AHEAD OF THE CURVE: Asia’s call for new rules of carrier engagement
Market Trend

AHEAD OF THE CURVE: Asia’s call for new rules of carrier engagement

Asia-Pacific is home to three of the world’s top-ten economies, but its markets are competitive and carriers must innovate faster to combat shrinking margins.

The Asia-Pacific region continues to prove an eclectic mix of opportunity and risk. The opening of Myanmar’s telecoms market to foreign investment captured headlines worldwide last year, as did the dip in India’s economy, which exposed some of the region’s shortcomings.

“Myanmar garnered a lot of attention, as it was perceived as the last ‘goldmine’ of Asia-Pacific,” says Andreas Hipp, CEO, Epsilon. “A lot of attention and investment has gone in and finally the mobile licence has been issued. But looking at how long that took to unfold and given it’s not so easy in the execution, there’s still a lot of work to be done.”

Hipp expects things to slowly start to fall into place for Myanmar. However, he believes the economic situation in India, coupled with a 2G licensing dispute, has meant investors are now a little more sensitive to risk: “India took a hit and it has certainly put more caution into everyone’s mind – especially on the infrastructure side. But the whole investment mood in the industry is a little more dampened, and we are not seeing the type of big announcements we’ve seen before.”

Boost to potential capacity

Capacity build-outs in the region have continued nevertheless, with a number of proposed submarine cables making progress. Construction of SEA-ME-WE 5 started in March, with the system expected to enter service in 2016, while the Bay of Bengal cable connecting India, Malaysia and others should enter service by the end of this year. The Malaysia-Cambodia-Thailand cable is expected to enter service in 2015, and the Asia-Pacific Gateway (APG) cable that runs from China to south east Asia is planned for service in 2015.

“Not all of the cables planned will end up being built, but there seems to be plenty of interest,” says Cody Williams, research analyst at telecoms market research firm TeleGeography. “There are also several planned cables in Oceania, and on the trans-Pacific route, which hasn’t seen a new cable build since Unity in 2010.”

Pacnet claimed a first for the region with deployment of an optical mesh network with 100G technology on its EAC Pacific system in January this year. The carrier has also launched the Pacnet Enabled Network (PEN) – a fully automated software-defined network (SDN) in data centres across Australia, Hong Kong, Japan, Singapore and the US.

Many markets in Asia-Pacific are expanding connectivity simply to get more people connected to the internet. The region now has 307 million broadband subscribers and a household penetration of 31%. Growth in bandwidth usage stood at 44% over the past five years according to TeleGeography, with the fastest-growing markets being Myanmar, followed by Cambodia, Sri Lanka, Indonesia and Nepal [see graph]. The largest markets are China (including Hong Kong), followed by Japan and Singapore.

“Of the three largest, Singapore has grown the fastest over the past five years,” explains TeleGeography’s Williams. “This is unsurprising since the traffic of many of the hottest markets in south east Asia pass through it. However, falling prices and slowing growth are making business more challenging.”

According to Williams, prices for transport are falling across the region, while overall IP traffic has also slowed in recent years, making price declines more troublesome for sellers.

“Price declines are ‘normal’ for the telecoms market (or at least expected), but to really measure their impact, you have to take into account the capacity sold. If you had a 33% price decline and a 50% increase in volume, you’d be making less per unit, but would make the same amount overall. However, prices have continued to decline and volumes have not made up the difference.”

Epsilon’s Hipp, for example, has witnessed the “huge shift” from traditional TDM to Ethernet or IP-based services, and believes that because new technologies such as Carrier Ethernet are typically touted as being cheaper, price erosion is inevitable.

“A lot of expensive SDH is being cancelled and replaced by cheaper Ethernet services and the problem is that you get far less dollar per megabit than in the past,” he says. “Everyone has big issues in defending margins and market share, while dramatic price pressure remains.”

Shifting focus

Up until recently, the emphasis for Epsilon had been on getting people on the ground at the main exchange hubs – namely Singapore and Hong Kong. Now it is looking to go deeper into the countries of Asia-Pacific to offer services on a local basis. Epsilon’s strategy is being shaped by the need to better support enterprise services.

Although it does not sell to enterprise customers directly, it has a strong focus on providing global last-mile solutions for carriers so that they can in turn offer this connectivity to their domestic or enterprise customers. Indonesia has been its main focus, with the next countries being Japan, Thailand, Malaysia and Australia.

“Our expansion has become more project-based, as the market is too uncertain to go and build a PoP without the additional business to back that up,” continues Hipp.

Pacnet has placed strong focus on meeting the compute, storage and connectivity demands of content, cloud and enterprise customers, with an expanding network of data centres across Singapore, Hong Kong, Sydney and mainland China. It also supports Amazon Web Services (AWS) Direct Connect, enabling customers hosted at its Tier-3 data centre facilities in Singapore, Sydney, and Tokyo to establish dedicated private network connections and build and manage hybrid cloud computing deployments.

According to Cardi Prinzi, president of global markets at Pacnet, China is among the markets presenting the greatest opportunities for Pacnet over the next 18 months. Under a partnership with China Telecom, the company will establish PoPs in Pacnet’s Tier-3 Chongqing data centre, CQCS1. It has also inked strategic partnerships with China Unicom and China Mobile.

“We are the only foreign-invested company to have been issued a licence to provide data centre network services in Chongqing, China,” says Prinzi. “The Greater Mekong Subregion also presents great opportunities for connectivity and service expansion for us, due to its growing demand for networking services.”

For those serving multi-national corporations (MNCs) in Asia-Pacific, cloud and enterprise services are shaping up to be a key battleground moving forward, while Hong Kong and Singapore are currently hives of data centre activity.

Battle of the clouds

“Asia-Pacific is one of the fastest-growing regions in the world, if not the fastest, and every MNC has an Asia-Pacific focus these days,” says Adrian Ho, principal analyst of enterprise telecoms, Ovum. “We have three of the top-ten largest economies in the world (Japan, China, and India), as well as some of the fastest-growing (Indonesia, Vietnam), so a lot of MNCs are investing here and enterprise services are growing across the board as a result.”

The biggest challenge, warns Ho, is that the region is “ferociously” competitive. Carriers are also now fighting against new types of competitor.

“Everyone is focussed on Asia-Pacific and you have to work much harder for your dollar, since all the global and regional players are competing for the same business. As carriers enter the ICT world, they are competing against major systems integrators who have more credibility, and a lot of best-of-breed vendors in the cloud services space.”

Andreas Hipp at Epsilon concurs: “I personally have never seen an industry changing so much in the space of 12 months, where industry players from other segments – be it software, data centres, or hardware – are all moving into a space under the cloud umbrella. Everyone is forced to provide an end-to-end solution to the customer, so carriers are facing tough competition from major blue-chip companies that have a global offering and the scalability to compete.”

According to Ho, the key question carriers should be asking themselves now is whether or not they are innovating fast enough to compete aggressively on a level playing field with ICT service providers.

“Currently, the answer is ‘no’ – they are losing the game on almost any single major technology out there,” Ho says.

However, Ho highlights that most IT vendors do not own networks. With many enterprises wanting secure cloud services via VPN access, carriers do have an advantage. This has driven instances of partnering, such as SingTel and BT both partnering with Microsoft to offer cloud services, while Equinix has teamed with IBM.

“These are the types of opportunities that will start to evolve,” says Ho. “if you are entering into ICT, you need strong integration skills and strong professional services capability. Crucially, they need to recognise that the traditional telco rules of engagement don’t work in the IT world, which is all about channels to market. Right now, carriers need to change their mindset and ensure they have the ability to scale, and scale very quickly.”