The company insists that the announcement, which followed more than a month of speculation over whether the company was going to pull out of the U.S. market altogether, is only meant to signal a change of focus and strategy, and that it will continue servicing its current customers.
Some observers, however, say that company’s restructuring efforts indicate that it is scaling down its American network to make it more attractive to potential buyers.
“I actually think that C&W is going to completely pull out of the U.S. IP transit market for non-top-500 multinational companies,” says Alex Yuriev, an independent industry consultant.
Let's start with what's indisputable. Last Wednesday, Cable & Wireless announced that:
- It is cutting 3,500 jobs out of a total of 12,500 positions in its global division. The cuts represent 28 percent of the global division’s workforce. In the U.S., the layoffs will affect 1,500 of 3,900 employees, according to company spokesperson Melissa Neumann. The job cuts will be completed within a 12-month period.
- It is closing almost half of its data centers globally, reducing the number from 42 to 23. In the U.S., the company is cutting the number of data centers it runs from 27 to 15. The carrier bought the 27 data centers when it purchased bankrupt Exodus at the beginning of the year (see C&W Completes Exodus Buy).
- Over the next 12 months, it will pull out of the domestic business markets in the U.S. and continental Europe and concentrate its focus on large multinational companies in these markets. The carrier said that it will retain its domestic businesses in the U.K. and Japan, but will reshape the operations in an effort to reduce costs and increase productivity and cash flow.
- The restructuring itself will cost it about £800 million to complete, but the changes will save the company £400 million (about US$632 million) in operating expenses a year and help it break even by the end of next year.
- The carrier’s restructuring plan came on the same day as it announced that in the six months leading up to September 30 it had incurred, after exceptional items, nearly $7 billion in pretax losses. That compares to a loss of about $460 million for the same period in 2001.
"This is a rationalization of the network,” says David Garbin, senior director of strategic network planning at Cable and Wireless. “Not a pulling back… The basic strategy for the network remains the same… We’re falling back on what makes economic sense.”
But independent analysts see more things going on behind the scenes. Yuriev bases his assumption on observations of router "flapping," or shifting, on the C&W network over the weekend preceding the announcement. He says that people observing C&W’s routing tables have noticed that certain IP addresses from C&W have been moved to a small service provider called New Edge Network Inc. “There was a major flap over the weekend from Cable and Wireless to New Edge,” he says. “Large flaps sometimes happen when a large number of customers need to be moved because of network reengineering.”
C&W announced in September that it would transfer about 1,500 customers dispersed across the U.S. and Canada to New Edge (see C&W Sheds US Customers). Following last week’s announcement, however, observers wonder if the migration of customers to other service providers might not be more widespread -- and part of a larger strategy to prepare the U.S. network for sale. “I think there are going to be other companies like that,” Yuriev says.
During the boom, C&W, like many other service providers, went out of its way to get as many customers as possible. The company’s restructuring plan is an effort to drop the customers that are unsustainable and that reduce its value on the acquisition market, Yuriev says. “They bit off more than they can chew... Everybody wanted to get those customers at that time, no matter what the cost.”
On the North American Network Operators' Group (Nanog), an industry mailing list, several contributors claim that they have already received notices from C&W that their service will soon be terminated, while others say that the carrier is quietly moving unprofitable customers to other, smaller service providers, like New Edge.
Neither Garbin nor C&W spokesperson Melissa Neumann say they have any knowledge of the particular flap that Yuriev mentions, insisting that if there was a flap, it was probably due to continued integration of the Exodus network that C&W acquired in February this year (see C&W Completes Exodus Buy). They insist that C&W isn’t pulling out of the U.S. market.
If the carrier had been pulling out, Garbin points out, it would have sold off everything it bought from Exodus, and that’s not the case. “We’re keeping and have integrated 15 data centers into our network,” he says. “These are still part of our strategy.”
Whether or not C&W is winding down its U.S. business, some observers worry that the massive cuts at the company will damage customer service. For former Exodus Web-hosting customers, the cuts could throw them into limbo for the second time in less than a year. “Yeah, I think we’re going to see customer service issues,” Yuriev says. "If you lay off your support staff you always have them.”
Unlike concerns surrounding the fate of the UUNet backbone, however, analysts say that a shutdown of the C&W network would be of little consequence to anyone but the carrier’s direct customers. “Cable and Wireless is a fairly small player in the [U.S. market],” says Andrew Odlyzko, the director of the Digital Technology Center. “It only has a few percent of the traffic… If Cable and Wireless shut down, it would inconvenience their customers, but would not affect the general market, because they’re so small.”
Following C&W’s announcement of its results and restructuring plan, Standard & Poor’s Rating Services said last week that it was downgrading its corporate credit rating on the company to BBB+ from A.
Following the company’s announcement last week, C&W’s stock, which once traded at £15, fell to an 18-year low of 75.75 pence, or approximately $1.20 on the London Stock Exchange. In trading today, the company’s shares crept back up to 82 pence, or nearly $1.30.
— Eugénie Larson, Reporter, Light Reading