OXFORD, United Kingdom-The “Year 2000” problem has become a priority item on the agenda of the International Telecommunication Union (ITU), reflecting the reality that the global network is only as strong as its weakest link. In the telecommunications sector, tackling the Year 2000 problem, popularly known as Y2K, demands a global approach based on local implementation.
“Every telecommunication operator must ensure that its company is Year 2000 compliant,” states Tomas Nylund of Telia and vice chairman of the ITU’s Year 2000 Task Force. “It must conduct an accurate assessment of what needs to be done, a thorough analysis on how to proceed, a conversion phase whenever warranted and must allow a testing period to validate the action taken.” All this has to be completed before the immovable deadline of 1 January 2000.
But some European telecommunications operators are facing another issue necessitating potentially massive changes to their IT systems. Europe is poised to introduce a single currency. And this has an earlier deadline than Y2K; the process begins on 1 January 1999.
Full European Monetary Union (EMU) is not scheduled until 2002, when coinage for the euro, the European single currency, is introduced. National currencies then will be phased out completely over a six-month period. But the initial introduction of the euro begins on 1 January 1999, the start of a three-year transition period during which member states can allow invoicing and payment in both the euro and local currencies.
Many multinational companies are expected to embrace the euro from the day of its introduction; some even could operate exclusively in euros from the start of next year. The advantage for them is that the euro will be a stable currency, with fixed exchange rates between all national currencies of the participating countries. It will simplify currency handling issues and reduce financial exposure and administrative costs for many multinational and global companies.
The euro will not encompass the whole of Europe. It is only an option for the 15 member states of the European Union. Only 11 of those member states so far have committed themselves to adopting the single European currency. Greece wants to do so but still has to meet the necessary pre-qualifying criteria before joining the current euro club of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain. Denmark, Sweden and the United Kingdom have, so far, opted out. Membership of the European Union does not automatically engender European unity.
The European Commission is confident the introduction of the euro will force down prices in the telecommunications sector by promoting transparency and facilitating price comparisons. It will be a major factor in the commission’s efforts to create a truly common market across Europe.
“Obstacles to competition arise when consumers have difficulties in comparing prices,” observe commission officials.
Others are not so sure. Price transparency could be used as a weapon to confuse customers, warns Jo Baktis, director of the group EMU program at Cable & Wireless plc. Baktis points to the U.K. mobile market, where regulatory pressure to lower end-user mobile tariffs resulted in a confusing array of packaged and bundled products, making meaningful price comparisons all but impossible.
Baktis also notes that euro implementation could be far more difficult than solving the Y2K problem for many telecommunications operators. Essentially, Y2K presents the same problem over and over again; Euro implementation problems are much more varied and diverse.
Most banks and government institutions in participating countries will change over to the euro at the start of 1999, predicted Barbara Blesio, senior analyst for European IT vertical markets at International Data Corp. Many of its staff will miss the New Year celebrations. Final EMU conversion rates will not be announced until the afternoon of 31 December 1998, only three days before start of business on 4 January 1999. In London, up to 50,000 employees will be involved in euro implementation over that weekend.
But EMU repercussions will not be confined to the banking sector. Insurance, telecommunications and transport companies are most at risk of disruption from the introduction of European monetary union, according to a report from KPMG Management Consulting in London.
Many telecommunications service providers will have to implement dual pricing from January. They also will be under pressure from major clients, their best customers, to provide fully itemized billing in euros. Numerous billing and information systems currently linked to national currencies will require modification. Mobile roaming agreements and international leased circuits are likely to be the first areas to come under pricing scrutiny following the euro’s introduction.
But the key issue for telecommunications operators is the conversion procedure from national currencies to euros. Interconnection rates typically are measured in units of one-tenth or even one-hundredth of a given national currency. How the euro conversion rates are rounded-how many significant places follow the decimal point-becomes a significant issue. It has been estimated individual operators could either realize a profit of 15 percent or sustain a loss of 20 percent, depending on how the converted sums are rounded.
These estimates came out of a meeting late last year in Madrid-a somewhat secretive meeting whose existence has just been disclosed by Susan Schorr of Tarifica’s Telecoms Pricing Bulletin. Initiated by Telefonica de Espana and France Telecom, the meeting was restricted to certain incumbent telecom providers, leading to fears from other carriers that euro conversion principles could be established behind their backs.
Schorr reported that MCI/WorldCom is leading the campaign for broader, industry-wide discussions on euro implementation. Despite its partnership with Telefonica, WorldCom was excluded from the Madrid meeting and not informed about the outcome. They could be one of a select few competitors invited to the next round of meetings, scheduled for Rome later this year, but even that is not certain.
“The original participants will hold a preliminary meeting,” reported Schorr, “and decide amongst themselves which upstarts to invite.”
Those excluded from the club can find solace in the KPMG report, which concludes that breweries, pubs and hotels are least at risk from the introduction of the single currency. Some New Year celebrations seem to be secure.
