Wholesale Reborn?

21 May 2013 | Guy Matthews


The future of wholesale telecoms is uncharted territory, and carrier business models are being adapted for survival in what will no doubt be a challenging environment. Capacity reports on the new frontier.

Here’s a proposal that the telecommunications industry might like to mull over.

Could the day be approaching for the industry to abandon the word ‘wholesale’? As carriers reinvent their business models and explore new service areas, is a phoenix rising from the ashes of traditional wholesale?

It may even be time to start thinking of some new terminology to cover what we once meant by ‘wholesale’, something that reflects these changing dynamics of the industry as it looks to the future. What once we called ‘a wholesaler’ we could now refer to ‘a channel czar’ or ‘a disintermediating third party organisation’.

Whichever way it’s spun, the wholesale telecoms industry is in the midst of a major transformation. Big data, IPX, cloud and M2M are just some of the exciting new wholesale revenue opportunities opening up to the industry. But at the same time these new service areas are challenging traditional business models and causing carriers to rethink exactly what is their core competency.

It’s prompted some remarkably different responses from various quarters of the carrier community. Whereas some have reacted fast by realigning their business firmly alongside new service areas – be it through internal restructuring or acquisition, others have taken a step back and decided their main strength remains firmly within network infrastructure.

Deciding whether these new service areas belong under wholesale or enterprise has been one of the hardest tasks facing some carriers. It is why a growing number have turned to a hybrid wholesale and enterprise model that looks to ambitiously leverage these opportunities across both market segments.

Several different types of carrier therefore appear to be metamorphosing in the wholesale market. The question is will they all eventually belong together?


Brand new radicals
Through its New Ventures entity, Sprint has been one of the pioneers of realigning its business model to new service areas.

At the simple end of its remit, New Ventures addresses a wide base of international and wholesale customers with white-labelled variants of successful Sprint retail products. These include open mobile platforms like Mobile ID and Mobile Zone. But there’s more to it than reheating an old portfolio of services for new buyers. “The goal is to deliver new business models and create new opportunities,” explains Karen Freitag, VP of global sales for Sprint. “We want to help international carriers, OEMs or MVNOs to increase efficiency and cut costs. We are doing this by leveraging our open mobile ecosystem.”

She gives the example of Pinsight Media+, Sprint’s mobile advertising service: “We’re developing this as a wholesale product in partnership with Telefónica in a global alliance that reaches customers in the US, Europe and Latam,” she says.

Sprint has also made a virtue of finding new types of customer, hitherto unconsidered as sales targets for wholesale business, and creating new types of solutions for them, all founded on the mature wireless infrastructure it has at its disposal.

“We’re working in the US with a major retailer,” says Freitag. “They don’t want to go the whole way and become an MVNO, but they do want more stickiness in customers. So we’re helping create this loyalty using wireless services. Our role here, and in many other cases, is to be at the centre, pulling together different types of partner to create a total solution.”

Sprint is also one of the few carriers to go after cloud as a wholesale proposition. Aaron Blazar, VP at analyst firm Atlantic-ACM, describes Sprint as becoming a “SaaS vending machine” enabling both traditional and new customers to offer SaaS as a platform.

This is evident in the company’s M2M activities, where it is partnering with a range of customers, like Chrysler in the automotive sector, and insurance companies to pioneer usage-based insurance. Steve Hewson is head of networks and technology with
Clevercoms, a consulting firm that advises network operator clients on creating new business models. He thinks the reinvention of Sprint as a new type of wholesaler has been enabled by its all-important global presence.

“In the carrier to carrier space, the world is now a smaller place than it was 20 years ago,” he says. “To support that takes a ubiquitous global infrastructure capability that can reduce costs. We’ve seen Sprint do this in M2M where they are enabling that around the world for partners. Providing ease of doing business on a large scale is a major value-add that will improve client margins.”

In Sprint’s case, there may be an element of necessity, even desperation, in all this invention, believes Blazar: “Sprint is ahead in rethinking wholesale – but maybe because they have to be,” he muses. “They have an aging wireline business, and so need to think faster and harder than some of their competitors.”

It perhaps explains why its US rivals have adopted a much less radical approach. Verizon, for example, made the decision to break into cloud with the old school blunt instrument of the acquisition of Terremark. AT&T meanwhile has retained a more product-centric approach, selling old and new types of service to a base of traditional customer types – SIs, ISPs, cable operators and wireless operators.


The traditionalists
For all the exciting new wholesale revenue opportunities represented by M2M, cloud and Big Data, there will always be a role for the wholesaler whose main value-add is the strength and resilience of its backbone infrastructure.

These are the carriers that fundamentally believe infrastructure is becoming more important, not less.

“With cloud creating a need for access wherever you are, that’s driving demand for what we provide,” says Erik Hallberg, president of TeliaSonera International Carrier. “Infrastructure will need to be revitalised to cope. We need to get digging more fibre into the ground.”

‘Dumb pipe’ is often used in a derogatory context but it doesn’t have to be. Jim Clarke, director of carrier sales with Telstra Global, agrees that physical connections still matter in the wholesale ecosystem: “The conventional view is that you have to move up the stack, but I don’t mind selling dumb pipes,” he admits.

“We can make good business there at wholesale level, using the scale we have across our network platforms. Without pipes, then cloud, managed services and the rest don’t exist. But that doesn’t mean you can just rely on basic transit services. If that’s all you’re doing you have to run very fast in order to stand still. Bandwidth demand is just not rising as fast as prices are declining. So what’s next for the wholesale model? We have to think about the areas where we have a right to play.”

Clarke says that like other big carrier names, Telstra Global is eternally looking at a broader and broader base of customer types to sustain itself: “There’s the OTTs and the Web 2.0 organisations, which clearly have very different needs to traditional carrier customers,” he believes.

“Their wish is to push content around the world to their users and they want access to the eyeballs we can provide them with in places like Hong Kong and Australia. There have to be nuances in our product set and ways we can configure the network for their needs, as they are different needs to those of regular carrier customers.”


Bringing enterprise and wholesale closer together
Another tactic is not to abandon wholesale so much as to combine it with a hybrid wholesale and enterprise strategy.

Interoute and Tata Communications are two classic examples of carriers with wholesale roots that have changed their balance so they get more from enterprise business. Joel Stradling, research director at independent consulting firm Current Analysis estimates that the split between wholesale and enterprise at Interoute is now 50/50, with Tata’s not far behind with a 60 wholesale and 40 enterprise split.

“Both are developing a lot of compelling products that the wholesale division is taking and white labeling – good enterprise-grade VPNs, video and repackaging them for resellers,” he says.

He also identifies BICS and KPN as making strong progress in developing cloud products to resell in their home markets. “Small system integrators can then serve the cloud needs of their smaller enterprise customers.” A separate debate exists around whether to manage wholesale as a subset of another division, or keep it as a semi-autonomous unit with its own management and strategy.

Stefan Amon, head of wholesale for Telekom Austria Group, certainly sees the need for a specialised wholesale division “since the customer needs of carriers differ fundamentally from those of regular enterprises”.

He thinks enough new pure wholesale opportunities exist to sustain the rationale: “We believe that mobile network operators, and everything connected with wholesale business, will grow. We also see satellite as a very interesting opportunity for developing our business and, of course, we are also pushing our network towards VoIP to cover the growing demand of bandwidth.”

While old wholesalers are seeking new enterprise directions, some names from the world of retail telephony are looking for a way into wholesale, proving surely that the essential model is far from dead. Vodafone, for example, has openly spent the past couple of years looking at how wholesale can become an engine of growth for the company. Last summer it made its biggest move here with the £1 billion buyout of Cable & Wireless Worldwide.

The market is still digesting what Vodafone’s intent was here, but one ramification for CWW has already become clear. Although it has not been officially announced, Vodafone appears to have dropped the name Cable & Wireless in the UK since April of this year. The company’s website (www.cw.com) no longer exists, and attempts to access it will send the browser to Vodafone Global Enterprise. All CWW’s services in VPN are now branded under Vodafone, and it’s clear the operator is placing an increased focus on its global enterprise business.

David Molony, principal analyst at Ovum, believes Vodafone’s short reign over CWW has provided little indication of the company’s plans in wholesale. “So far, this acquisition has been 90% enterprise managed services and 10% on wholesale, but this could soon set to change.”

Molony questions whether the deal has ever been about the wholesale carrier market globally, but does note that there could be some scope for Vodafone to begin challenging for market share on a wholesale level in its domestic market. “I could see Vodafone/CWW eventually competing with BT Wholesale in the UK to provide managed network services, considering CW (before its rebrand) signed a deal with Virgin Media Business for similar services.”

Since the integration was first announced, it has been a commonly held view in the market that the deal was a lot more beneficial for CWW considering its low margins prior to the takeover. And Molony does see an opportunity for a traditional wholesale model to eventually emerge.

“I do believe there could be scope for more managed and outsourced network services to be wholesaled by this company to small, local or regional service providers,” he says. “CWW is already involved with web hosting for ISPs, and it wouldn’t take too much of an internal reshuffle to roll that out into managed business services, including wholesale private cloud.”


Tapping into the right channels
Carriers may be becoming increasingly divided in their approaches to tapping into new market opportunities, but there is still one thing ultimately uniting all their paths together: “There’s still an intermediate role between the original network provider and the guy who pays the bill,” says Ovum’s senior analyst Paris Burstyn.

“If the user is not paying the carrier direct, then that’s wholesale. You need those extra steps in the supply chain because it’s impossible for the carrier to know what the small business user actually needs.”

There is a compelling argument that no matter how carriers continue to serve the needs of the market, the essence of that channel strategy isn’t going away no matter what label it’s given.

Should carriers therefore be placing more of a focus on embracing new types of channel partners to open doors to new revenues?

Burstyn says that in the case of AT&T, the company has pushed sales to solution providers, such as IT service providers, managed through a separate channel strategy. “Their traditional wholesale channel sells essentially the same services, but just to a different customer. Level 3 has a similar programme, with intermediaries which are essentially just agents. Level 3 and the customer have a
relationship, and the intermediary gets a piece of the action.”

The next-generation of wholesale services inevitably won’t be forged without the odd complaint about channel conflict and a more high octane debate about how things should be structured and defined.

But it’s more than likely that there’s an elemental aspect of the supply of communications services that will always, in essence, be wholesale.