Comment: Resist seduction by the giants

Public companies often have to choose between giving profits as dividends to shareholders or ploughing those profits back into the business.

Most firms usually achieve a balance that keeps investors happy but maintains their business's ability to remain competitive in a rapidly changing market.

However, for companies with substantial debts there may be little profit to allocate. This is currently the situation at a lot of telecoms carriers, many of which borrowed heavily during the 1990s to expand their networks and in some cases to acquire mobile licences. Here is one reason why many of Europe's large telecoms companies are more intent on cutting their operational costs to stave off the threat of bankruptcy rather than focusing on their customers' requirements.

In certain situations, temporarily ignoring the needs of customers in favour of boosting the company coffers may be a sure-fire recipe for commercial disaster, but some analysts argue this is not the case for the incumbent carriers.

They believe that many of the larger, longer-established carriers, such as BT and Cable & Wireless, need only to sit back and wait for IT managers to switch mission-critical leased lines and other services from smaller telecoms rivals, which are perceived as a less safe bet. This view suggests the long-term survivors in the stormy telecoms market will be the giants.

Whether this will happen is hard to determine, but firms should not be panicked into changing their telecoms suppliers - that would only play into the hands of the giants that continue to control large swathes of the telecoms industry.

It is true that the fierce cost and capacity battles that have recently raged in the telecoms market have unfortunately seen some of the suppliers fall by the wayside. But the changes have also created unprecedented levels of competition that have only benefited IT managers in terms of the higher-bandwidth wide area network (WAN) links that have become available at lower prices in more towns and cities across the UK.

So it's a shame to see that competitive market under threat, with the prospect of one or two carriers coming back to dominate an industry that thought it had seen the back of near-monopolies, able to charge more or less what they want for second-rate services.

Loyal customers

Corporate customers might therefore be unwise to create an exodus from service providers perceived to be on the edge of bankruptcy. If corporates remain as loyal customers and help those service providers past the difficulties, there could be more competition, and lower prices, in the long term.

IT managers should realise that any premature desertion of struggling providers now is almost certain to end in higher prices later, when the smaller carriers have disappeared, leaving the larger ones to divide up the corporate WAN market between themselves.

And IT managers should be reassured that only in rare cases are the services of telecoms carriers turned off completely - if a carrier closes, its old business is usually just continued under a different brand.

On the other hand, the usual cycle of consolidation and acquisition is bound to see smaller networks snapped up by, you guessed it, the larger carriers. So maybe the giants will get your business one way or the other in the end.

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