April 8, 1999

Changes in Phone Service Are Mixing Up Net Issues in Europe

While the United States has for years been in the throes of Internet fever, several European countries are now preparing for their own epidemic, fed largely by the rapidly changing landscape of telecommunications.

Economic development agencies and telephone companies serving Ireland, the Netherlands, Britain and other locations are concentrating on attracting Internet service providers, building up toll-free technical help lines and serving individual clients, to both promote telephone service and create infrastructure for the future.

"If the consumer business is two years behind the states, then business-to-business is only about a year behind," said John Cronin of Ireland's Industrial Development Agency, which encourages foreign companies to locate facilities in Ireland. "It'll come."

'The game involves growing businesses today and trying to grow businesses that have a complementary impact -- it could be long distance or call centers or Internet service.'

Kevin J. Boudreau,
Pyramid Research

Internet users in the United States don't think twice about dialing up several times each day to access the Web or calling a toll-free help line when problems arise. But for Europeans, those habits represent major lifestyle changes. And while it took nearly 15 years for the United States to digest the events that brought competition for long-distance telephone rates, Europe is experiencing the same innovations in a fraction of the time, while trying to assimilate other changes like the fast-growing use of the Internet from the home.

Those changes have companies scrambling, consumers dazed and politicians stymied as they try to control such fast-moving issues as privacy, prices and technology.

Previously complacent regional telecommunications companies in Europe now are able to compete across an entire continent, fostering competition on phone rates and reshaping the related issue of Internet use.

"It's happening all together with a great kerplunk," said John McCabe, managing director of ICT-Eurotel, the London-based arm of the ICT Group, a Langhorne, Pa., company that operates phone calling centers.

Companies like ICT were the beneficiaries of the introduction of phone-company competition in the U.S. market, which spawned toll-free help lines and, at the same time, telemarketing, as operators who answered inbound service calls were tapped to make outbound sales calls.

Europe's telecommunications marketplace reflects the same wide-open competition that exploded in the United States in the late 1980s after AT&T's breakup. There are now 14 pan-European phone carriers, and these companies are concerned about preserving market share and reducing customer turnover, said Kevin J. Boudreau, who researches telephony and the Internet in Europe for the Pyramid Research division of the Economist Intelligence Unit in Cambridge, Mass.

"The game involves growing businesses today and trying to grow businesses that have a complementary impact -- it could be long distance or call centers or Internet service," he said. "It may help you hold onto customers, hold onto market share or gain loyalty."

So it is not surprising that both telecommunications companies and economic development agencies are working to find related products and services to sell. As in the United States, some companies will offer consumer applications like Internet access, call waiting or answering services for additional fees. Others will be intended for corporate clients who need high-speed networks, toll-free numbers or office parks equipped for high-tech conferencing or other applications.

One tactic the European companies are using to improve their stakes is developing offices for companies that will locate their technical support, customer service or other operations in a European "call center," which can handle a large volume of inbound and outbound calls, Boudreau said.

For North American companies that operate such facilities, including Oxford Health Systems, Dell Computer Corp., America Online and others, Irish operators provide technical support to European clients and may surprise inbound callers from the United States. Instead of the usual Midwestern accent that is the hallmark of operators in Omaha -- the epicenter of U.S. telemarketing -- callers may be greeted by a Dubliner's mellifluous tones, said Alan Brown, senior vice president of Telecom Ireland U.S. Ltd. He said that having these workers overseas lowers costs while providing the same or better service.

"Oxford Health Systems has 400 people doing claims processing and IBM has 700 people providing technical support for their Aptiva" in Irish call centers, Brown said. "They get better people, with a high level of technical knowledge at lower prices and with greater loyalty than they'd find in the States."

Europe's expected boom in home-based Internet use will also complicate the telephony landscape in countries where local calling is expensive, because those local-call revenues subsidize long-distance rates.

"Internet usage has different economics in Europe, and so do call centers," Boudreau said. "There are greater challenges because the cost of a local call is tariffed on a per-minute basis, whereas the same call here is all-you-can-eat."

But there are other hurdles, not just concerns over costs, Cronin said. Consumer Internet growth has been slow because of high prices and slow connections. Most European Web sites are managed and routed through North American sites, he added.

Related Articles
The Eurobytes column documents international developments in cyberspace, from legislation and new technologies to social patterns and political theory.
"The consumer side hasn't taken off because of the mish-mash of backbones," Cronin said. "National telcos took the position before that if you were connecting from Munich to Milan you'd connect through Hudson Street in New York City. So, there are now cross-border backbones being built."

Also fueling the growth is the promise of electronic commerce. Companies eager to reach European consumers are already staking out facilities that can house phone operators, computer servers and distribution sites for continental customers.

Telecom Ireland, EMC Corp. of Hopkinton, Mass., and a division of Office Depot Inc. combined to set up an e-commerce Web site for Viking Office Products, the direct sales subsidiary of Office Depot. The site is hosted at EMC's server operation in Cork, Ireland.

International Data Corp. of Framingham, Mass., estimates that Web use throughout Western Europe is now 10 percent of the population -- varying widely from 2 percent in the southern regions to more than 30 percent in Nordic countries. Stefan Elmer, a market analyst with IDC research, forecasts 35 percent of the continent will be using the Web in 2002. In 1998, only 11 percent of the population made a purchase from the Web, he saidd, but that figure is expected to rise sharply. Most European residents now have Internet access at their offices, or through shared terminals in libraries or government buildings, said Mary Pat Dowd, of KPN Royal Dutch Telecom, the phone company that serves the Netherlands. That country has 15 call center-ready office parks, she said, and is promoting itself as a continental Internet hub, along with London and Stockholm.

Onno Ponfoort, a director of the Netherlands Foreign Investment Agency office in New York City, said, "About 40 percent of the pan-European call centers -- where four or more languages are spoken -- are in the Netherlands,"

Competition is heating up among the continent's long-distance carriers and the national economic development agencies, as different regions all vie to become centers for e-commerce.

Ireland is touting its position as the only country participating in the Euro currency where English is the primary language. The country also offers economic incentives, including lower taxes on "international services," said Brown of Telecom Ireland. Profits from those operations are taxed at 10 percent until the end of 2002, when the rate will rise to 12.5 percent. Comparative rates range from just over 30 percent in Britain to above 60 percent in Germany, according to Ireland's Industrial Development Agency.

Concern that Britain might fall behind financially and technologically prompted a budget proposal there to match some of Ireland's tax rates and increase investment in British technical education to keep up with its e-commerce rivals. The plan, valued at $2.7 billion, was introduced in late March.

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