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Telco Shakeup is Good for DM Industry

BRUSSELS – The turmoil in European telcos spells good news for the region’s telemarketers as costs continue to decline and new markets – especially Italy and other parts of Southern Europe – open for development.

Alastair Tempest, director general for public affairs of the Federation of European Direct Marketing (FEDMA) cited two recent Datamonitor research reports pointing to Italy as a major call center market.

The reports, he said, called Italy an “undeveloped market” and predicted that over the next five years call centers would increase by “a factor of 10.”

Italy, other experts noted, is a market in play no matter how the planned merger between Telecom Italia and Deutsche Telekom turns out.

Although the EU liberalized telecoms on Jan. 1, 1998, the timetable differed for some member states, including Italy which got into the competition game late.

Nor is Telecom Italia able to manage modernization by itself. “A white knight is going to have to come from somewhere,” Tempest said, “and pick up the hat Italy has thrown into the ring.”

Implications are already washing across Europe. “We’re seeing a lot of aggressive marketing from British Telecom (BT) and some newcomers providing telephone access,” Tempest said. “Even FEDMA has received interesting offers for dedicated lines.”

So have call centers, Tempest noted, and “at a price you wouldn’t believe compared to what it was even last year.” Prices are still high in Europe compared to the United States but the decline has been dramatic.

Competition is driving the changes. Deutsche Telekom has been losing market share at home to competition from small terriers and large bulldogs and is clearly looking abroad for expansion.

The Italians are only one target. CEO Ron Sommer, according to German media accounts, is looking at US carrier Sprint and at Britain’s Cable & Wireless, an acquisition that would give him a foothold in Asia where C&W has important holdings.

All of these undertakings are problematic, however. Deutsche Telekom is partnered with Sprint and France Telecom in Global One, an alliance that was supposed to give the Europeans a foothold in the US market but has floundered. Cable & Wireless was a rejected suitor for Telecom Italia.

Sommer has held talks with Sprint CEO William Esrey who has threatened to leave the floundering Global One alliance. The takeover would cost the Germans close to $40 billion. They paid $1.8 billion for a 10 percent stake three years ago.

The United States clearly is the most attractive market for the Germans, and Sommer would like nothing better than emulate Daimler Chairman Juergen Schremp’s merger with Chrysler.

Sommer doesn’t have much choice. He is facing competition at home from some 50 private carriers including a clutch of US companies. DT has already lost a third of its long distance and a sizeable slice of international business to rivals.

What’s more, Sommer has to fight a two-front war against smaller rivals and one newly emergent giant, Mannesmann’s Arcor phone company, which last month bought otelo, a joint venture of two other industrial giants, Veba and RWE.

The coup gave Arcor twice as much phone time business as Mobilcom, the third major player on the private German market and a bidder for otelo.

The French, meanwhile, are furious at what they bluntly call German treason in negotiating with the Italians. But France Telecom has gone it alone too, investing in Belgian, Danish, Spanish, Dutch, Norwegian and Portuguese telcos.

Moreover, the French are beginning to face many of the same problems as the Germans in terms of domestic competition. Only a few private companies are active, to date in the corporate market.

That has left France Telecom with a 97 percent share of the home phone market worth 40 billion francs (about $5.6 billion). But that’s changing and fast. Cegetel, currently the largest private carrier, has 780,000 homes.

Tele2, a Swedish carrier (see DMNI April 19, p.10), offered cut rate prices in March and in two weeks had 75,000 French customers. It expects a million by year’s end. Other private carriers, domestic and foreign, are in the wings.

And, analysts say, this is only the tip of the iceberg. Spain’s Airtel has large foreign partners including Airtouch, a US firm, and BT, as it pushes mobile phones across Europe.

The Dutch, the Belgians and the Scandinavians could also enter the Italian game if the Germans falter. The EC is a problem. Competition commissioner Karel van Miert, has promised a lengthy investigation.

AT&T is still trying to get into the market. It has a promising cooperation going with BT and is trying to unload Unisource, another mid-1990s joint venture that went nowhere. California-based Infonet is negotiating for it.

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