Deutsche Telekom and Colt have teamed up in the market for international voice services, announcing a five-year deal they say will allow them to protect margins in a fiercely competitive business.
The partnership appears to have been triggered by recent consolidation involving both operators. Colt Technology Services Group Ltd wrapped up a takeover of Japan's KVH Co. Ltd. in November, with Deutsche Telekom AG (NYSE: DT) completing its acquisition of GTS Central Europe in June. (See Colt-KVH: A Hook-Up Bound to Happen, Eurobites: Colt to Buy Asia-Pac Stablemate and DT Boosts Datacenter, SDN Strategy With Acquisition.)
Each operator's enlarged footprint has clearly attracted the interest of the other.
"Deutsche Telekom's cost base in Eastern Europe is better than ours and it can benefit from our takeover of KVH as well as in European countries where it doesn't have its own voice infrastructure," says Richard Oosterom, Colt's executive vice president of voice services.
Oosterom describes markets in Eastern Europe and the Far East as major growth opportunities for Colt and says the new partnership will be of critical importance in ensuring it achieves its financial targets. "It's about staying competitive in the long term while sustaining the level of margins we've got," he tells Light Reading.
Both operators have come under pressure to reduce costs because of spiraling competition and tough regulation. Reporting results for the third (October-to-December) quarter, Colt blamed a 58.6% year-on-year drop in carrier voice revenue on its exit from "low margin carrier voice trading business." It also witnessed a 9.4% slump in enterprise voice revenues because of falling prices.
Deutsche Telekom was less forthcoming about the performance of its International Carrier Sales & Solutions (ICSS) division -- the part responsible for international voice services -- when reporting its own third-quarter figures, but stated in its quarterly report the business had recorded a "revenue-induced decline" in EBITDA.
Holger Magnussen, ICSS's senior vice president, believes the international voice market is becoming more of a "scale game" and that a partnership with Colt will confer big advantages here.
"It will put us in a stronger position during negotiations with local players when neither of us has invested in local infrastructure," he explains.
Magnussen also plays down the possibility of rivalry between Colt and Deutsche Telekom on the sales side. "We each have our strong points and customer segments and we don’t expect conflict," he emphasizes.
Colt is mainly interested in targeting midsized enterprise customers with a multinational presence, while ICSS's biggest customers are other international carriers, including parts of the Deutsche Telekom Group.
Both companies have expressed interest in pursuing similar arrangements with other players. According to Oosterom, Colt is eager to find partners in the SIP transit market, while Magnussen is keen to explore international voice alliances with other operators provided these do not damage the relationship with Colt.
"Scale will matter even more in the future and these deals make a lot of sense," he says.
— Iain Morris, , News Editor, Light Reading