Online Auctions Get Scary

Carriers are starting to use them to force vendors to openly bid against each other for work

May 29, 2003

4 Min Read
Online Auctions Get Scary

The telecom downturn has carriers desperate to save a buck, and their vendors desperate to make one. What better place for the two to meet than online, where lots of other matchmaking takes place?

Apparently, one large incumbent carrier (name and other specifics withheld) had this in mind when it summoned vendors to bid in an online auction several weeks back. "The RFP was given out, and responses had to be delivered online... We had to show up at a Website," recalls Brian McCann, chief marketing and strategy officer at ADVA AG Optical Networking (Frankfurt: ADV). "Business went to the lowest bidder."

During the auction, which lasted several hours, the carrier hammered out electronic questions for the vendors, who responded interactively, their answers in full view of their competitors, McCann recalls. Not an experience for the faint of heart. "We did well with it... We are flexible and make decisions quickly." A number of contracts were up for bid and ADVA won at least one of them.

It's unlikely McCann would even mention the auction if he'd been embarrassed or intimidated by it. But he concedes the format has some drawbacks. "We won the auction, but as an industry, we are all trying to work out whether this way of doing things makes sense."

For one thing, the open online bidding process stresses price over all else, discouraging vendors from including extras in their RFPs. Chary of revealing too much to competitors, suppliers may offer rock-bottom prices that hold none of the consulting and professional services, upgrades, or other add-ons that are part of old-fashioned sealed bids.

"A carrier could wind up with a bunch of incremental builds," McCann says. Without value-added extras, carriers might need to go back to bidding again and again to get the lowest price on each and every network item. In the end, the tack could backfire. "Nobody wants a cheap network. When it comes to telecom gear, it's not just price."

In the present case, the auction was just part of the selection process, according to McCann. "It wasn't just a price thing. There was a lot of pre- and post-auction sales discussion and value positioning."

Given the downsides, does McCann think carriers will continue to call online auctions? Some will no doubt try, he thinks. "It's certainly something out there... It's a major statement on the relative commodity status of telecom gear."

In some cases, the online bidding process may be combined with a written RFP. That was the experience of Peter Deane, managing director at Intec Telecom Systems plc (London: ITL), which makes OSS software for carriers. In an interview with Boardwatch , Light Reading's sister publication, on May 14, Deane described how he'd wound up bidding online as part of one carrier's final selection process for a billing system. He won, but he indicated it was nervewracking (see OSS Deals up for Auction).

The kinds of interactive RFP-style auctions described above are relatively new to the telecom scene. But online auctioning has been a regular feature of the post-bubble era, as bankrupt carriers and companies liquidate all kinds of assets, from test equipment to international networks (see Stocking the Optical Thrift Shop, Auction Site Launches, and Pan-European Network Anyone?). And when it comes to those situations, it seems to work well.

"We saved hundreds of thousands of dollars," says Sterling Pratz, VP of marketing and corporate development at interNetwork Inc., a startup that provides automated testing solutions for networking gear. Pratz and his team found three Shasta platforms from Nortel Networks Corp. (NYSE/Toronto: NT) for a stunning $5,000 by poking around an online auction on Ebay of all places. [Ed. note: We hear they also picked up a complete set of Howdy Doody cocoa mugs and a mint copy of Vic Damone's On the Swingin' Side.]

Pratz says online is definitely the trend. But he sees it as something some buyers can use to fill in gaps in their inventory, not as the main way of doing business. For one thing, manufacturers often won't support gear bought online, he notes.

The popularity of online buying and selling is likely to persist, given the telecom downturn and the growth of Internet use. But whether all forms of online auctions catch on, are discarded, or morph into other forms remains to be seen.

— Mary Jander, Senior Editor, Light Reading

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