In common with other international wholesale communications players, Telefonica has made quite a journey over the last decade. While its primary focus traditionally has been the world’s Spanish-speaking markets, this is no longer the case. Since decoupling newer services from its international infrastructure, Telefonica International Wholesale Services (TIWS) is rapidly exploiting markets across Europe and now has designs on opportunities further east, from eastern Europe to Asia.
Today, TIWS manages 45,000km of fibre-optic network, with two international control centres, 18 landing stations and 122 points of presence in 47 countries. It has an international OC-192 IP backbone with 200 peering relations, direct interconnection to 300 international voice carriers and on-net termination for voice traffic in countries where the Telefonica Group’s fixed and mobile carriers are present. In 2009, the company handled 20 billion voice minutes.
A decade ago, the Spanish group’s wholesale operations comprised a collection of local business units which functioned largely in silos, until the decision was taken to bring together all international interests under a single brand and strategy. The resulting business, TIWS, was separated from Telefonica’s domestic wholesale business for regulatory reasons.
Two further significant developments rounded off the integrated international wholesale business – the addition of Telefonica Datacorp, the group’s international data backbone; and the introduction of a submarine cable, Sam-1, linking south America to the US. By 2002, TIWS was fully operational as a unified international wholesale business.
Reconfiguring the business
The vision was to bring together the three core strands to its operations to produce something greater than the sum of the parts. “Our goal was to optimise our voice activities and invest in a single platform,” explains Emilio Sepulveda, senior manager for strategy and business innovation at TIWS. “On the voice side, the aim was to minimise cost and migrate legacy PSTN to a next-generation network so we could make a single investment in a single system. With data, we have worked hard to adapt to customer demand, migrating Frame Relay, X.25 and ATM activities to MPLS and the internet. The aim with the submarine development was to ensure a return on the financial investment we’d made in 2001.”
The rapid commoditisation in bandwidth provision that followed the internet bubble meant TIWS had to repeatedly reconfigure its business models to support “the new reality”, as Sepulveda describes it. “Margins were slimming fast,” he says. “Now it was much more about how we managed traffic; the need was to optimise and fine-tune the use of network resources to maximise capacity and keep costs down. The challenge was that the incoming revenue no longer supported the wholesale business, so we needed new sources of growth, beyond the pure infrastructure.”
When TIWS originally emerged as a distinct business, more than 50% of its people were employed in the network department. “Now the infrastructure was losing weight,” Sepulveda says. “A new wholesale approach was required. We needed to offer platforms and services as well.”
Analyst firm Ovum, in its 2010 analysis report on the wholesale business of Telefonica, notes that during the ensuing years of turbulence in the market, TIWS has not been as financially exposed as it could have been, thanks to its strong internal customer base. The majority of TIWS’ customers are subsidiaries of the Telefonica Group, which accounted for around half of the business’ revenues in 2009 (up from 39% in 2006). Servicing these customers alone is sufficient for Telefonica’s wholesale business to be profitable, report author Fernanda Mello Veiga notes.
“TIWS is cash flow positive, so we don’t need external sources to finance the company,” Sepulveda adds. “But if there is a need, we ask the corporation for funding: it acts as an internal bank or venture capitalist. It was the corporation that financed the construction of the submarine cable,” he notes, adding that TIWS repaid the funds, with interest, within several years.
Today, TIWS’ business has evolved to the point where voice accounts for around half of the wholesale operations’ revenues, down from 90% when the business came together. Strategically, the focus is to build new services. These began with infrastructure and platforms outsourcing, but plans are gradually becoming more ambitious, ranging from mobility services to customer marketing and payment platforms, security and content delivery network (CDN) solutions, Sepulveda says. “Margin in IP transit and capacity has become thin now. The real growth potential is in CDN and related services.”
Importantly, because many of these services do not depend on using Telefonica’s own infrastructure, this has given TIWS a whole new freedom to expand into new geographies. The company now has a strong and broad presence across Europe, as well as an operation in Hong Kong as the company takes on Asia. “We are actively looking for partners here,” Sepulveda notes.
Demand for services
The company anticipates particular demand for mobile services. Its service offerings to date include MMS Relay, a multimedia message management service, and Roaming WLAN, which provides international access to Wifi hotspots as if users were accessing them from their national service. Another offering is a Dual IMSI service, providing “best-in-class” global outbound roaming coverage to mobile network operators, mobile virtual network operators (MVNOs), CDMA migrating to GSM, and so on; it is designed to overcome the limitations of bilateral agreements while increasing coverage continuously.
Essentially, TIWS’ goal is to leverage the expertise, assets and economies of scale of the Telefonica Group for the benefit of other carriers, Sepulveda says, enabling them to exploit new opportunities quickly and efficiently. “We’re in a position to offer them a turnkey solution so they can get up and running quickly, selling our services, whether to residential or corporate customers.
“We see opportunities in international virtual private network services – in providing machine-to-machine services,” Sepulveda continues, pointing to scenarios where wholesale customers want to establish MVNO activities. “They would market and sell the services; we would do everything else,” he explains. “The appeal in coming to us is that such services need to be robust. Since we already offer these services to several million of our own customers and are used to very competitive markets, we’ve already honed our offerings so that they are high quality and highly efficient.”
On the content side, Sepulveda says TIWS is continually monitoring how traffic is evolving. “Transport providers face a real traffic headache. Our proposition is that the CDN approach is better than IP transit. We’re not just offering a technical and marketing solution, but savings from day one for carriers who partners with us.”
A conservative approach
Looking to the future, Sepulveda foresees continued consolidation in certain wholesale markets, with the rise of more specialist turnkey solutions in both the communications and entertainment industries. “Voice will continue to lose significance,” he says.
Ovum applauds the company’s strategy for taking a relatively conservative approach in its expansion and diversification plans. In its 2010 analysis report, Veiga notes: “TIWS is making progress in its efforts to become a global platform-based provider, taking a step-bystep approach which incurs minimum costs. This approach, and the technology and systems behind it, will be used to serve other product and service areas.”
“Our expansion plans don’t involve deploying infrastructure and people, but leveraging opportunities that aren’t tied to specific cables and routers,” Sepulveda adds, looking ahead to opportunities further east. “Strategic partnerships will be important,” he says, as will be the multinational corporation (MNC) market. In July, TIWS signed a sales agency agreement with Docomo Europe to fulfil the mobile requirements of Japanese MNC customers in Europe. Docomo Europe has close ties with a majority of the Japanese MNCs in Europe, many of which have requirements in the countries where Telefonica operates. Under the terms of the agreement, Telefonica will support Docomo Europe’s customers in European countries where Telefonica has mobile operations, starting with the UK and expanding to other countries.
For TIWS, the deal adds value to the mobility proposition it makes to its own MNCs, giving it the opportunity to expand its services and consolidate its position as a significant global player in the wholesale telecommunications market.
TIWS milestones |
| 2002: Telefonica International Wholesale Services (TIWS) formed as a distinct entity; signed to provide broadband capacity to Portugal Telecom Group; IP backbone connectivity enhanced in the US; direct interconnection provided with Israeli carrier Golden Lines; GPRS roaming service provided to Telefonica Moviles Espana 2003: Hughes Network Systems Europe expands network provided to Telefonica data dedicated hub; 50 additional remote sites added to CLH network; online service to buy IP bandwidth on-demand introduced; launched first European PoP for international voice exchange; awarded contract for internet access service in Algeria; provided international connectivity to the Ecuadorian carriers Telconet and Andinatel 2004: Plans announced to link Europe and Latin America with IPv6 technology; OTEGlobe and TIWS established wholesale partnership; co-operation agreement signed with Singtel 2005: KPN and TIWS committed to interconnect their data networks; Telefonica agreed to acquire European mobile operator O2 2006: NTT Communications and TIWS agreed to interconnect data networks; Telefonica de Espana’s European Wifi coverage to include the 9,800 hot spots of T-Com and T-Mobile; Telefonica partnered Inmarsat for global distribution of new mobile broadband service 2007: Telefonica and China Netcom signed MPLS-VPN data service agreement to enhance co-operation; Telefonica Group signed with Trustive for global Wifi access; expansion of submarine cable included new landing points in Colombia, Ecuador and Peru 2008: TIWS opened PoP in Hong Kong; plans to increase coverage and access to Asia-Pacific by adding new PoPs through partnerships 2009: DHL owner Deutsche Post World Net and Telefonica signed a €350m pan-European telecoms services agreement; expanded European backbone linking Madrid, Barcelona, Paris and London to add 15 new European countries; Telefonica selected Level 3 for north American network; launched new web portal to support MNCs 2010: Telefonica choses Verizon Global Wholesale for domestic US wireless service delivery; TIWS signed sales agency agreement with Docomo Europe for MNCs |
