The Ovum View: Cable & Wireless

Use or thought of using the UK's second largest telco? Ovum research director Katy Ring provides the essential low down on the new higher-ups, the evolving business strategy and more… Cable & Wireless is currently undergoing a period of uncertainty. Given that a major restructuring is distracting its efforts, you might be forgiven for thinking the company is unlikely to strengthen its UK position in the short term. However, over the past few weeks it has announced some promising contract wins with companies such as UK retailers Tesco and Marks & Spencer. The latter in particular caught our attention, as it is a juicy ebusiness hosting contract. So, what is Cable & Wireless up to in the UK hosting market?

In January 2003, C&W experienced a major change in its senior management. Richard Lapthorne, former finance director at British Aerospace, became its chairman. This was followed by the departure of CEO Graham Wallace, who bet C&W's future on the IP and data services market in 1999. He will, however, remain to run day-to-day operations until a successor is persuaded to take over.

Lapthorne has also reshuffled the board, introducing some new faces to help him turn the troubled company around. The current management skillset is mainly for emergency repair, so before a new CEO with telecoms market knowledge is found, C&W is likely to remain without a concrete strategy.

In September 2002, C&W reported first-half results for the 2002/2003 financial year, which showed 66 per cent growth in hosting revenues to E328m compared to the same period the previous year. This is due to a full six-month contribution from Exodus, compared to the two-month contribution in the prior period. Hosting revenues suffered from high customer churn at the start of the period, though this has since been reduced.

Certainly, in the UK, where approximately one-third of its global hosting revenues are generated, we have anecdotal evidence that Exodus customers are continuing to give C&W the benefit of the doubt and are not yet looking to exit their contracts, though contingency plans are in place.

While it would be foolhardy to suggest C&W's strength in the UK hosting market is not weakened by its current corporate restructuring, the company's competitors may be looking in vain to pick up much market share from it in the near future.

C&W is in the middle of radical restructuring, with its 23 US data centres being cut to 15 to provide enough capacity to continue as sub-contractor to Accenture in the North American market and grow new business.

C&W hosting was, of course, originally developed under the auspices of Wallace as a standalone entity via the acquisitions of MCI hosting, Exodus and Digital Island. This is no longer the case - C&W hosting is now integrated into Cable & Wireless Global as part of its services portfolio, which includes:

- IP LAN

- voice

- IP virtual private network (VPN)

- hosting and ecommerce.

Although hosting will have a virtual profit and loss line so C&W can track its progress, this line will no longer be publicly reported.

The hosted services portfolio includes:

- co-location

- managed services for operational software and applications

- web hosting

- internet-based application services (ecommerce).

C&W has no aspirations to deliver back-office application hosting or to move towards business process outsourcing (BPO). It offers system integration services around network integration with servers but partners with IT services companies for the provision of application design, development and implementation.

In particular, it is continuing to focus on the hosting of front-end ecommerce application solutions, arguing that IT services companies are better suited to legacy back-office hosting. As online applications become increasingly central to most organisations, this front-end/back-end distinction will become less obvious.

This will have a detrimental impact on carriers serving the enterprise market that do not have application development and integration skills. C&W would disagree, arguing that ecommerce hosting is best served by an IP services provider because such a provider can fine tune a client's IP VPN and LAN to ensure the speed and reliability of ecommerce transactions.

Following this logic, C&W is positioning its hosted services portfolio as layered services, covering everything from basic provision of power, bandwidth and the IP infrastructure, through managed technology services, up to the design, development and ongoing operational management of IP applications.

The company is pursuing a vertical sector segmentation in its C&W Global unit. It is looking to serve corporate customers with multimillion-dollar contracts in the following sectors:

- financial services

- retail

- technology

- government

- media.

Key UK hosting accounts include:

Marks & Spencer

Cable & Wireless won a psychologically important contract with this UK retailer in January 2003, which neatly demonstrates the new 'service portfolio' strategy for the hosted services division that exploits its IP service capabilities. The C&W Internet solutions data centre in Swindon, which already hosts the M&S website, will work with M&S's data centre to create a 'dual data centre' to improve the speed and flexibility of M&S's business processes. Both data centres, together with 312 M&S stores, are already connected by a C&W IP VPN with quality-of-service (QoS) capability.

C&W can now expand the entire end-to-end infrastructure in accordance with M&S's requirements and apply QoS functionality to support multiple voice, data and video applications. As part of the agreement, C&W will also implement and manage an IP LAN at M&S's Stockley Park site, which will support application development and management. The IP LAN will be capable of supporting IP telephony and wireless terminals and will act as a test site for a fully converged e-business environment.

UK government

C&W jointly owns the Government Gateway contract with Microsoft. As well as hosting the Government Gateway, it also hosts the Government Secure Intranet.

Financial Times

Cable & Wireless hosts the prestigious FT.com website.

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