Wednesday, May 04, 2005

Verizon declares interest in MCI

Over the last 5 years MCI's IP market share in the UK has been steadily eroded by price gouging competitors and Chapter-11 zombies, reanimated through debt for equity swaps or the favor of wealthy private benefactors. Now, just as clear weather seemed to be breaking over "new MCI" there was one last thunderclap.

We are lead to believe the final installment in this saga will see MCI acquired for $8.45Bn in cash and stock by Verizon the local North Eastern Baby Bell. Verizon was playing catch-up after the SBC/AT&T deal struck in January created the No. 1 U.S. long-distance phone company. Ironically SBC and Verizon do not own global networks and mostly catered to consumers, offering local calling, high-speed Internet access and wireless services. A quick examination of Verizon confirms that it is a very US-centric business with $71B annual revenues from two main business units, fixed line operations in 29 states and wireless serving 43.8M subscribers across the US. The only international revenue appears to come from directory services and ownership of minority stakes in some wireless operators. In total about 3% of revenues.

For customers who sat tight during the discovery of $11Bn worth of books cooking, and have been getting daily updates of the ensuing court room drama, this deal could represent stability or the beginning of yet more uncertainty...

Speculation surrounds the global parts of MCI, Europe and Asia-Pac. With shareholder value the priority, what will be the fate of MCI rest-of-world? Backchannel invites you to view accurate customer metrics on possibly the largest MCI op-co, the UK.

Market Share FTSE 100 Dedicated Access
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MCI has 23% of FTSE100 Dedicated Access business by customer numbers. MCI has been losing its early lead for some time and continued to slide over the last quarter, with Great Universal Stores (Experian) falling to NTL. Even though churn among the FTSE100 is low compared to the industry average, as the dominant player MCI has most to lose. The firm's performance is in contrast to other Tier-1 competitors who have consistently gained ground.

Churn & Retention
Dedicated Access Culmative Win/Loss

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The top end of Dedicated Access is stable while Hosting & Collocation churns. The chart shows relatively little churn in the Dedicated Access market over the last few months. However the picture for MCI is less favorable for Hosting and Colocation, where the company had a far smaller base to begin with. MCI or its VARs account for only a few percent of FTSE hosting and are down over the quarter after losing Rexam to BT and Allied Domecq to AT&T. Over the preceeding 5 months, MCI's hosting business has lost 3x more accounts than it has won. Customers will vote with their feet when it comes to deciding if the merger makes them feel more or less secure in MCI as a supplier.

Reliability & Service Levels
MCI Performance relative to Industry Average Time to Repair

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MCI fixes outages 34% faster than the industry average. MCI is a very strong performer for reliability and time to repair. It easily exceeds the industry average time to repair for Hosting and Dedicated Access. MCI customers suffered fewer outages of shorter duration on average than many of their competitors. It will be interesting to track this reliability as MCI's new parent may look to cut operational costs.

Verizon are about to inherit a company with more FTSE100 Dedicated Access customers than BT, one of the largest market shares for hosting and colocation, and a network whose reliability has remained strong throughout recent corporate dramas. Will they cash-in the non-US operating companies and break up the family estate? Does their vision stretch beyond the US for the company that was once called "WorldCom"?

Thursday, April 28, 2005

PIPEX acquires Donhost

This morning PIPEX Communications announced the latest in a line of recent UK acquisitions that will bring Donhost's dedicated and shared hosting and domain name business into their portfolio. Privately owned and founded in 2000, according to company literature, Donhost boasts cost effective web hosting solutions to private entrepreneurs and SMEs as well as major corporations throughout the world. It is believed that PIPEX was particularly interested in Donhosts capability to service the large and fragmented reseller community for hosting services.

Using our proprietary "Zero Sum" evidence-based market reporting software, Backchannel puts PIPEX and Donhost under the microscope and examines their presence among FTSE350 and FTSE100 markets, charts their position versus the competitors, and looks for indicators of future performance.

Market Share
FTSE 350 Hosting & Collocation

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Donhost supplies the SME market segment, and has no material market share among FTSE350 companies. This is a business focused on volume, indirect sales and automated fulfillment. Donhost provides for just 1 FTSE350 customer (Severn Trent Water) whose dedicated Internet access is currently supplied by BT. This acquisition takes PIPEX hosting within the FTSE350 market to 12 customers, Roughly equal to Telstra UK (formerly PSInet UK) and slightly behind Energis. Donhost claims 92,000 customers of 'hosting services', one must assume that these are small businesses or sole traders. Will PIPEX successfully eject BT's Internet service from Severn Trent and replace it with their own?

Market Share
FTSE350 Dedicated Internet Access

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The Donhost acquisition has no impact on FTSE350 Dedicated Internet Access, where PIPEX continues to outperform Easynet & Telewest, but further emphasises PIPEX lack of product cross-selling between hosting and access business units.

The PIPEX connectivity business has a small but significant market share, of FTSE350 dedicated Internet access. PIPEX continues to perform more strongly than Easynet and Telewest in market share, but has been unable to gain any ground on the 7th placed provider Energis within the last 7 months.

PIPEX have thus-far been unable to cross-sell both Hosting and dedicated Internet access to FTSE350 customers. 10 of the 12 PIPEX FTSE350 hosting customers chose to place their order for dedicated Internet access with an alternative supplier. Given the high cost of acquisition of direct-sold corporate customers and PIPEX fondness for M&A, one wonders why more focus is not given to cross-selling.

Reliability & Customer Service


PIPEX reputation for reliability is expected to persist throughout the integration of this latest acquisition. Neither PIPEX nor Donhost have suffered any significant customer outages observed by Zero Sum in the last 7 months, indicating a high quality infrastructure with a capable customer service desk. This strong performance is in spite of the customary upheaval of multiple acquisitions which can sometimes lead to a decline in quality of service.

PIPEX & Donhost Combined
FTSE350 Hosting & Collocation Customers

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PIPEX & Donhost Combined
FTSE350 Dedicated Internet Access Customers

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