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The launch of three new PoPs in three different eastern European cities - Budapest, Bucharest and Sofia made by NTT Europe in mid-November to tie in with Capacity Europe 2011, offers important clues to the company’s next strategic direction. Tier 1 network competitors in the region will have taken note.
Further east than Frankfurt
NTT Europe, a wholly owned subsidiary of Japanese operator NTT Communications, has form when it comes to ambitious network expansion in the continent. It operates a network that now spans 49 countries, with major points of presence in the internet exchange hubs of London, Paris, Frankfurt and Amsterdam. But the company has not historically invested a great deal east of Frankfurt, plainly doubtful of the merits of looking out into the underdeveloped central and eastern European market. If it has lacked faith in that opportunity in the past, then the mood appears to have changed.
“Traditionally, telecoms revenues have lagged behind in this part of the world compared to western Europe,” says Simon Waller, head of EMEA sales at NTT Europe. “It is becoming a lot more important for us to extend our customers’ reach. The furthest east that we have tended to look is Frankfurt, but there are now so many elements to international backhaul that it is increasingly hard to avoid the eastern part of the continent.”
Waller is the man who has made it all happen. Charged with the remit of establishing relationships in this part of the world by his boss Clive Hamilton, Waller struck deals with many local carriers at Capacity’s Balkans event: “Over the past 18 months, we have seen a larger requirement than ever for our services [in eastern Europe]. Sofia [in Bulgaria] in particular came out of nowhere but considering its ties and connectivity to Turkey, it was impossible to avoid,” says Hamilton, head of NTT Europe’s global IP network.
“We went to Capacity Balkans and came back with a fully formed business case, with approval and deployment for the PoPs occurring in a matter of months,” he says. “What we found by talking to the local players at that event was a real appetite for a new Tier-1 name to do business with. Customers connecting to our network are among the largest players in the region.”
Leading by example
But what of NTT Europe’s timing, in the light of regional network developments by so many other leading service provider names? Level 3, Global Crossing and Interoute have all expanded their regional IP backbones in the last 12 months. Hamilton and Waller both maintain that NTT’s timing ties in with the operating group’s philosophy of ‘being a market follower rather than a leader’. The company’s historically conservative strategy on emerging market expansion represents, then, an actual business ethos rather than a lack of nerve?
“Historically, NTT is quite conservative by nature, like many other Japanese companies,” says Waller. “This conservatism stems from a commitment to enter a specific market properly, to offer resiliency and diverse routing. I’d like to say that when we follow a market trend we do it for all the right reasons.” Hamilton adds: “While it was important to enter the region, it was as important to enter it when we were best equipped to serve the needs required. We are certainly not the first to go there, but now that we have done, we’re there with a fully diverse network. We were never going in to the region with a low cost, inferior solution – we needed a network that mirrors NTT as a whole.”
Waller is adamant that unlike many parts of the world, the fundamentals of eastern Europe are set for growth, and therefore for increased demand for wholesale services: “Clearly, businesses in this part of Europe are beginning to take off and telecoms revenues are estimated to accelerate in the next couple of years,” says Waller.
He claims that while there may be ample competition in the supply of wholesale services to match this demand, there is not a universal level of quality among competitor networks to match: “What we found when talking to customer prospects here is that there are numerous players moving in to the region without making their network solution as robust as it should be,” he says.
Waller says NTT Europe also found, when it first began exploring an extension of its network to eastern Europe, a lack of desire among local players for access to a wider network. “It was difficult in the past to formulate a significant strategy for international backhaul in eastern Europe because companies from the Balkan states, for example, have traditionally routed their own traffic to places like Frankfurt, to exchange it there. This is not a model that works anymore and was never going to be sustained.”
Market forces driving strategy
Increased demand for wholesale services in eastern Europe, as with most parts of the world, is being driven predominantly by smartphone adoption and the advent of LTE and 4G. While this is an important incentive for NTT Europe, the timing of its move east can also be interpreted as a riposte to one of the largest acquisition stories of the year. Key Tier-1 network competitor in Level 3 and its acquisition of Global Crossing, completed in early October of this year, has made its reach in the region significantly stronger.
According to research firm Renesys’ traffic rankings for 2010, NTT Europe may have overtaken Sprint last year, but it still significantly lags behind Level 3’s now mammoth operation in the IP transit space. So much for size, but what about diversity? “Certainly it was an interesting coincidence that as the Level 3 and Global Crossing merger was first announced in April, we were at Capacity Balkans targeting network expansion in eastern Europe,” said Waller. “It gives us a great opportunity to provide significant resiliency.
Considering the fact that when you have four upstream providers and two of these merge into one, it provides NTT the opportunity to step in and address that resiliency void.” Was the market actively underserved, or lacking in connectivity, before NTT Europe’s network expansion? “In terms of a Tier-1 like us, yes,” says Hamilton. “There are the usual players that you are likely to find in many of these markets, like Interoute and Cogent. It is important to note that this market is very cost sensitive, and much of the backbone in the region is made up of the smaller Tier-2 and budget Tier-3 players.”
How much growth potential is there?
Competition aside, NTT Europe clearly believes the time is right for such expansion on account of significant potential for growth. “In such markets, where fixed broadband penetration isn’t high, the natural progression for providers and end-users is jumping into mobile data services, which is indeed where we expect the uptake to come from,” adds Waller.
Not that everybody is unanimous of the region’s potential, if one is to take account of a recent market report published by Analysys Mason. Its author predicts a largely different trajectory for a supposed boom market. “After a bad year for telecoms operators in central and eastern Europe in 2010, telecoms revenues will grow again,” said Emma Buckland in her report on the region, which forcasts developments in the run up to 2016. “This will not be by much and not for long as the region becomes as mature as its western counterpart.”
However differently one views this diverse market, NTT Europe’s message is clear – “There are certainly plans to expand further,” says Hamilton.
“Historically in Europe, NTT has not been fast moving, but this is set to change as we pick up both traffic and momentum. There has also been a push to move to a more central area of the continent, giving us more freedom and network diversity. Expansion in Europe is becoming increasingly important to us and we have recently deployed new nodes in Brussels and Amsterdam. We will expand and we will do it as aggressively as we can.”
Key Facts: NTT Europe
History: Founded in 1988, NTT Europe has headquarters in London and offices in Paris, Brussels, Düsseldorf, Frankfurt and Amsterdam. It is a wholly-owned subsidiary of NTT Communications, which is the international arm of Nippon Telegraph and Telephone Group (NTT Group) – one of the largest telecoms companies in the world.
Managing director: Masaaki Moribayashi is MD of NTT Europe.
Ownership: NTT is listed on the Tokyo, London and New York stock exchanges and is ranked 31st in Fortune Global 500 List of July 25, 2011 issue with operating revenues of more than $120,315 million. NTT Communications’ major sources of operating revenues are voice service (34%), IP (internet and IP-VPN) (35%), solutions services (17%), data communications (11%) and others (3%).
Customers: NTT Europe hosts the websites of many world renowned organisations including Etihad Airways, Arsenal FC, Aviva and Nissan. NTT Com Group owns a number of popular brands for delivering IP-based services. The three largest brands, OCN, Plala and goo, account for over 10 million customers. OCN, Japan’s top-shared fibre-based internet service provider, had 8.2 million subscribers as of March 2011.
Network: NTT Europe’s network covers 49 European countries: Albania, Austria, Azerbaijan, Belarus, Belgium, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, Czech, Denmark, Estonia, Finland, France, Georgia, Germany, Gibraltar, Greece, Greenland, Hungary, Iceland, Ireland, Italy, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Moldova, Monaco, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Russia, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Ukraine, United Kingdom and Uzbekistan.
Products and Services: NTT Europe is responsible for business in the EMEA market and provides a Tier-1 internet backbone, secure closed networks, security, system integration, network and application management, managed hosting and global content delivery services with partner companies globally.
