Arcor Network Services

Transcription

1 Donald A. Stuart, Kiran Bhalla Product Report 8 July 2003 Arcor Network Services Summary Arcor, Germany s leading alternative operator, has expanded its digital subscriber line and Integrated Services Digital Network offerings. Coverage is now available in over 200 German cities. Table of Contents Overview Analysis Pricing Competitors Strengths Limitations Recommended Gartner Research Insight List Of Tables Table 2: Price List: Arcor Network Services List Of Figures Figure 1: Map of Germany Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Corporate Headquarters Arcor AG & Co. Alfred-Herrhausen-Allee 1 D Eschborn, Germany Tel: Fax: Internet: Overview Background Sales EUR1.18 billion for fiscal year 2002 ended 30 March 2002 (without railway-specific fixed-line telecommunications activities). In early 2003, Arcor claimed more than 7 million customers, including 2.5 million for call-by-call and 2.4 million for preselection. Some 2.2 million subscribers use Arcor to access the Internet. Ownership 73.8 percent Vodafone, 18 percent Deutsche Bahn AG and 8.2 percent Deutsche Bank. Annual Investment Not disclosed. Employees 4,000 Infrastructure National Over 50,000-kilometer telephone and data backbone network (including 18,000 kilometers of fiber optic cabling); backbone transmission capacity up to N 2.4 Gbps; TCP/IP network with over 1,200 nodes; frame relay network with over 180 network access points; data communications network based on X.25 with 2,000 nodes. Arcor is upgrading its IP network with a Multiprotocol Label Switching (MPLS) virtual private network (VPN)-based core network using Cisco Series and 7200 Series Internet routers. International Cross-border connections between Arcor and Cégétel in France and tele.ring in Austria. Transmission network also linked to the U.S., U.K., Poland, Italy, Switzerland, the Netherlands, Belgium and Luxembourg. Mobile Nationally via sister company Vodafone D2 mobile network; operates Global System for Mobile Communications (GSM) 900MHz and 1,800MHz networks. Vodafone D2 acquired a third-generation mobile Universal Mobile Telecommunications System (UMTS) license for EUR8.4 billion in August July

3 Background Voice Services Basic Voice Enhanced Number Services Mobile Services Conferencing Services Data Services Generic Digital Subscriber Line (xdsl) Leased Line Arcor Call by Call: targeted at the small office/home office (SOHO) and residential market to allow users to pre-dial to route calls via Arcor. Arcor Town by Town: a carrier pre-selection service that automatically routes calls over the Arcor network whenever a long-distance call is made. Arcor Integrated Services Digital Network (ISDN): provides customers with three telephone numbers and two lines (two channels). Up to 10 telephone numbers can be provided and up to 30 channels can be aggregated for bandwidth. Arcor Business Smart offers discounted call tariffs and line rental, targeted at small and midsize businesses (SMBs). Arcor 0800 Smart provides businesses with toll-free numbers to serve their customers. Different tariff options are available for higher-volume users. Arcor 0180 Smart offers local-rate numbers for businesses and enables them to share the cost of the call with the caller. Arcor 0800 zero tariff provides businesses with toll-free numbers to serve their customers. Unlike the Smart option, however, it allows users to customize the offering to route calls to different regions as required using Intelligent Networking. Administration can be done online. Arcor 0180 service offers local-rate numbers for businesses and enables them to share the cost of the call with the caller. Administration can be done online. Calls can be routed to different call centers using Intelligent Networking. Arcor 0190 Premium and 0900 Premium provide premium rate numbers for information/entertainment services. Services via Vodafone D2 with roaming in more than 120 countries. D2-Corporate VPN with option to choose from available call numbers, variable authorization profiles and online administration. D2-Corporate OnSite handset works as cordless in office and as mobile, reverting to the D2 network outside the office. Package provides a fixed number of free internal calls, and different user profiles are available. Arcor Audio Conference provides a virtual hosting center for audio conferences. Bilingual operators are available in English and German. Arcor ISDN flatrate provides a 128-Kbps connection over ISDN. Arcor digital subscriber line (DSL) flatrate 768 provides a 768-Kbps DSL connection with a 128-Kbps connection upstream. Arcor DSL 1500 flatrate provides a 1.5-Mbps DSL connection with a 256-Kbps connection upstream. Arcor Internet Business flatrate provides up to a 4-Mbps connection with a 384- Kbps connection upstream. Coverage is available in 200 cities, including Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg, Hanover, Nuremberg, Munich and Stuttgart. Service speeds from 2 Mbps to 155 Mbps (synchronous transfer mode 1 [STM-1]) with 140 points of presence (POPs) located throughout Germany. 8 July

4 Background Frame Relay Offering Arcor Frame Relay Coverage More than 180 network access points. Standard Supported International Telecommunication Union (ITU), American National Standards Institute (ANSI) and Frame Relay Forum. Permanent Virtual CIRs of 8 Kbps to 16 Mbps. Circuit (PVC) Committed Information Rates (CIRs) Access Line Speeds 64 Kbps to 34 Mbps. Asynchronous Transfer Mode (ATM) Offering Coverage Standard Supported Class of Service Access Line Speeds LAN Interconnection IP Services Web Hosting Arcor ATM is the carrier s ATM offering, which is carried directly over its backbone. The service is offered with percent availability. More than 180 network access points. ITU, ANSI, European Telecommunications Standardization Institute (ETSI), ATM Forum. Constant bit rate (CBR), variable bit rate (VBR) and non-real-time VBR (nrt-vbr). 2, 34 and 155 Mbps. Arcor LAN Connect offers a managed router service utilizing frame relay technology. Supports Ethernet and Token Ring LAN interfaces, along with TCP/IP, Sequenced Packet Exchange/Internetwork Packet Exchange (SPX/IPX) and Systems Network Architecture (SNA) protocols. Managed router option includes Cisco 2600, Cisco 3600 or the Cisco 7200 series. Arcor Server Farm provides a secure hosting environment for the collocation of a Web server with an Ethernet connection to the Arcor backbone at 10 Mbps to 100 Mbps. Arcor Web Hosting provides 50MB of Web space and 100MB of mail space, with 5GB data transfer a month, free of charge. 8 July

5 Background IP-VPN Internet Billing Management Source: Arcor/Gartner. Arcor company Login provides economical single dial-up access to a corporate headquarters. Ideal for branch offices where connection is made less than 10 hours a day. Arcor Company Dialog provides multiple access to a VPN, but it s aimed at offices that use the connection less than 10 hours a day. Can be configured with use of DSL or ISDN. Arcor Company remote provides a single connection to a VPN. Ideal for branch and small office locations. All services include a pre-configured router and can be accessed by ISDN or DSL. Additional connection choices are available on request. Company Net offers VPN services in Germany. The offering is aimed at companies that run their own networks. The service supports MPLS and four service classes to prioritize traffic profiles. Company Net Plus supports Voice over IP (VoIP). The service is available across Germany with connections at up to 155 Mbps from mobiles to leased lines. Additional modules can be added to the service, such as Internet, intranet and e- mail setup. All VPN services support MPLS. Arcor offers e-commerce, consultancy, intranet, managed router, Web design, mail relay and managed intranet services. Billy provides customers with a detailed encrypted monthly analysis of accounts on CD-ROM. WebBill allow customers to access billing records for the last 13 months. Figure 1: Map of Germany 8 July

6 Source: Gartner. Analysis Call by Call and Pre-selection Arcor is participating in both call by call and pre-selection for local calls as the German local call market becomes deregulated. Deregulation of the local markets follows the introduction of long-distance competition in 1998, where the incumbent operator lost up to a third of its long-distance market share (per Deutsche Telekom March 2003). Liberalization of the local call market was expected at the end of 2002; however, its introduction was delayed as Deutsche Telekom sighted technical problems with its implementation. Services were scheduled to be introduced in two phases, with call by call introduced at the end of April 2003 and pre-selection to follow in July In April 2003, Arcor unsuccessfully attempted to convince a German court to force Deutsche Telekom to introduce both services simultaneously. Arcor claimed that separate introduction would confuse customers. Call by call allows customers to dial a five-digit prefix number to select a carrier before dialing the telephone number to complete the call. Pre-selection allows a customer to register their preferences in advance for a chosen carrier to switch certain types of calls, including local calls, by default without having to dial a prefix number. Competition in local calls is a welcome move for Arcor, allowing it to effectively compete with Deutsche Telekom in the corporate market and not just for long-distance calls. However, with the incumbent s tariff reductions for local calls, Arcor is not expected to make the same level of inroads into Deutsche Telekom s local call market share. 8 July

7 Arcor has continued to target the SMB market with bundled packages. Its Smart packages bundle Internet access, and Web space. Building on its Internet Smart package introduced in August 2002, Arcor introduced its Business Smart range of services in early 2003, with discounted daytime call tariffs and line rental, including customers using ISDN or DSL. Broadband Arcor has rapidly extended coverage of its xdsl services from 40 cities in 2001 to over 200 cities by early This has been based on unbundling the local loop from Deutsche Telekom, allowing it a degree of control of service provision and quality of service (QOS). In March 2003, the carrier claimed that it had signed up its 50,000th xdsl subscriber. The carrier has gained a reputation for innovation and was among one of the first carriers in Germany to offer flat-rate (unmetered) DSL services. However, Deutsche Telekom dominates the market with more than 3.4 million DSL subscribers (as of March 2003). Arcor offers several options for xdsl services, including high bit data services and symmetric DSL (SDSL). Arcor introduced a high bit 4-Mbps service at the end of 2002, with 384 Kbps upstream at a competitive price of EUR1,290 per month. In March 2003, Arcor followed with the launch of SDSL services, offering data rates up to 2.3 Mbps, priced at EUR799 per month. The SDSL offering is seen as a more lucrative offering for business due to its ability to replicate a leased-line offering although with some drawbacks, such as shared bandwidth, but at a considerably lower cost. Multiple Protocol Label Switching Arcor has extended its VPN portfolio with full support of MPLS, allowing the carrier to offer class-ofservice options. At the end of 2002, Arcor announced it was upgrading its Cisco-based IP network to support MPLS with the addition of Cisco 1200 and 7206VXR series of Internet routers. This followed the introduction of the Layer 3 support in Arcor s CompanyNet IP-VPN service. At Cebit in March 2003, Arcor launched its MPLS IP-VPN service with support for up to four classes of service, allowing telecom managers to prioritize between data, voice (using VoIP on CompanyNet Plus service) and video. Vodafone Despite having forged ahead with its broadband strategy, speculation has persisted of a separation of Arcor from Vodafone. Vodafone acquired Arcor by default through its acquisition of Mannesmann in Over the last three years, Vodafone has disposed of most of Mannesmann s noncore (nonwireless) assets. Most recently, Vodafone declared its intention to sell the fixed-line assets of its holdings in Japan Telecom. As result, discussion has arisen of Vodafone s exit from Arcor. Vodafone is expected to offload its stake in Arcor as part of a strategy to gain control of its minority stakes in wireless operators. However, a depressed telecom and capital market has reduced the number of suitors willing to pay a premium for Germany s second-largest carrier. In addition, a potential sale, until recently, was complicated by a stake held by the German railway operator, Deutsche Bahn. Deutsche Bahn gave up its special voting rights in 2002 as a concession, in return for which it regained control of the train telematics and communications systems. It originally contributed those assets to form the joint venture with Mannesmann. Vodafone may find it difficult to realize Arcor s full value in the current environment. However, the recent sale of Deutsche Telekom s remaining cable systems, although at a substantially reduced price, proves that there is still an appetite to invest in Europe s largest telecom market. 8 July

8 Pricing Table 2: Price List: Arcor Network Services Service ISDN DSL VPN Frame Relay/ATM Source: Arcor/Gartner. Pricing Strategy Arcor ISDN monthly rental begins from EUR19.95, with various discounts offered depending on monthly billing level. If over EUR50/month, the company offers a 3 percent discount. If over EUR100/month, a 4 percent discount is offered. If over EUR200/month, a 5 percent discount is offered. Internet Business flatrate at 384 Kbps/384 Kbps is priced at EUR199/month. Arcor Internet Business flatrate at 1.5 Mbps/384 Kbps is priced at EUR469/month. Arcor Internet Business flatrate (SDSL) at 2.3 Mbps/2.3 Mbps is priced at EUR799/month. Arcor Internet Business flatrate at 4 Mbps/384 Kbps is priced at EUR1,290/month. Pricing components are worked out on line rental, equipment rental and usage. Onetime installation charge route-based pricing, with monthly recurring charges for access ports and bandwidth desired. GSA Pricing Does not apply. Competitors Arcor faces competition from the German incumbent, Deutsche Telekom, which dominates the national market for telecom services. In addition, Arcor faces competition from pan-european carriers, such as AT&T, BT Global Services, Cable & Wireless, Colt and MCI. Strengths Arcor has an extensive national network and has successfully integrated the assets of Germany s former third-largest telecom operator, Otelo. Itoffersawiderangeoffixednetworkservices. DSL services based on local-loop unbundling QOS controls are being rolled out. In addition, the carrier is rolling out SDSL, which is a more lucrative offering for SMBs. The company has built a robust application hosting capability. The separation of the railway telematics system and board concessions gained by Vodafone from Deutsche Bahn clears the way for the separation of Arcor from Vodafone. Limitations Arcor has a limited presence outside Germany. It does not have access to capital to purse great network investments or pursue acquisitions at a time where telecom assets are significantly undervalued. It will be unable to create the same type of synergies in product innovation, particularly in fixed mobile convergence and unified messaging, once it splits from Vodafone. 8 July

9 Recommended Gartner Research Network Services: Germany, DPRO Trends in Fixed Public Network Services: Germany, , TCPM-EU-MT-0133 Insight Arcor has asserted itself as one of the leading alternative carriers in Germany. Arcor s reach across Europe is not one of the carrier s strengths. However, enterprises can gain comfort from Arcor s extensive range of fixed network and broadband services that now extend to over 200 cities in Germany. However, Arcor has not taken advantage of the lull in telecom valuations to continue to add city carriers. A potential separation from Vodafone could allow the carrier to pursue its own objectives unhindered. Going forward, look for Arcor to continue its expansion via acquisitions and partnerships with other city carriers and for the expansion and enhancement of Arcor s services. Enterprise users should certainly consider Arcor when looking at competitive bids for telecommunications services in Germany. 8 July