|Asia-Pacific I 2006
|Connectivity solutions in Asia – partnering for success
|President Asia Pacific
Owen Best is the President Asia Pacific of Flag Telecom. Before joining Flag Telecom, Owen Best was Vice President of Telstra Japan and Regional Director for Telstra Korea. He has over 22 years experience in the telecommunications industry, and has worked extensively in the Asia Pacific region in various senior engineering and operational positions with Telecom Australia, Telecom Australia International, OTC and Telstra. Owen has a Bachelor Degree in Engineering (Electronics/Communications), a Master of Engineering Studies and an MBA, all from the University of Queensland, Australia.
Although the transmission capacity markets in Asia are recovering, merger and acquisition activity has increased and operators have withdrawn from the marketplace. The market is consolidating, competition intensifying and vertical and regional partnerships are emerging. Partnering has become essential. It helps strong regional carriers to compete on a global basis and meet customer demand for ubiquitous connectivity with end-to-end service guarantees. The new partnership model, of collaboration not conquest, enables operators to cost-effectively extend coverage depth and reach.
For those of us living and working in Asia there is a strong sense of renewed optimism about the pace of recovery of the global economy. China and India, now clearly the world’s two fastest growing economies, are witnessing incredible growth in the Telecommunications and Information Technology (ICT) markets. Since 2001, China’s mobile subscriber population has been growing at a rate of around 80 million each year and is expected to reach 500 million by 2008. Similarly, Internet users have already risen from 10 million at the end of 2003 to more than 100m in June 2005. The Indian government has set a target for growth for its mobile phone market of around two million additional users each month to reach a total of 200 million users by 2008. Deutsche Bank has predicted that by 2007 the share of mobile service subscribers in the Asia Pacific region will have increased to 48 per cent of the world market, up from 36 per cent in 2002. Similarly, the share of Internet users in the region is expected to rise to 40 per cent by 2007, up from 31 per cent in 2002. In the same way that we saw manufacturing jobs begin to move from the developed to the developing economies in the second half of the last century, we are now seeing a similar pattern in service industry jobs. McKinsey has cited figures which predict that about 3.3 million US business-processing jobs will have moved offshore by 2015. This back-office, Internet and broadband demand has led NASSCOM to forecast that in India, bandwidth demand will grow from 7.31Gbits/s in 2004 to 92.56Gbits/s by 2009. Significant growth is also forecast for the Middle East Gulf region where demand for international bandwidth is forecast to grow from 3Gbits in 2004 to 30Gbits by 2010. It is China, though, that is outstripping all other markets with Ovum forecasting international demand rising from 83Gbit/s in mid-2005 to over 2,000Gbit/s in 2010. East-West divide We are currently witnessing a shift in the gravitational centre of ICT. In the 1980s experts spoke of the North-South divide. In the 21st Century it’s all about the East-West divide. Many segments of the US and European markets are still struggling to come to terms with the post bubble era. In contrast, the Middle East is booming and Asia is exploding. The movers and shakers of this decade and beyond are in Asia. Led by China and India, they are moving out of their domestic markets and becoming extremely competitive international powerhouses. Amid this power shift we are seeing great demand for global connectivity fuelled by customer demand, market liberalisation and new application and service opportunities which new technology is delivering. It is encouraging to see that where technology is available to provide a service, and customers want that service, governments are moving increasingly swiftly to sweep away any regulatory inhibitors. We are seeing the price of bandwidth stabilising and, in some areas of the world, margins rising. The industry is finally realising that there must be give and take; winning business, but losing money, makes no sense. “Free” is not an economic model. To meet this clear demand for SW Asia connectivity, a number of new submarine cable builds are taking place, including the FALCON cable which will enter service later this year and run from Egypt in the west to, initially, India with direct interconnection to India’s domestic infrastructure, including Reliance’s 80,000km pan-India triple-play network. FALCON will also include the Gulf region’s first self-healing submarine network ring, providing all connected countries with the reliability that comes from alternative two-way routing. Although the capacity markets, particularly in Asia, are recovering, M&A activity has stepped up and other operators have withdrawn from the marketplace. As the market continues to consolidate and competition intensifies, a new operating model is emerging, one of vertical and regional partnerships. However, this operating model is very different from the salad days of the Global Alliance monoliths that promised to deliver integrated global connectivity, but ultimately failed spectacularly. Our world today is a very different place from the ego and passion of the 1990s when mobile licenses were being awarded for eye-watering fees and network operators enjoyed the glory days of “build and they will come”. Failure In truth, there were many reasons for their failure. The individual partners were not prepared to create the interlock processes and sufficiently coordinate their international strategies to effectively support the alliance in which they were involved. Overall, it simply proved to be the wrong model. Economically, it also didn’t stack up in terms of revenue and margin recognition and costs allocation; and technically, before the days of IP, there was no standard architecture, leaving alliances caught up in a “religious” debate about protocols or vendor choice. Above all, the cultural differences and mutual mistrust were the real showstoppers and the biggest cause of alliance failures. Customer demand In the telecoms downturn most of the individual alliance companies re-trenched to their home markets, but at the same time, the customer demand for global services never went away. Demand actually increased and has kept on growing. This has led to the emergence of a new partnering model, one on a much more rational, win-win footing, which is less ambitious than the former grand alliances, but one that plays to partners’ strengths. This new formula for partnering allows regionally strong players to compete on a global basis and minimise conflict around customers. It is a low risk strategy enabling operators to achieve economies of scale, network depth, extended reach and meet customer needs without significant investment. Importantly, such partnerships can create competition where consolidation is prevalent. Following retrenchment, key players have become stronger in their own markets. In some cases regional specialisation is taking place, creating a few dominant carriers such as Singtel in Asia, BT in Europe, Verizon/AT&T in the US and FLAG/Reliance in the Middle East, North Asia and India. We are also seeing a degree of vertical market consolidation such as BT/Infonet, VSNL/Teleglobe and FT/Equant. Mergers and acquisitions have not so far been able to create the full solutions that enterprises are seeking, and regional and domestic carriers have begun developing new global strategies to meet these customer needs, crucially through collaboration rather than conquest. Unlike the past, today each partner keeps its own brand and understands the key elements that will deliver the win. Global winners will be the ones that change their operating models and have the capability to adapt and adopt that model. Parnerships Creating successful partnerships is not without its difficulties. A partnership is like a marriage. The initial romance is a very positive experience, but once the knot is tied, living together can become stressful. Making it work requires an element of compromise by both partners and strong mutual trust. The physical distance between the partners can often make it difficult to build and sustain a sincere relationship. Cultural differences can create misunderstandings and barriers. Partners have to accommodate each other’s management and operating processes, and there can be existing customer relationship clashes. Overall there is always the difficulty in judging whether a partner is being sincere and open: the mutual trust element. To achieve that ultimate trust factor, partners must score highly on what has become known as the SOAR factor: Sincerity, Openness, Acceptance and Reliability. Of these, reliability is the key factor in building trust. If partners keep promises and always do what they say they will do, such action sustains a relationship and, more importantly, builds confidence in the three other areas of sincerity, openness and acceptance. At the end of the day, having cemented their own relationships, successful partnerships will be those which meet their customer’s needs. To return shareholder value and provide return on investment, global multi-national companies are today under intense cost pressures. This has led to business restructuring and off-shoring such that a global business may have its headquarters and a network of regional offices on a different continent from its software development, manufacturing sites or back office facilities. Disaster recovery could be at yet another different location. For this reason, today multi-national companies demand consistent, fast delivery of the latest technology on a global basis. They want these services at the lowest possible cost and with full service level guarantees. Worldwide services and infrastructure are a fundamental requirement for the global digital economy and global trade. Connected world We live in a truly connected world where business and, increasingly, domestic customers demand the ability to communicate and trade globally. They want to be able to set up a website, log on and be plugged into the global digital village. As consumers become more sophisticated and more demanding, technology is providing solutions with faster, instant information and shorter product life cycles. Everyone wants the latest toys and they want them instantly, all driving the Nescafé society. Nowhere is this more prevalent than in Asia where dynamic companies are driving innovation and where customer appetite appears insatiable. However, in the Internet-led world, customers are invariably not buying stand-alone technology. They require the supply of high-speed, high-quality, distributed connectivity and IT services across global locations, such that it “just happens”. This, in itself, is creating a major shift in the marketplace as former niche players are looking to win a larger slice of the action. Service providers Service providers are partnering to extend beyond core competences and capture higher revenues and systems integrators are looking to move into the network operator space to complete the communications and IT value chain. Partnering and acquisitions are becoming key strategies to achieve this goal. Partnering has become an essential strategic tool in today’s global economy and is allowing regionally strong players to compete on a global basis. With the value of hindsight, companies are selecting partners to provide a win-win situation and not a partner that is going to eat their lunch. Carriers are partnering to meet the customer demand for ubiquitous connectivity with end to end service guarantees. The new partnership model, of collaboration not conquest, enables operators to meet customer needs by extending coverage depth, expanding network reach while still operating cost-effectively by pooling R&D resources and reducing network overheads. Today’s essential buzzword is “collaboration”, not conquest.