The wholesale telecom sector has always been a low-margin business, but it’s not every low-margin business that experiences the strange contradiction of seeing revenues shrink even as volumes continue to grow.
That’s the international wholesale voice business in a nutshell. Once the main cash cow of international telecoms carriers, voice has been commoditized to the point where revenue is generally flat to negative - and yet demand for voice hasn’t dropped off. By most accounts the Asia-Pacific market is seeing greater demand for wholesale voice, from both outside Asia and intra-Asia, driven by growth in the regional economy. Globally, telecoms consultancy Hot Telecom says that international wholesalers currently transport 69% of the world’s international voice traffic. That will reach 78% by the end of 2020.
But while that means wholesale voice is still a revenue generator, it’s not a revenue grower, says Rodrigo Donazzolo, head of business development for Global Telecom Markets (GTM) at BT Global Services.
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Wholesale Insights November 2015
“Albeit true that the international wholesale voice market remains strong in spite of the increasing pressure on margins, with IDD volumes growing into many destinations in Asia Pacific and neighboring regions, this is unlikely to be the main source of growth across the wholesale sector in the region going forward,” he says.
The good news is that wholesale players are finding other ways to grow revenue, thanks to growing demand for data, cloud and digital services. But taking advantage of those new wholesale opportunities requires changes in traditional business models. The rest of the telecoms industry is being disrupted by the coming era of customer-centric digital services, and wholesale players are not immune to this - they’ll have to transform themselves like everyone, says Ellie Sweeney, executive director of Global Wholesale at Telstra Global Enterprise and Services.
“The market is going through significant change as providers adapt to the increasing capacity requirements and higher demand of customers who are digitally driven and experiencing technological change,” she says. “At the same time, new and exciting opportunities are opening up in the healthcare, education, and energy sectors, and are driven by the uptake of new technologies, such as wearables, smart cities and the Internet of Things.”
Malcolm Chan, managing director of BICS Asia, says that while many wholesale players have been somewhat static, “we are beginning to see some wholesale players adapting to the more competitive landscape by expanding their product set with new commercial models by bundling services and reaching out to a wider market.”
Data drives growth
One key example of widening the market is selling capacity to non-traditional players like OTTs, says Bill Barney, CEO of Reliance Communications (Enterprise) and Global Cloud Xchange (GCX).
“In terms of capacity, IRUs are stable and growing a little bit in part because we’ve seen a lot of the OTT guys coming in and buying capacity in the last 12 months - the usual suspects, plus gaming companies, cloud players etc,” he says. “So we’re seeing a lot of growth in that segment of the market.”
Barney adds that the internet business overall is growing fairly quickly. “The internet transit business has been explosively growing - the last two quarters have been strong in that area.”
One interesting new growth area, Barney continues, is “Layer 4 transit, which is essentially guys coming into the cloud - guys coming in and buying dedicated pipes into data centers, where they’re getting into storage computes or access to certain applications. So instead of IP transit, it’s what we call a Layer 4 pipe, or cloud transit.”
Barney adds that while Layer 4 transit only accounts for about 3% to 4% of the pipe business, “It’s growing very quickly, about 300% to 400% a year - it’s explosive growth.”
Going mobile
One promising trend for the APAC wholesale space is mobile. Market analysts estimate the region will have between 3 billion and 4 billion mobile connections by 2020 (remembering that a significant number of markets already have SIM penetration well over 100%).
Malcolm Chan of BICS Asia says, “We are seeing growth across our mobile data business in terms of messaging, roaming and data analytics.”
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Wholesale Insights November 2015
BT Global’s Donazzolo says that trend presents revenue opportunities to the more established wholesalers for things like mobile data roaming, signaling and voice, but he cautions that the opportunity for revenue growth comes with a limited window.
“Consumers in many countries in the region are extremely price-sensitive, triggering fierce competition among mobile operators and ultimately subscriber churn,” he says. “These developments can and often do exert significant downward pressure on wholesale product and service prices.”
That said, another mobile-related opportunity is coming in the form of MVNOs (mobile virtual network operators) entering markets and competing for new subs. But while the GSMA Intelligence Unit counted almost 1,000 MVNOs globally at the end of 2014, most of them are in North America and Western Europe. Asia Pacific has been lagging on the MVNO front, in part because of regulatory issues.
But that’s changing, Donazzolo says. “China, for example, has some 20 MVNOs in the country. The MVNO market may therefore present wholesalers with new sources of revenues with respect to both traditional and non-traditional wholesale services as it stiffens competition in their home and regional markets.”
Operator outsourcing
Another trend fueling telecoms wholesale, says Donazzolo, is rapid retail service innovation cycles in the region, and the increasing complexity of retail packages by operators aimed at consumer and business segments.
“In such scenarios, an efficient and effective wholesale service sector is increasingly key because many telecom operators cannot do everything themselves and must rely on third-party suppliers,” he says.
An example of this is IPTV, pegged as a significant growth market over the next five years, driven by subscriber growth and investment in VoD services, interactive services, and multi-view/multi-screen services, as well as pure-play IPTV services and the rise of OTT players like Netflix and HOOQ.
“These trends will drive greater demand for wholesale media and broadcasting value propositions from established regional and global wholesale players with the scale, reach and skillsets to transmit and deliver live and non-live content,” says Donazzolo.
New opportunities
Meanwhile, as domestic telecoms players hunt for new service opportunities spurred by demand for anytime-anywhere digital services, that spells new business opportunities for wholesalers as well.
Ellie Sweeney of Telstra is particularly bullish on the Internet of Things. “The Internet of Things has the potential to be a real game-changer. The number of connected devices is forecast to top 50 billion by 2020, and this will transform virtually every part of the economy and create an environment for new businesses, indeed possibly whole new industries, to emerge.”
Donazzolo of BT Global says there are now signs that the more established wholesalers are re-inventing themselves to address a far greater variety of service segments across the telecoms sector by launching white-label wholesale value propositions such as M2M, cloud platforms, connected home, security, heath, voice and video conferencing solutions and unified communications.
“These counter-strategies have gained a lot of strength and momentum over the past few years, with many ICT related infrastructures and services now well integrated into wholesale portfolios,” he says. “These developments are indicative of a wholesale sector in Asia Pacific and globally that is embracing complex resell models and moving towards the very interesting bundling of connectivity with hosted IP based communications and services.”
Malcolm Chan of BICS Asia says that in the near and medium term, “BICS is optimistic around the market for A2P messaging where we see more operators looking to monetize new revenue streams and VoLTE where we expect further convergence between voice and mobile data in the coming years. We have been growing our presence with our bundled messaging solutions and by being the first in the world to facilitate VoLTE interworking between SK Telecom and Proximus and are ready for VoLTE roaming.”
Chan adds that cloud-based platforms are key for mobile operators to improve agility and speed to market. “Carrier infrastructure such as IPX can play a great role in providing cloud-based solutions.”
Meanwhile, he observes, with the global ecosystem becoming increasingly interconnected, telecom operator assets are playing a central role. “For wholesale carriers, this means there is a huge opportunity to connect the telecom companies with the rest of the world, providing what we call telco APIs. SMS A2P is one example but there are many more.”
Interestingly, BICS is also leveraging voice/data convergence to shore up its voice business via value added services, Chan says. “The Voice side on the business continues to be stable with our value-added services. For example, Fraud Management / Revenue Assurance solutions are gaining a lot of traction in the area, as more and more operators see the great value of our own hosted fraud platform, in their efforts to fight and prevent telecom fraud.”
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Wholesale Insights November 2015
Competitive edge
As the focus in wholesale shifts away from the commodity model, wholesale carriers are finding new metrics for differentiating themselves, such as a serious customer-centric focus, says Telstra’s Ellie Sweeney.
“Delivering customer service excellence, customer service that is so good your customers become your advocates in the market place, is a key to success,” she says.
However, the real competitive differentiator remains the network itself, she adds. “As digital services and access to the internet grows ever more central to the lives of businesses and consumers, the connectivity that sits behind this also grows in importance. This means reliability and robust networks and systems will be key differentiators in the wholesale market.”
Bill Barney of Reliance Communications/GCX agrees. “As data centers fill up, networks are becoming more important and the ability to switch between locations is becoming more important. So fiber ownership is very critical going forward, and it’s largely because of shifting demand and the movement of the data centers.”
Another key factor, says Sweeney, is the ability of the network to respond to volatile demand for bandwidth between data centers in different locations, driven by cloud computing, remote backup facilities, disaster recovery and enterprise mobility. Telstra’s PEN service does just that, leveraging SDN to offer sliceable, pay-as-you-go bandwidth on demand.
“Until recently, this kind of flexibility was not available - bandwidth had to be acquired on long term contracts, provisioned manually and took days to activate. SDN changes all that and companies are increasingly taking advantage of it,” she says. “We are able to achieve these with our ability to understand customer demands from a company level rather than the wholesale level, and go into partnerships that bring values to our customers.”
It’s all good
With all that on the table, the wholesale telecoms space looks a lot more promising. Bill Barney of Reliance/GCX agrees that the wholesale outlook is fairly optimistic when you look at the data side rather than voice. “It’s not the go-go days of 2000-2001, but it’s better than 2008-2010. The market is still solid.”
That said, BT Global’s Donazzolo advises that the future is brighter for wholesalers who roll with the changes rather than resist them, or fail to adapt to them.
“Changes across the wholesale sector in Asia-Pacific are inevitable and irreversible, with many established wholesalers revisiting their product and service strategies to take into account the competitive and evolving nature of domestic and regional consumer and enterprise segments served by both fixed and mobile operators,” he says. “The successful and profitable wholesalers of tomorrow in this region will have gone beyond traditional voice and data services to evolve into more complex service distribution platforms that address a variety of customer needs, being these for mobile roaming solutions, media and broadcasting networks or resell models for connectivity and ICT bundles.”
This article was first published in Telecom Asia Wholesales Insights November 2015 edition