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The challenges facing the service provider market

By Johna Till Johnson
Network World, 10/08/01

Unless you've been pulling a Rip Van Winkle in the past six months, it's hard to miss the fact that the service provider landscape has been in a virtual, market free-fall. The industry is effectively imploding, with many erstwhile leaders involved in bankruptcies (PSINet, Rhythms NetConnections and Exodus Communications); mergers and acquisitions (SBC Communications/Prodigy, the rumored BellSouth/AT&T deal); and service and equipment slowdowns (just about everybody).

Many formerly high-flying providers have lost so much value that their stocks are listing at fire-sale prices. And yesterday's telephone company visionaries have put for-sale signs on their mansions, yachts, private islands and rare California wine collections.

In my last column, I wrote about why this is happening. But from an enterprise telephone company manager's perspective, the question isn't so much why as it is what do I do about it? Unfortunately, these changes make for more than just interesting reading. Mergers and bankruptcies can lead to outages and discontinued service, not to mention unmet service-level agreements (SLA), slowed-down response times and, ultimately, unhappy users.

To put it simply: With the service provider market in convulsions, companies must take extra care to protect themselves and their users. The following are some tried-and-true strategies for ensuring service continuity through chaotic times:

Run a credit check on any provider before signing the contract. and audit the provider's cash flow on a regular basis (minimally, quarterly) thereafter. Do this no matter what, even if the company is a "name brand" player (see next).

Don't expect that dealing with name brand carriers will protect you. Sure, incumbent local exchange carriers, old-world interexchange carriers and post, telegraph and telephone administrations have bigger cash piles, but they're not immune to market vagaries and plain-old bad decisions.

One established provider recently said (pointing to the single page of paper that remained on his conference room flip chart): "See that? My budget is so low that I haven't been able to afford to replace that for the past three months!"

Don't put all of your eggs in one basket. I have discussed the value of a matrix request for proposal that helped winnow down the service providers to a select few.

The operative word here is "few" (as in "more than one").

These days, it's simply not safe to entrust all your services to a single provider, even if the rates are enticingly low. If that provider goes out of business, you'll be paying nothing - but getting no services, either.

Use the market crunch to renegotiate SLAs, rather than price. Telco prices have gotten so low that chances are your rates are reasonable. Focus on maintaining service quality and reducing management overhead. For example, if you haven't already consolidated your minimum annual revenue commitment into a single amount (or eliminated it entirely), now is the time.

Pay your bills on time. This may seem counterintuitive, but consider that if your provider is delivering quality services at a reasonable price, you should help ensure the provider remains in business. Paying your bills promptly will ensure a healthy cash flow for your provider.

Johnson is senior vice president and CTO for Greenwich Technology Partners, a leading network consulting and engineering firm. She can be reached at johna@greenwichtech.com.The second part of "Carriers in crisis" will run in the Oct. 22 edition of Network World.