With confidence in network providers waning, Radianz and Savvis try to prove their stability.
Accounting scandals. Bankruptcy. Corporate malfeasance. Unfortunately, when one thinks of telecommunications companies these days, those are some of the first words that come to mind. In particular, the failings of Global Crossing, which filed for bankruptcy earlier this year, and Worldcom, which recently admitted to making a multi-billion-dollar accounting mistake, have sent up red flags across the financial-services industry.
But while these corporate fiascoes may have undermined Wall Street's confidence in telecommunications providers, they also may eventually create opportunities for a pair of networking vendors: Savvis Communications Group and Radianz. Worldcom - which provides the wide-area network for the Nasdaq Stock Market - and Global Crossing - which oversaw a networking subsidiary dubbed IXnet prior to filing for Chapter 11 - have both competed, on occasion, for contracts with Savvis and Radianz.
Consequently, Savvis and Radianz - which both specialize in providing the data-extranet components of telecommunication infrastructures - may see more networking doors open at investment banks, brokerage houses, exchanges and alternative-trading systems. Rob McCormick, chairman and chief executive officer of Savvis, says that, in the aftermath of the Global Crossing and Worldcom debacles, there are definitely "huge" opportunities for networking vendors that can prove their financial stability. "Our approach will be to talk to our customers, explain what we do, show them our balance sheet and give them an opportunity to move as their contract terms (with Global Crossing and Worldcom) come up," he says.
In an effort to make its balance sheet more appealing to potential customers, Savvis recently secured a $20 million equity investment from Constellation Ventures, a Bear Stearns Asset Management fund. That money, says McCormick, may enable Savvis to break into the business of selling intranets - or internal-online networks that enable office-to-office communication - to major securities firms. "Today, we're providing extranet access to ATSs, matching systems and order-routing systems, but we're not selling a network that could connect all of Bear Stearns' networks, like an AT&T would," he says. "As you go higher up in an organization, you need to have the right balance sheet to do that (and) having that extra $20 million should make a big difference when we try to sell internal networks."
Similarly, Radianz believes that financial stability is now a top priority for firms searching for a data-extranet provider. Radianz Chief Product and Technology Officer Brennan Carley says that 18 months ago, questions about economic viability were rarely brought up when Radianz huddled with potential clients. Prospective clients, he says, were more interested in learning about Radianz's technology and network connections. But times have changed. "Now people understand those technology pieces better and want to know about our economic state," says Carley. "They say, 'You connect to everyone I do business with, but are you going to be around?'"
From Data to Voice
Backed by its parents (Reuters and Equant), Radianz has "zero debt and $200 million cash" on its balance sheet, says Carley. Radianz also already has its fair share of users of its flagship data-extranet network, including the New York Stock Exchange, Island, Instinet, Archipelago and the London International Financial Futures and Options Exchange. But, like Savvis, Radianz is also trying to broaden its appeal by moving into other areas. Specifically, Radianz, in July, for the first time began actively selling its voice extranet in the United States.
Radianz's voice network enables turret-to-turret connectivity between investment banks and their counter parties and clients. The voice extranet, says Carley, is already being used by between "40 and 50" securities firms in Europe and the United Kingdom.
However, in the United States, Radianz has just begun to actively sell the service. Carley says Radianz is targeting "large trading rooms," particularly in New York and Chicago, that want to electronically interconnect their turrets - or programmable trading telephones. The voice extranet should prove particularly attractive, he says, for a New York or Chicago-based bank that wants to communicate with a trading counter party or client in Europe.
Carley also says that Radianz's voice network can hook into a variety of turrets, including those supplied by IPC Information Systems, Etrali Systems and British Telecommunications' Syntegra unit. "We're neutral ... so we don't care what the turrets are on either end. Your bank could be using Etrali turrets and the (counter party) could be using IPC turrets. We just (provide) the network in between," he says. In Europe, says Carley, Barclays Bank and the World Bank of Scotland are among Radianz's voice-extranet customers. JPMorgan Chase was one of the first firms to sign up to use the voice network in the United States.
Worldcom: Holding firm with Nasdaq
For its data-extranet business, sources say, Radianz is now in negotiations to expand the networking services it provides to the NYSE. The Big Board currently uses Radianznet, Radianz's data extranet, to provide its customers with connectivity to its Common Access Program, these sources say. "Customers who want to get access to CAP, whether it's through FIX or other messaging protocols, can do so through Radianznet," says one source familiar with the NYSE/Radianz deal. Moreover, this source says, to address member firms' concerns about data resiliency in the wake of Sept. 11, an NYSE disaster-recovery committee is going to recommend that the exchange adopt an Internet Protocol-based network as the primary electronic-access mechanism for its members. "And Radianz is talking with the NYSE about using Radianznet as one of - if not the preferred - IP-access mechanism(s) to the exchange," says this source.
However, while Radianz has made some inroads at the NYSE, neither Radianz nor Savvis appears to have a shot at Nasdaq's data-networking contract. Despite the fact it filed for bankruptcy on July 21, and is now being investigated for accounting fraud by the Securities and Exchange Commission, Worldcom retains a tight grip on the exclusive data-extranet contract it signed with Nasdaq years ago. Nasdaq's so-called Worldcom-supplied Enterprise Wide Network II, in fact, is used by all of the stock market's broker/dealers, and will be the key extranet driving Nasdaq's SuperMontage order-display and execution network.
At a recent SuperMontage press conference, Steve Randich, Nasdaq's chief information officer, said that EWN II is a private and secure network that is contractually protected - even in the wake of Worldcom's Chapter 11 filing. Nasdaq, he said, has complete confidence in Worldcom and will continue to be the market's "exclusive" wide-area-network supplier.
Savvis' McCormick says that Nasdaq's commitment to Worldcom remains unwavering. At this stage, he says, Nasdaq definitely has no reason to panic. "I don't think there needs to be a mad rush for people to get off of Worldcom by next week," says McCormick. "We've gotten quite a few calls from customers who were worried that if they didn't have their telecom provider switched by next month, (Worldcom) might go away. But there is just no way that is going to happen. Worldcom is too tied into the government infrastructure ... but if you use Worldcom, you should certainly have contingency plans, (just in case) you start to get service problems."
Pointing to the fact that Bridge Information Systems, Savvis' former parent, continued to operate after filing for Chapter 11, McCormick says that Nasdaq's confidence in Worldcom is understandable. Radianz's Carley concurs. "Worldcom has a very large network and a lot of good assets. Whatever happens in terms of financial restructuring, whether they continue to operate those assets or someone else does, they're still going to be around," he says. In a press statement summarizing its bankruptcy filing, Worldcom said the company plans to "conduct business as usual" as it prepares a reorganization plan.