Ovum has recently studied the accounts of over 200 leading telecoms companies for our analysis of the size and profitability of the market for wholesale services. Although disappointingly few telcos publish data on the performance of their wholesale business units, we have been able to draw some conclusions from the data that are available.
While business units providing international wholesale services have managed to increase their revenues over the last couple of years, their profit margins have remained comparatively static. Intense competition in international wholesale has resulted in the commoditisation of basic voice and data transport services. The most successful international wholesalers have countered this trend through a combination of increasing traffic volumes, diversification into higher value services and targeting business from new customer segments. Without action on all three fronts, providers of international wholesale services have experienced declining profit margins.
In contrast, the revenues of telco wholesale units which concentrate on a single domestic market have declined in the face of of regulatory pressure to reduce prices and growing competition from owners of alternative network infrastructures (including mobile and cable network operators). As a result national wholesalers split into two groups. Those national wholesalers which have taken action to reduce their costs and to develop new higher-value unregulated services targeted at specific customer segments have increased their profit margins. But national wholesalers who have instead reacted to these pressures defensively have all experienced profit margin declines. Wholesalers with declining revenues and profit margins must take immediate action if they are to reverse this downward spiral.
That said, the picture would be even clearer if more telcos published details of their wholesale business units’ performance. We know that almost all telecoms service providers offer wholesale services to carriers, retail service providers, virtual operators, distributors, resellers, systems integrators, content owners and other types of intermediary. So why are they so shy? Surely it’s not because they are all seeing revenues and profitability declining?
Our initial analysis of responses to Ovum’s latest wholesale customer survey has shown that a growing number of wholesale customers are concerned about the financial performance of potential suppliers. A lack of transparency raises suspicions that performance may be poor. Nobody wants to do business with a provider that is unwilling to demonstrate its long-term commitment to supporting its customers.
We don't believe there are any good reasons to be shy about wholesale performance, but we can instead point to numerous reasons to disclose it. Not only is wholesale an important channel to market, but it can improve infrastructure utilisation and return on investment. We believe that highlighting wholesale performance can demonstrate players' commitment and capability in this increasingly valuable segment of the market. It’s time to be more open and tell the world about the value of wholesale!
