Big Interview

Marc Halbfinger, PCCW Global: The cost of capacity

Carriers are increasingly investing capital on a fixed basis and receiving a less than favourable variable return. Here Marc Halbfinger, CEO at PCCW Global, shares some perspective on profit with Alex Hawkes.

As a further sign that the video conferencing market is finally coming of age, it's worth point out that this was the first ever Big Interview to be conducted via a HD video calling network.

Using an MPLS interconnect between two networks, the image of Marc Halbfinger, CEO of PCCW Global, appears on a widescreen monitor and an interaction ensues that at times feels as seamless as if speaking to a news reader on live television.

Although not on the same continent, we are here to talk about profit, or rather whether capacity can in fact even be a profitable component in the future.

The days of investing in an E1 link, adding boxes of digital circuit multiplication equipment (DCME) to either end of the route and then watching a variable return come in for the voice traffic are gone. Pricing for capacity has been on a downward trajectory for some time and carriers investing capital on a fixed basis are now challenged in receiving an upside value associated with variable return.

“Now you are putting in a higher level of investment but getting a fixed price revenue value,” says Halbfinger. “This leads to the question of whether the gap between investment and price will be high or low, which is clearly of strong concern to carriers as bandwidth demand by end-customers increases.”

In essence, the carrier market faces an identity crisis as it looks to other forms of revenues to supplement this potential loss in the value of capacity.

A question of commodity

So what characteristics define capacity in 2012? Halbfinger identifies it as a “unique economic unit of trade” which is “specific to different environments”. Those different environments are found in abundance across the globe, varying from the highly competitive trans-Atlantic and trans-Pacific routes; where the sheer number of subsea cable systems has placed pressure on pricing, to the existence of single routes operating into specific African markets, where more valuable variable returns for traffic still remains.

On the former routes, Halbfinger points to traces of commoditisation taking place, but is careful to stress that this is fundamentally not the case. “Commoditisation of capacity takes place where certain competitive structures are in place. Competitive capacity infrastructure is showing up in increased locations and that is bringing about the impression for users of capacity that a unit of capacity is becoming like a commodity,” he says.

“But pricing of commodities will go up and down, whereas pricing for capacity has so far only gone down, and because of that we can’t liken it to a commodity, but rather to a common unit of cost that may not itself be a profit component in future.”

Walking on cloud 9

As a result, carriers are increasingly looking to explore other business areas outside of the traditional carrier remit; namely cloud services. “Cloud represents another paradigm for carriers,” says Halbfinger. “We need to understand devices; their tactics and strategies, so that we are able to forecast capacity requirements as we go forward, particularly in the international capacity arena, where delivering capacity can take much longer than - say here in Hong Kong - where we can deliver capacity locally and very quickly.”

Serving the voice and data needs of multinational enterprises, PCCW Global reaches more than 1,500 cities and 110 countries across the globe using a combination of the latest IP, fibre and satellite technologies. Yet Halbfinger throughout the interview reiterates the importance of also leveraging on PCCW’s strong position in its domestic market. In Hong Kong, PCCW fulfils both the role of a local telco and a pioneer of ICT; offering the city’s first quadruple-play experience and also providing media content and services across fixed-line, broadband internet access, TV and mobile.

Halbfinger believes strongly in the importance of taking an otherwise localised brand to a global environment. In the local market arena, operators have both the ability and reputation to move into the cloud space and rub shoulder to shoulder with some of the over-the-top providers, such as Google and Apple. Cloud services offer carriers an opportunity to put in a fixed investment and gain a variable return, but, he says, this must be done “within our universe of service”.

“To some extent, the local operators drive towards cloud is embedding the mindsets of consumers and enterprises that a hosted type of content is acceptable. We need to do this in an intelligent fashion as in some ways we are driving ourselves closer to the over-the-top players,” says Halbfinger.

“We have to understand whether we are competing with the over-the-top players or whether there can be road maps for cooperation. As always, this business has complexity but I think we can do both by understanding the trends carefully.”

Quality over quantity

Another way Halbfinger feels carriers can carve a strong and lasting presence with value appreciation in the current market is by offering an assured level of Quality of Service (QoS). The company’s backbone claims to be peered globally and is described as creating an “interconnect relationship methodology with service providers around the world that facilitates MPLS and Ethernet delivery in homogeneous fashion focusing on QoS from end point to end point”.

“An OTT provider may have its own network but they generally do not manage the network infrastructure down to the end device, and are therefore unable to promise a customer a contractual level of QoS from end to end,” says Halbfinger. “What we have done globally is establish interconnections with many other operators, which will help us assure customers that there will be a QoS level agreement that can be guaranteed across networks in a homogenous fashion.”

Indeed, this HD video conference call exemplifies just how a carrier can deliver an assured level of QoS. The service provided virtually zero packet loss and would have obvious appeal to enterprise customers. “I think that HD in general is going to be forcing a more aggressive view of QoS requirements, because HD can not suffer packet loss – you need to have well functioning networks from end device to end device,” says Halbfinger.

A secure future

As well as QoS, Halbfinger points to credibility as a major differentiator for carriers, particularly by guaranteeing higher levels of security for services such as financial information, data rights management, and billing management. Halbfinger feels the current global IP market “has become very large and unwieldy” for these types of services.

Yet, over time he sees the industry congregating back to a more “uniformly accepted message” and points to various forums as evidence of the collective industry effort to develop a more defined approach to IP-based services and applications. PCCW Global has been an active member of the i3 Forum, joining more than 37 other telecoms providers representing a combined retail base in excess of one billion customers in over 80 countries. “We want to make sure the i3 Forum has the structures in place that will benefit the carrier industry as a whole and allow for the delivery of network-to-network HD video traffic,” says Halbfinger.

Overall, Halbfinger feels the goal for carriers is to avoid keeping “everything inside closed user groups” and instead work together to ensure traffic becomes “universally attractive”. “Eventually, I feel there is going to be more interaction between local operators and over-the-top players, which will be mainly formed over the issue of QoS as that’s an area which is going to be increasingly important to end users receptiveness to quality cloud-based services and HD-based one to one communications,” he says.

PCCW Global

History: PCCW Global is an operating division of HKT Group Holdings Limited (HKT), which is a wholly-owned subsidiary of the PCCW Group that provides telecoms services, media and IT solutions businesses. PCCW/HKT is one of Hong Kong’s leading telecommunications and ICT providers.

CEO: Marc Halbfinger has been CEO of PCCW Global since 2007. Halbfinger first joined PCCW in 2000 as SVP for business development for the Pacific Convergence Corporation, covering markets in Europe and North America. In 2001, he helped establish ‘Beyond the Network’, which became part of PCCW Global, covering Europe, the Middle East and Africa as president.

Customers: With centres in Hong Kong, Herndon and Virginia in the US, London in the UK, and Dubai in the United Arab Emirates, plus teams covering the Middle East, Africa, Europe, Asia and the Americas, PCCW Global serves the voice, video and data needs of multinational enterprises, as well as the operational requirements of global service providers.

Networks: Covering more than 1,500 cities and 110 countries, PCCW Global’s network supports integrated global communication solutions based on the latest IP, fibre and satellite transmission technologies, in particular to emerging markets in Asia, Africa, the Middle East and Latin America.

The company is also a significant stakeholder in the Intra-Asia Cable System (IACS), the region’s first direct, point-to-point express optical fibre submarine cable interconnecting Hong Kong, Tokyo and Singapore. The cable system is strategically routed to avoid earthquake zones and other areas prone to natural disaster in the Asia-Pacific region.

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