Western Europe's New Fixed Network Operators are Consolidating Rapidly, Says Analysys.

CAMBRIDGE, U.K.--(BUSINESS WIRE)--November 19, 1999--

It is not yet two years since W Europe's telecoms markets were opened to competition but already incumbents and new entrants are scrambling to reduce their exposure in core markets through acquisition and merger.

According to New Network Operators in Western Europe, a report from telecoms consultancy Analysys (www.analysys.com), the combined forces of falling prices, intensifying competition and rapid technological change are shaking the foundations of the fixed telecoms industry. The new environment is forcing players to reassess their original business propositions, formulated in anticipation of a very different market to that which now confronts them.

"Attempting to predict the future shape of telecoms is like trying to forecast a new order following a revolution," says report author Simon Sherrington. "As value falls out of core telephony markets, operators are looking for where the sustainable value lies." They are trying to cover all the bases while waiting to see whether bit transport, ownership of local loop infrastructure, supply of value-added services or content will be the profit generators of the future. The result is rapid consolidation to achieve the scale and portfolio breadth that will enable new entrants to compete with former monopoly operators before margins in the fixed voice market get too low.

Consolidation is being driven by four major trends.

-- The rapid fall of retail prices, particularly in long-distance

and international markets, has left business plans in ruins.

Soon, distance will no longer command a premium in W Europe. -- Network capacity is available in volumes that have never been

experienced before. As capacity increases, the cost of bandwidth

falls, enabling resellers to drive retail prices even lower. -- Broadband local loop services are becoming commercially available

via ADSL, cable modems and broadband wireless. This is enabling

operators to deliver high-value Internet and value-added services

as well as plain old telephony. -- Local loop unbundling has been introduced to many W European

markets. If the cost of access is right, this presents the

possibility of significant local service competition.

Much of the consolidation has an international element, reflecting the trend towards globalisation and operator interest in establishing a cross-border presence. This trend is typified by Global Telesystems Group (GTS). In March 1999 it purchased Esprit Telecom, a pan-European operator. Two months later, it finalised the take-over of French operator Omnicom, and in August it acquired the Belgian reseller InTouch. GTS has also absorbed the international carriers' carrier Hermes Europe Railtel during 1999.

Interestingly, and perhaps ominously for the new entrants, the incumbent operators are also participating in much international acquisition activity, with BT, France Telecom and Swisscom being particularly expansionist (table which shows Incumbent TOs' Shareholdings in New Network Operators in Western Europe is available on request to journalists from Martin Brooke Associates).

The report reveals that more than 1000 licences have been awarded across W Europe - 500 of these in the UK, with France and Germany accounting for another 230. However, the large number of licences masks the degree of consolidation which is taking place.

In the UK, for example, just eight companies control almost 90% of the market share which has been taken from BT. In Germany, the merger of o.tel.o and Mannesmann Arcor in April 1999 created the largest alternative operator to Deutsche Telekom, controlling roughly one third of the telephony market share taken from the incumbent.

This fourth edition of New Network Operators in Western Europe provides information about all the key players in each of the 16 major countries. It includes extensive analysis of the progress of 50 major new network operators, reporting in detail on their service portfolios, commercial structure, and geographical scope, supplemented by financial highlights, subscriber statistics, and key network data.

Profiles of the former monopoly operators look in detail at the impact of competition on their performance and prospects. The report also includes 16 country profiles, and listings of over 200 other players. Written by Simon Sherrington and David Martin, the report costs US$2330 in paper format or US$2690 electronically via the Web (www.analysys.com/publish).

About Analysys (www.analysys.com)

Since 1985, Analysys Ltd - the telecoms strategy consultancy - has built a worldwide reputation in the telecoms market, based on its rigorous research and creative analysis. With offices in Cambridge, London, Glasgow, Paris, Madrid, Kuala Lumpar and San Francisco, and an unrivalled understanding of telecoms markets, technologies, policy issues and strategies, Analysys has won a pre-eminent position in telecoms consultancy.