Is Qwest losing its IP religion?
The carrier has moved to the head of the pack by putting all kinds of traffic on its net.
Take everything you think you know about Qwest and turn it upside down. Here is an organization that calls itself "the Internet communications company" but is actually building a customer base on the back of frame relay and old-fashioned voice circuit switches.
Here is a carrier that is gunning for multinational corporations, yet it is filling its network with a sizable base of small and midsize enterprise network traffic.
Here is a company that is promising middleman-eliminating electronic commerce packages, yet whose own business model relies largely on recruiting value-added resellers (VAR) and other resellers.
Qwest hasn't allowed its vision of broadband IP networks to stop it from gaining traffic and customers any way it can. Perhaps more than anything, that drive explains Qwest's recent decision to bid for US West -- the prototypical legacy carrier. Experts aren't wild about that offer, which has faltered as Qwest's stock price has dropped the past two weeks. But experts do credit Qwest with speeding ahead of Level 3, Williams, Global Crossing and many other new telecom players in making a dent in the enterprise network services market. The company has done so by being open to possibilities - and getting the spadework done to have a network to carry whatever traffic it can grab.
"Qwest is way [ahead] in terms of building the network," says Christopher Mines, an analyst with Forrester Research. "If it could stay focused on a strategy," Qwest has a chance to enter the pantheon of leading carriers to compete with AT&T, MCI WorldCom and others.
Take voice traffic, for example. Qwest doesn't talk about it much -- or at all -- but in addition to its Cisco-based IP net and Ascend frame/ATM network, Qwest also has several dozen Nortel Networks DMS 250 long-distance switches. These are the same kind of switches used by the legacy long-distance carriers.
When Qwest burst on the scene in late 1997, it hyped a consumer IP telephony service called Q.talk that offered Internet telephony for 7.5 cents per minute. But that was when consumers were paying 15 cents per minute on AT&T's One Rate plan. Now you can barely find Q.talk mentioned on Qwest's Web site; company officials say they're still supporting existing customers but are not marketing the service.
Instead, they're promoting Q.home -- an ordinary circuit-switched service -- at either 9 cents per minute or, for a $14.95 flat monthly fee, 5 cents per minute. "The core product is a circuit-switched product because that's where the majority of the market is," says John Taylor, senior vice president of consumer markets.
Lacking the assets
Inexpensive long-distance illustrates one of the key factors that has led Qwest to crash the enterprise market ahead of Level 3, Williams and the rest: its successful 1998 acquisition of LCI International, a rather traditional domestic long-distance carrier. LCI's top two executives eventually left the firm, but Qwest was remarkably successful in retaining the next layer of product and marketing executives.
This was key because LCI was the only U.S. carrier other than the Big 3 to offer a business-class voice virtual private network service akin to AT&T's Software Defined Network -- even WorldCom didn't have such a product before it merged with MCI. Now called Qwest VNS, that voice network product plays a role in almost all customer voice/data network contract deals. Plus, LCCI provided the basic frame relay net -- which at the time was migrating from a Newbridge to Ascend frame/ATM platform -- that also has figured in most of Qwest's recent enterprise deals.
In fact, for all his bravado, Qwest CEO Joe Nacchio is one of the least prideful telecom executives when it comes to admitting that his company needs to look elsewhere for assets and expertise. Example: Last week Qwest signed a joint venture deal with IT consulting kingpin KPMG to form Qwest Cyber.Solutions, essentially an application service provider outsourcing firm -- 51% owned by Qwest and 49% by KPMG.
"While we have the physical assets, the missing element is where do you get the professional skills to get people to support the applications in the CyberCenters?" Nacchio says. The venture will include 450 KPMG software engineers who specialize in enterprise resource planning and customer-relationship software packages. Qwest's sales channel may make the initial contact, but "they'll fall back on the specialists in order to close the relationship," says John Charters, a Qwest vice president who will be the joint venture's CEO.
Looking for help
KPMG is hardly the only place Qwest is looking for help, having signed about a dozen recent deals for help in operating software, applications and broadband local loops. Qwest has even turned to non-network organizations for marketing help in affinity deals. While some of its next-generation telecom rivals have turned up their noses at small and midsize enterprises as too expensive to serve, Qwest has raced to sign up business users who belong to membership groups, such as the American Hospital Association and the Remax real estate company.
Qwest also is going to want to have the resellers sell Web and application hosting out of its so-called CyberCenters, obtained in a recent acquisition of ISP and hosting company Icon CMT. Qwest officials like to say they have seven CyberCenters, but right now they only have three up and running -- in Weehawken, N.J., Denver and San Francisco. Qwest is racing to open two more in California -- in Burbank and Sunnyvale -- by July 1.
That push helps explain why Qwest is not only bidding for US West but also Frontier, a long-distance carrier that owns GlobalCenter, which is a Webhosting specialist with 11 sites around the country. Speculation has run rampant that Qwest might forgo Frontier for US West in negotiations with Global Crossing -- the other company now bidding for the US West-Frontier package.