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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“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.”