The big picture

Participants include:

• ALI AMIRI, executive vice president for carrier and wholesale, Etisalat

• JIM CLARKE, director of global carrier sales, Telstra International

• PAOLO FERRARI, CEO, Telecom Italia Sparkle

• DANIEL KURGAN, CEO, BICS

• DIARMID MASSEY, VP, international carrier services, Cable & Wireless Worldwide

• KATHEY MORRISSEY, EVP, AT&T Wholesale

• CARL ROBERTS, group VP of wholesale, Verizon

---

  
The wholesale telecoms sector has come a long way in the last decade – from a market dominated by voice and centred around the mature markets of western Europe and the US, to a multimedia affair with tentacles that reach to every corner of the globe. Here we ask seven key names from the global carrier community to look back at where the industry has come from, and try to anticipate where it might be headed.

CARL ROBERTS: Over the last 10 years, the only really consistent thing has been change. Ten years ago the industry was focussed around TDM, straight connectivity services, IP transit and private lines. You could sell capacity at an incredible price per Mb, down now from hundreds to a few bucks. The development of broadband and local loop unbundling unleashed a wholesale market, nationally and internationally, and there have been all sorts of technology shifts – like VoIP, dial up to DSL, moves to next generation infrastructure – all of which have had their impact on costs and on pricing.

TDM revenues have now started to decline for the first time, as the market moves to mobile and Skype. Wholesale is now about data and IP services. You're more likely to hear: “We're an ICT solutions company” than you are: “We're a carrier”.

KATHIE MORRISSEY: It's interesting to look back at the focus of Capacity events over the years and see what's changed. Ten years ago, the emphasis was on voice services, interconnect compensation and a whole load of things that aren't on today's agenda at all. Then you start getting discussion of data and VoIP, and at the latest Capacity North America event in Toronto, discussion was all about cloud and content. As an industry, we've learned our lesson about over-building and excess capacity. Global carrier companies are managed a lot more carefully these days.

DIARMID MASSEY: Competition and deregulation have been the most important things to happen to wholesale over the last 10 years. We've also seen the personalisation of devices, where you're now communicating directly with a person and not a building. We've all got a lot more connected, driving demand for services and in turn impacting on wholesale. The whole industry is certainly a lot more fast-moving and dynamic than before.

DANIEL KURGAN: An obvious trend in international wholesale has been the expansion of mobile-related services. It's become a huge part of the market. Look also at what has happened on the broadband side, with the explosion of IP traffic driven by video downloaded from the internet, and the proliferation of new devices like smartphones. In the last 10 years, the IP transit market has commoditised so that it's worth hardly anything, and is hard to recover investment from. We've also seen an explosion of subsea cable deployment, with corresponding fast growth in emerging markets.

We've seen all these initiatives replace satellite connections, which were just too expensive – for one-to-one connections any way. If you just take the subsea cable capacity we use now compared to 10 years ago, it's 100 times more, or something like that. Broadband is now a big part of a modern telecoms business, and not a side business.

PAOLO FERRARI: The main event in the international wholesale market in this last decade has probably been the adoption and introduction of IP technology. TI Sparkle has been running a full IP softswitch, multi-service network with global MPLS capabilities since 2004. With the fast development of advanced internet access technologies and the increasing demand for bandwidth-hungry applications at retail level, international carriers have been able to accommodate exploding IP traffic volumes on their backbones and in general a fast-growing demand for data services. And as a consequence we have seen international operators heavily investing in expanding their network reach especially in emerging and under-served areas.

ALI AMIRI: The most obvious trend over the last 10 years is the usage of wholesale capacity for internet traffic. A decade ago, traffic was mostly voice, and now internet has taken over in terms of volume – an especially noticeable trend in the Middle East. Related to this, the price of capacity is down. An STM-1 connection used to be quite expensive – it's down now, and a lot of change in emerging markets follows on from that. 

JIM CLARKE: Without doubt, the explosion of data in the past decade has transformed the industry. You could spend all day marvelling at the amazing growth in the need for bandwidth and how it fuels our networks with an insatiable demand for capacity, which of course drives our need for continued investment and innovation. It took 13 years for television to reach 50 million users; by contrast, it only took only three years for the internet to reach 50 million users. The pace of this growth in data demand has had a major impact both on carrier networks and on the overall market.

---

ALI AMIRI: The trend of lower capacity costs of the last 10 years will continue, but be even more marked. Capacity will be a commodity. More carriers will move to IP, away from TDM. I see TDM disappearing. Carriers will also continue to look to monetise content. Higher usage of high bandwidth retail services like HDTV will be reflected on the wholesale side. 

PAOLO FERRARI: We'll see a further move towards consolidation, as scale continues to be an increasingly important factor. Operational efficiencies will be needed to continue and break costs down, triggering further consolidation, either via partnership or M&A. Partnership will play an important role in sustaining our business models in a world of tightening margins. Telcos will have to leverage on strategic partnerships in order to catch high-growth markets worldwide.  

KATHIE MORRISSEY: The market of the future is going to be about globalisation and mobilisation. There's going to be a lot of growth in data applications, in particular on the mobile side. We've seen consumer mobile applications take off, and now enterprises are mobilising their applications too. The market for M2M is just starting and is going to drive significant growth in traffic – cloud too. There's an important opportunity for us carriers to host all of these applications. These trends are good for all of us. We must learn to recognise that video is just another application running over our IP networks – and that Ethernet is an important technology that allows us to do that. 

CARL ROBERTS: I see there continuing to be a complementary link between wholesale and enterprise – kind of like an ecosystem between them. Wholesale gives you the volumes that make your expansion viable. On the back of it you can expand your retail business. In terms of business models, there will need to be a link with the world of content providers, with the deployment of infrastructure becoming so expensive. Revenue from content must at some point be linked to this cost, otherwise the infrastructure provider will be left looking after the pipes while the money is made elsewhere. The benefit of content needs to be spread around – you can see the beginnings of this now. I think IPv6 will make everything a lot more interactive, so that services delivered over telecoms infrastructure are broader than just ICT. The future of, say, cinema might be tied in too. You might be in a position where you can dial home to your fridge to see what's in it. This sort of future depends on how different sorts of player get together. Right now everyone is coming at it from a different angle, wanting different things.  

JIM CLARKE: Carriers will need to leverage outsourcing and infrastructure sharing models to deliver a full suite of products and services to their customers, particularly outside of their home markets.

 

Globalisation and convergence will continue to challenge our traditional commercial models and drive the need for valued partnerships. However, telcos still need to ask certain questions. Will a partnership be more cost effective than going it alone? Will it deliver new and sustainable revenue streams? Will it create service differentiation or will it provide access to new markets for us and our customers? Business models are certainly evolving, in a large part due to buyers becoming more and more sophisticated. Some larger enterprises are already behaving like carriers and service providers, with such significant bandwidth requirements that they are considering purchasing wavelength services to support their mission-critical systems. 

DANIEL KURGAN: We'll see, for sure, a lot more bundling of services – from a technological and a commercial point of view. This will further contribute to the explosion of traffic and the commoditisation of services. It will also result in more consolidation. If international wholesale is all about high-value, low-margin business, then that clearly means consolidation. That said, I foresee that some wholesalers will make a success of attaching value-added features to their offer. I'd say our new roaming hub is an example of that. The message for carriers is: don't abandon the commodity stuff, but put it together with the value-added side, and go for global reach and partnership. Margins are too thin to do it all yourself.

DIARMID MASSEY: Users are driving all change. It all comes from users, wanting more for a cheaper price, delivered to them in a variety of ways. That all leads to a growth in demand for services, which is a good thing. The old demand driver was users surfing the internet at home. The same level of multimedia is now coming to the business world where pictures and video are now embedded in everything. The executive has now got on his office desktop what he used to have in the home.

KATHIE MORRISSEY: The growth is going to be in emerging markets for sure – particularly those that have liberalised their regulatory frameworks to allow for growth. From Africa to Latin America, regulators are being forced to open markets to more competition. There has also been serious investment in subsea cables to connect the world and allow growth. Some emerging markets are already into new service areas, like IPTV and there's a role for carriers like us to provide advice here. We can take what we have learned in our own markets and turn that into a consulting offer.  

DIARMID MASSEY: For me, it's Asia. It continues to be an exciting place, with big populations and growing demand for services. Asia was not affected that badly by the global recession – nowhere near the level of western Europe. We're certainly excited about Asia at CWW. It gives us a great opportunity to grow our carrier business. Asia knows all about the idea of partnership and collaboration. There has already been a lot of partnership with western companies, and between companies in the region, to achieve growth. There is a generally collegial atmosphere between countries. 

PAOLO FERRARI: With the upcoming new flow of submarine cable systems serving both west and east coasts, Africa is probably going to represent the next booming region for data services with growth rates for services in the continent that have been sustained already in the last few years. The newly available capacity will increase competition and bring costs for IP connectivity down, supporting higher broadband penetration and stronger demand for international data services. Latin America, the Gulf, southeast Asia and the Far East are also areas of growth but their cycle seems to us closer now to that of western markets as opposed to newly emerging markets.  

ALI AMIRI: If you're talking about emerging markets, you have to include Africa and Asia in particular, China and India, too. In the Middle East you're seeing the increasing importance of smartphones, 3G and soon LTE, all driving the need for more capacity. I see major changes in Africa taking 10 years or more to happen. They'll come about as a result of people taking a long-term view, and from the investment of many different operators. If you want to succeed in that market, it's a long-term play.  

DANIEL KURGAN: I would say, perhaps provocatively, that Africa will grow a little less quickly than some people believe – and I'm talking about a market we're super-strong in. It's a growing market, yes, but it will take time and isn' really the El Dorado that some say. I'm expecting more growth from places like Russia, China, India, Brazil and Latin America generally. The Middle East too is still a place for growth, as lots of its markets are not yet fully penetrated.  

JIM CLARKE: There are huge opportunities in emerging Asian markets such as China, but also in other regions such as Russia and Africa. However, success in these developing regions not only requires the correct infrastructure to be in place, but also a level of local knowledge to understand market demands and varied regulatory conditions. Companies that can meet these challenges will have the opportunity to thrive on these unique growth opportunities.  

CARL ROBERTS: There have been lots of strategic cable systems launched over the decade, connecting regions like the Middle East, Africa and Asia. Ten years ago business was concentrated in the major markets of the US and Europe. Any growth in new regions increases the base of new customers going forward. Investment in infrastructure plays into the hands of large players like ourselves. We can provide our expertise to those who are building this infrastructure, even if we're not building it ourselves. We are now seeing a large number of carriers starting to focus back on their home markets, and there are fewer players in the international space. Ten years ago, deregulation spawned a whole lot of new competitors, with the circle now looping back to a small number of robust carriers – certainly at wholesale level. Just look at the French market where at one point there were about eight to 10 aggressive telcos, down now to two or three. It's pretty much the same across other mature markets. Emerging markets are earlier in the cycle, in some cases only now starting to see deregulation. That's where the opportunities are for investors.

CARL ROBERTS: Losers will be those who say, “I'll carry on doing what I do now, and nothing else – I have the cheapest pipes and the best VoIP, and that's all.” At Verizon, we're quite far down the road in how the wholesale content and applications worlds work together. We're making content available over multiple platforms. “Everything on demand” is what we do today, and it's where our investment is going to enhance our offer. Cyber-security is an example of an area we're strong in. We think it's an important consideration. What we learn in the US market, we transfer internationally. 

KATHIE MORRISSEY: The winners are companies that have globalised, and carriers that have invested to develop a capability in emerging services like cloud and mobile applications. There's room for niche players, and partnerships will be important since no one carrier has it all. Survivors will be flexible and nimble – able to get a head start in new technologies. Successful carriers will also offer a secure network. Security is going to be even more important in the future than it is today. That's one of the areas where we differentiate ourselves from others. If I were an enterprise I'd far rather have my apps hosted by AT&T who've been at it for years than some new player. 

DIARMID MASSEY: It will be those who learn to play nice and partner with others. It's about sharing with those partners and using their strengths. We can't all meet every challenge on our own, and deliver everything our customers need.  

JIM CLARKE: We are all in different stages of our evolution in this challenging industry. Some still see themselves as traditional telcos, yet others position themselves as regional or global providers. It is becoming tougher to use the network as a unique selling point to attract, retain and grow customer share. The primary focus is shifting to differentiation based on coverage, services and applications over the network. 

PAOLO FERRARI: Surviving wholesalers will be those that can innovate fast, anticipating transformation that the retail side of the business can bring about.   

DANIEL KURGAN: To me it's scale, scale, scale. There's not much room for an international wholesale business that doesn't have scale. They'll also need a complete portfolio of services and a good customer base. Lastly, they'll need to be technologically ready to face a market that's facing mass broadband and VoIP adoption. We've invested in that. The future is end-to-end Ethernet, and NGN platforms for voice and data. If you try to straddle next generation and legacy, you'll have a hard time.

If you want to deal with exploding volumes of traffic cost effectively and efficiently, you don't want to be at some halfway stage. Whatever services you provide, you've got to invest to address your cost base. 

ALI AMIRI: Scale and size matter. But it's not all about that. You've got to be on top of your market in both services offered and technologies deployed. This will often come about through consolidation. To stay ahead you also need to move towards automation, looking for better business processes and better and faster ways of meeting the needs of customers. You need to be flexible too, and watch out for pricing. Scale on its own is not enough. You need a smart way of using that size. I'm generally optimistic about the future of wholesale. Effort and hard work can still lead to success. Where there's a will there's a way.