Infonet’s inside edge

Infonet’s inside edge – company profile

Maribeth Harper

Infonet’s inside edge

A move by AT&T to purchase part of a Bell regional holding company would shock the U.S. telecommunications industry and prompt predictable resistance from U.S. District Judge Harold Greene.

On the international front, however, a similare scenario has been played out with little fanfare by Infonet, the world’s leader in international data transport. The company, headed by the aggressive Jose Collazo, has sold 60% of its stock to foreign telecommunications authorities, or PTTs (see page 21). Negotiations are in the works to sell an additional 10% to two unnamed PTTs, leaving parent Computer Sciences Corp. with a 30% interest in the company.

In theory, the PTTs’ equity in Infonet should prompt them to look first to the American company for long-haul international data services as the global market becomes increasingly deregulated. Despite the inevitable rise of competition, Infonet should garner an increasingly larger share of the estimated $660 million international data market with time.

Gartner Group analyst Jeremy Frank characterizes the selling of Infonet shares to the PTTs as “an awesomely bold and intelligent thing to do because the biggest problem with international networks is the local loop. It certainly [angered] the competitors,” he says.

Not only has Infonet’s strategy been lauded by analysts, but the timing, it seems, is impeccable. The European Economic community plans in 1992 to have policies in place that will create a common market. France Telecom and Germany’s Deutsche Bundespost each own 15% of Infonet. And six PTTs own 5% each. They are the PTTs of Sweden, Spain, Australia, Singapore, the Netherlands and Belgium. The company is obviously well positioned to play a size-able role in Europe as the single market becomes a reality.

And deregulation in the international data arena is not limited to Europe. Japan has recently opened its doors to foreign telecommunications companies as a result of efforts by the U.S. government. Infonet has nodes in Tokyo and Osaka.

The company serves 32 countries worldwide, with nodes in 20 countries and gateways through international record carriers in the remaining service areas.

The international data communications market has only recently attracted attention because of dramatic growth driven by factors including global competition, deregulation and the proliferation of personal computers. In fact, Collazo concedes, “until recently, we thought we had that niche quietly all to ourselves.”

According to the best estimates, the market is growing at a rate of 20% to 30% per year. Depending upon the analysts queried, the rate of growth is equal to or greater than the rate at which the domestic data market is growing.

In a study released late last year, Link Resources Inc. concluded that Infonet has a 37% share or $23 million of the $67.5 million international value-added network transport market. The company’s next closest competitor is US Sprint’s Telenet, with $11 million in iternational VAN revenues.

“Infonet has an advantage because it can offer end-to-end international services in a way no one else can,” says Mark Winther, Link Resources’ vice president of electronic communications and research. The company owns nodes in foreign countries and has contracts with the PTTs while its competitors must provide international serices through gateways using IRCs in most cases, he says.

Infonet’s contracts with foreign PTTs came about, according to Collazo, because the company has had a track record of providing international data services since the early 1970s. Much of Infonet’s hardware was in place worldwide well before the spirit of deregulation took hold across the globe.

The Inception

Infonet began by offering remote computer services to multinational companies. Collazo, who joined Infonet in 1969, saw to it that the company was set up from its inception to work as a global network with a centralized hub.

As the network expanded, technicians were sent to each of the countries served by the company. “We trained our people around the world to think and act as one body, as much as possible,” says Collazo.

In 1988, CSC and some outside shareholders spun off Infonet as a separate corporation headed by Collazo. The company has grown to 700 employees serving customers in 32 countries. An additional 400 persons participate in joint ventures overseas aiding Infonet with customer service.

Collazo claims that Infonet’s customer support is unrivaled in the industry. But what makes Infonet truly unusual, he says, is that the entire network is centrally managed from the control center in El Segundo, Calif. A backup facility is located in Beltsville, Md. “We manage the network as one network including packet switches, pads, modems and all the hardware,” Collazo says. The configuration enables Infonet to identify network problems in foreign countries, often before the customer is aware of a difficulty, he says.

“We have a 24-hour control center and customer support center that can manage the network all the way to the end user 24 hours a day, seven days a week,” says Vice President-Marketing Randy Lintecum. Competitors have central control systems too, but their troubleshooting capabilities can be potentially thwarted by affiliated IRCs, the points out.

Because of Infonet’s central network configuration, the company can provide customers with one invoice for service to any number of countries. The currency used is typically the client’s own.

This feature, known in the industry as “one-stop shopping,” has recently become increasingly attractive to customers. In fact, two of Infonet’s primary competitors, McDonnell Douglas Network Systems/Tymnet and US Sprint’s Telenet, are touting their one-stop shopping capabilities for the first time this year. Telenet, for example, currently offers one-stop shopping in eight of the 35 foreign countries it serves. The company intends to expand to its remaining service areas, according to Director, International Services Paul Thomas.

Of course, one-stop shopping can mean different things to different competitors, says Collazo. “Our customers receive one invoice in the currency of the home country, and one salesperson takes care of all services for a customer worldwide,” he says. “One-stop shopping its in vogue now but it is a niche we’ve been operating in for quite awhile.”

With nodes in many foreign countries, a global network in place supported by able technicians and the partnership of foreign PTTs, Infonet appears to be well ahead of its competition in the international data arena. But, like any company testing the waters in an emerging market, Infonet may stumble upon some unanticipated roadblocks.

For instance, it is the partnerships with the PTTs that some analysts feel gives Infonet its competitive edge. But, others, including some of Infonet’s competitors, believe the strategy may actually have no real bearing on the company’s future role in international data transport.

In Europe, for example, 22 PTTs have formed a company named Managed Data Network SErvices to offer X.25 packet-switched services. Not all of the MDNS members are Infonet investors.

“Perhaps more has been made of the PTTs’ equity position in Infonet than is there. Thos PTTs [in the MDNS project] still have a vested interest in their domestic market. The people who are running the domestic networks in those countries are not willingly going to just turn those things over to any international carrier,” says one Infonet competitor.

Collazo, however, sees the MDNS project as a great business opportunity. “Most PTTs have two international connections–one with other PTTs and one with me. My own position is that the logical thing to do would be to choose Infonet,” he says. Infonet offers the kind of billing and technical support that MDNS is just beginning to design, he adds.

Frank agrees. “MDNS is just a concept, and it is starting from scratch. It’s hard for me to understand how 22 people can manage a network by committee. I have an easier time imagining how Infonet and its partners can manage an existing network,” Frank says. “MDNS has a lot of logistical problems, and Infonet is a fairly thriving existing network,” he adds.

Despite the advantages of PTTs as partners, however, Frank foresees at least one potential problem–Infonet is walking an unavoidable legal tightrope. The PTT contracts may at some point put Infonet in a tenuous position legally, he says. “If one of your partners owns the local loop, no matter what the laws are, you’re likely to get better service,” says Frank. “That’s what Telenet and Tymnet will [complain] about. That was, after all, one of the major forces for deregulation in this country,” he says.

Yankee Group analyst Roberta Wiggins discounts the importance of Infonet’s relationship with the PTTs altogether, because, she notes, the contracts with PTTs are non-exclusive. Competitors can negotiate identical contracts if they choose to do so.

But Collazo says he does not expect that to happen. “Why would a PTT want to own parts of two competing businesses? It makes no sense,” he says.

Infonet’s relationship with the PTTs has obvious advantages and potential pitfalls. But evaluating the company on the merits of its international VAN service offerings alone, some analysts feel Infonet could be more progressive.

Infonet is generally recognized as an international data transport company, but Winther and others claim that, to effectively compete in the long run, the company must more aggressively seek to implement sophisticated VAN services such as X.400 and electronic data interchange. “It is really behind the ball in developing application services like EDI and E-mail. Infonet’s E-mail is behind in terms of functions and X.400 developments,” says Winther.

Infonet has been reluctant to move into VAN services because of the complexities and costs on an international basis, Winther feels.

“They’ve had a hard time developing a revenue flow that can be used to develop these applications,” he says. “But they’re doing it now and they’ve got a good business going in the provision of transport for corporations.” However, he says, “Link has said that the real interesting business is applications solutions, not data transport.”

“Infonet has a very basic data transport service but it is not as sophisticated as Telenet,” says another analyst who requested anonymity. Both Telenet and Tymnet have much larger domestic VAN service operations than Infonet, and as they begin to target the international VAN market in earnest, Infonet could realize some stiff competition, she claims.

Ron Bamberg, vice president of business development and planning, Tymnet, supports that claim. “Certainly in the short term, our large customers, most of whom are multinational companies, use us domestically and would like to use us internationally as well,” he says. Tymnet plans to open its network up to third-party users on a widespread international basis this year, Bamberg says.

Infonet intends to introduce EDI and X.400 services sometime this year. Collazo defends his firm’s scheduled implementation by stressing that it takes time to roll out a truly global version of complex services.

“We have both EDI and X.400 products in house, and when we announce them they will be [services] that companies will be able to use worldwide,” Collazo says. “We’ve been developing a global network and support structure that works. Our infrastructure is there now, and when we roll out our products they will be rolled out in strength and fully supported,” he says.

Competitors who have launched EDI on an international basis have met with only limited success because they do not have the necessary infrastructure, Collazo says. “Really no one provides end-to-end supported EDI services. To do that, they would have to build themselves an end-to-end global network,” he says.

An outsider looking into the rapidly growing international data market might describe Infornet as “poised.” With the PTT partnerships, the backing of CSC and the leadership of Collazo, who negotiated many of the PTT contracts himself, Infonet is “poised” to make significant inroads as an international data transport company in the newly deregulated global marketplace.

“On a U.S. basis we’re ranked number three. Internationally we’re ranked No. 1. What is important to me,” says Collazo, “is that we stay No. 1 in the area we have chosen for ourselves, which is international services.”

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