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  1. Technology
December 1, 1995


By CBR Staff Writer

When the British Telecommunications Plc-Mercury Communications Ltd telecommunications duopoly was broken in 1991, it was supposed to herald a new era in telecommunications. By the summer of 1994, though, BT was still pulling in 87% of telecommunications revenues in the UK, with Mercury accounting for virtually all the remainder. Naturally enough, it takes competitors some time to get off the ground. Another reason, though, is the fact that many new operators are eschewing the idea of putting in their own infrastructure, and instead are leasing spare capacity from BT and thus helping to swell its coffers. This week, however, the profile of at least two of the newer operators will rise. While AT&T Corp is starting to roll out its business services to customers, the successful bidder for British Rail Telecommunications Ltd will be announced. So far, thanks to licence restrictions, the company has hardly been a major player in the telecommunications world. Its licence limits the sale of its telecommunications services to rail companies, which account for 80% of its turnover; the rest comes from other operations such as maintenance.


Around 30 companies are believed to have put in a bid for BRT, which made a pre-tax profit of ú15m on a turnover of ú170m for 1994-95. The price is likely to be around ú100m. Those bidding are believed to include AT&T – on which more below – as well as Deutsche Telecom AG and France Telecom. Whatever the outcome, the company’s business is likely to change dramatically: with the rail network being flogged off piecemeal, BRT is unlikely to hang on to all the business it has at the moment. Future activities are likely to depend on what sort of operating licences the buyer already has or can win. Where other smaller operators are tending to lease spare capacity from British Telecom, Mercury or the cable television companies, BRT’s assets can largely be summed up as copper in the ground. The company has 10,000 miles of copper and nearly 2,500 miles of fibre optic cable running alongside British Rail lines. Aside from BT and Mercury, it has interconnect agreements with the telecommunications companies relating to the French and Belgian rail operators, via a link through the Channel Tunnel. AT&T won a full operator’s licence last December, and is now gradually rolling out its service to multinational customers. We’re primarily aiming at businesses to start with – UK-based multinationals with a significant amount of activity in the US – looking primarily at the large ones but also the medium-sized ones, said director of communications Phil Coathup. He said the first customers were likely to be announced in January. The company’s network is based around switching nodes – AT&T 5ESSs – in London, Manchester and Edinburgh, and interconnects with both BT and Mercury. Coathup said the company had no set plans for installing its own infrastructure, preferring to lease capacility from other operators such as BT, Mercury and cable companies.

By Emma Woollacott

He said wireless technology was a possibility, though: You’ve got companies like Ionica using wireless, and in fact AT&T Network Systems has launched a wireless technology where you have a transmitter in each area serving local customers, said Coathup. The first service will be a virtual private network, which the company calls its Software Defined Network. Other services, such as freephone, audio and video conferencing and managed bandwidth services, will be added shortly after. During the course of 1996, said Coathup, AT&T will also start recruiting residential customers – although not across the bnoard. We will take the facilities that people have in the corporate environment and are familar with, and take them home so you can have call forwarding, audio and video conferencing, flexible bandwidth and flexible billing so that you can split out the bill between business and private use, said Coathup. Coathup refused to confirm that recent talks with British Rail Telecom have been related to a possible purchase of BRT. In order to deliver our service, because we haven’t been digging up the roads, we’re interested in everybody – sure, we’ve been talking to them, but about leasing capacity, he claimed. Another company that might be interested in buying BRT is Ionica Ltd: it would be one of those perfect fit arrangements that companies are so often eager to claim but which rarely appear in practice. For while BRT has a national trunk network and nothing else, Ionica’s infrastructure is restricted to the local loop. The company has developed, along with Northern Telecom Ltd, a fixed access system connecting to the public switched telephone network via a radio link from local base stations to transcievers attached to subscribers’ houses. Although original plans were to launch this year, Ionica has now set a start date in March, targetting residential customers and small businesses. Adrian Robertson, Ionica’s direct marketing manager, was chary of claiming that fixed wireless technology would take over from cable. But, he said, It’s obviously a very sensible way to run the system, because the technology does exist and the cost structure is radically different from the cable link. Energis Ltd, like BRT, was set up to take advantage of an existing basis for a national trunk network. Owned by the National Grid Co Plc, Energis has been up and running since September 1994 with a 2,565-mile Synchronous Digital Hierarchy fibre optic network running along power line routes. It claims to cover some 80% of the UK directly, and the rest through agreements with British Telecom and other operators. International service is provided through agreements with Telstra Corp Pty Ltd, Teleglobe Communications Corp and BT. The company has now expanded out of its initial indirect service with management reports to add 13 new services including private circuits and a Frame Relay service.

Niche areas

We have a broad-based portfolio, now including direct services where we pipe straight into a customer’s premises, said a spokeswoman. She said customers include the British Broadcasting Corp, Reuters Holdings Plc, Lloyds Abbey Life Plc and Lloyds Bank Plc. Andy Bottomley, a senior analyst with Datapro, reckons that the outlook for BT’s competitors is not particularly bright. Most customers prepared to switch away from BT have already done so, he says, and as long as BT remains in possession of the only end-to-end network in the UK, the competition will of necessity stay restricted to niche areas. In Chile, the way they do it is to start price wars, but nobody wants to do that in the UK, he says. There’s only one company that can sustain the losses of a long price war, and that’s BT. Nor, he says, can wireless technology like Ionica’s entirely provide a quick and cheap way of bypassing BT at the local loop, because of bandwidth limitations that preclude some of the more sophisticated data applications. Without regulatory changes, says Bottomley, no true national competitor will emerge: I think what we’ll see is a lot of small operators moving into niche markets, eking out an existence under the wings of BT, he says.

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