Telefonica Advancing in Europe?

January 7th, 2009 by · 3 Comments

Telefonica (NYSE:TEF, news, filings), long the little brother of BT, FT, and DT in Europe's corporate telecommunications market, is looking to move up in the world. The Spanish based carrier announced a big contract today worth €350M over 5 years with Deutsche Post, which amongst other things owns DHL and has 500K employees all over the world. Most of Telefonica's €2B revenues from the corporate market come from places that speak, well, Spanish. A deal of this size is not minor at all, it's clearly a shot off the bow of the big boys.

I have to say though, the European corporate telecom market looks crowded. Alongside BT, FT, DT, and Telefonica are such behemoths as Verizon and AT&T, other incumbents like Teliasonera and KPN, and aggressive upstarts like Colt, Interoute, Level 3, and Global Crossing. There aren't too many weak spots there, and they are all fighting for the same dollars. Doesn't it seem like consolidation is inevitable?

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Categories: Internet Backbones · Mergers and Acquisitions

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3 Comments So Far


  • iSiS says:

    The EMEA telecom market is definitely, very crowded. However, I don’t think all the players you mentioned are close to being on the same page. For instance, even though Verizon sells as702 in EMEA, they are ignoring the wholesale side even more than they are in the US. GLBX and LVLT are cleaning their clocks in EMEA just like they are in the US. KPN are good for cheap waves, but thats about it. Interoute is a Tier2.5 at best, who can’t price themselves to compete with the others mentioned in your post. I don’t know anyone who’s buying transport or transit from ATT in Europe. BT pretty much only competes on the eyeball side in the UK – I don’t consider them a player at all. FT and DT are building out decent global networks and are also (as I predicted) going to purposely piss a lot of networks off this year using their valuable eyeballs as collateral.

    My 2009 winners and losers would look something like:

    Winners

    – LVLT and GLBX win the most new revenue as their strict peering and true T1 status cause more smaller players to buy from them exclusively, thereby increasing their own peering numbers.
    – Good call on Telefonica. They have the resources and eyeballs to make huge strides in the EMEA and global market.
    – TATA – not mentioned by you, but they should make nice gains in EMEA mkt share.
    – KPN – does well on the transport side, but lose mkt share on IP.
    – Whoever gets bought in this market will be lucky :). Tiscali, Telia, and Interoute are the top candidates as I mentioned before. One note though, remember that Telia rejected an FT offer of $28B last year, so Swedish nationalism will play a factor here.
    – FT and DTAG (but only moderately) – again, eyeballs are the key. They finally get tough with peers, convince the upper crust mgt that they have to drop their transit pricing, and offer aggressive on-net rates

    Losers

    – Whichever of Tiscali, Telia, and Interoute if they don’t get bought or merge with someone.
    – Colt is irrelevant, as is BT :: doesn’t make them a “loser” per se, but they’re not players.
    – Verizon and ATT :: at least in the wholesale market they are becoming increasingly insignificant, even though I think its a huge blunder on their part.

  • Rob Powell says:

    Well, there certainly is a lot of variety as you go through the list, I didn’t mean to say that they all play at the same level. It’s that they all *think* they do, haha… I had forgotten about Tiscali, had a head cold the last few days and it took its toll.

    I think you have a bias toward seeing the world through IP transit though, I think your descriptions shift a bit if one looks at it for voice or managed services.

    I do see Interoute as a bit more dynamic than you, but perhaps that is mostly because they have aggressive backers – in the marketplace I don’t know of their success rate since they are privately held.

  • iSiS says:

    You’re right Rob, I’m a CDN guy, so I do have a bias for the wholesale transit/transport/collo side of the market. On the voice side, I’ve been out of that for about 3 years so I’m not even going to feign competence. Regarding managed services, I again don’t deal with that on a daily basis, but I also think most providers are exceedingly incompetent and its a waste of $$ :).

    Regarding Interoute, I’ve had some very bad experiences with them – primarily due to them trying to have a legitimate US offering – and while I’ve used them for transit and collo in Europe, I’ve never tried other services. I did price out some intra-EU waves a year ago, and they weren’t even in the same ballpark as EUnetworks, KPN, and even Level3. They do have good connectivity into Eastern Europe though.

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