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Competitive landscape can make a world of difference

February 7, 2002

Project Atlas should help Scottish companies to get the best deals on bandwidth costs

 

AN UNUSUAL map appeared a few years ago in an advertisement in various US business magazines. It showed all the land masses of the world, the various continents and subcontinents, all squashed together. “Now that we are all together”, states the banner “let's get down to business”. 

 

This particular version of the map of the world was intended to show that the modern world of e-business is, in practice, a small one, and that distance is of little relevance.

As I glanced at this advertisement for the first time, it struck me that there was something particularly intriguing about this compressed map of the world. For in this version of the world in which distance is no object, Scotland was in an unfamiliar place - it was bang in the middle! The whole world, according to this map, rotated around our little country.

 

Unfortunately in the real world, as opposed to the virtual one, Scotland is absolutely not in the middle. In telecommunications terms, as in many others, we are out on the periphery.

 

There is no technical or geographical reason for this. As it happens, at least two high capacity transatlantic cables run past Scotland on their way between North America and Europe, and there is also a huge amount of telecommunications capacity already in place between Scotland and London, which is one of the world’s major telecommunications hubs. There is actually much more capacity out of Scotland already in place than is likely to be used for the foreseeable future.

 

In the heady days of the last few years, many ambitious companies invested in telecommunications infrastructure in the expectation of being able to gain market share. It’s a bit like the early days of the industrial revolution when competitive railway companies built parallel tracks between the same pair of cities, oblivious to the fact that only one of them could make any money. And, just as in the days when the railway companies failed, many of the telecommunications companies have also gone bust. One of the world’s biggest infrastructure owners, Global Crossing, filed for bankruptcy only last week.

 

The effect of all this is somewhat odd. In a normal market, when there is much more supply than demand, the price drops. In this case, although there is lots of overcapacity, prices remain relatively high. A variety of studies have shown that Scottish companies typically have to spend as much as five times as much as similar companies in London  for their broadband connection.

 

The reason for this is the different competitive landscape between the two markets. Whereas there are only around six suppliers of telecommunications services in Scotland there are well over 100 in London . This means that customers in London can compare suppliers against each other and get the best deal. 

 

Indeed there are so many service providers in cities like London, Hong Kong and New York that independent brokers have set up Telecoms Trading Exchanges (TTXs) to manage the relationships between customers and suppliers. Just like insurance brokers, their job is to make sure you can get the best deal.

 

TTXs allow all suppliers to post their best prices in a reverse auction process, ensuring that the best deals are always on view. TTXs also help customers evaluate suppliers by providing independent audits of service quality, help enable the transfer of supply between providers and they allow contracts to be switched with little hassle on a month-by-month basis. The result is that the cost of bandwidth, like any other commodity in a proper market, tends to get lowered to the most competitive price levels possible.

 

So can we change the situation such that Scotland moves from being one of the least competitive areas, to one where we are one of the best? Well, we can’t move Scotland to London , but maybe we can move the market conditions of London to Scotland.

 

Earlier this week, Scottish Enterprise announced Project ATLAS, which will underwrite the extension of a TTX to broker the range of London telecommunication services in Scotland; initially in Edinburgh, Glasgow and Aberdeen, then to 20 or more business parks around the country. If it all works as planned, there should be no competitive difference between Lewisham and Leith , or between Shoreditch and Stonehaven.

 

So although we can’t actually be at the centre of the world, at least our telecommunications connections can be just as good as if we were.

 

Ian Ritchie is a director of Scottish Enterprise

 

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