Tel: +44 (0)1223 341300
Email: jo.ager@analysys.com

Martin Brooke
Martin Brooke Associates
Tel: +44 (0)1223 264050
Email: martin.brooke@dial.pipex.com


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