UK firms at risk from telco collapse

By Graeme Wearden, ZDNet.co.uk, 27 August, 2002 09:24

NEWS

Many UK companies are failing to make contingency plans for their telecommunications services, despite the turbulent state of the telecoms market, according to analysts. Research published last week by The Yankee Group found widespread concern about the state of the telecoms sector, following the troubles of WorldCom, KPNQwest and PSINet. However, many companies surveyed had not developed a contingency plan in the event that their supplier should collapse. Quite a few companies, The Yankee Group warn, are taking a "wait and see" approach -- which puts them at significant risk. "Some level of contingency is vital," said Yankee Group analyst Amy Rodger. "The market has proven that even suppliers that may have appeared stable are in trouble, and further consolidation is likely," Rodger added. Although signing up with another telecoms supplier -- the dual-supplier approach -- or backing up via a secondary supplier can be expensive, Rodger believes this is the best way to try and protect a business from the possible future collapse of their current supplier. Because changing suppliers can be expensive, enterprises must consider factors that determine the stability of alternative suppliers, such as their finances and organisational and management structures. This should minimise the danger of moving to a telco that itself later collapses. One reason cited for not making contigency plans is the belief that customers are not immediately affected when a telecoms company hits big trouble. One company told The Yankee Group that it was planning to continue using WorldCom as a supplier because the telco continued to supply an acceptable level of service after it filed for Chapter 11 bankrupcy protection in what was America's biggest ever corporate failure. Another UK firm said it would continue to employ PSINet because there wasn't a deterioration in the level of service it supplied after it filed for Chapter 11. Despite this, The Yankee Group insists that contigency plans must be made. "Using multiple suppliers gives you flexibility and reduces any business impact that may be caused if your supplier ceases to exist," Rodger recommended.

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