Like all years in our tech-centric industry, 2014 presents both opportunities and challenges for carriers. Here’s a quick run-down on the Good, the Bad and the Ugly…
Let’s get the Ugly on the table first:
• Total US voice revenues will continue to shrink, driven by the Intercarrier Compensation Reform Order (ICRO). Note the following ATLANTIC-ACM projections:
o US local wholesale voice revenues will decline from $6.1B in 2013 to $5.4B in 2014
o US long distance wholesale voice revenues will decline from $2.0B in 2013 to $1.6 in 2014
• ICRO implications will drive continued consolidation in the U.S. voice market, eliminating sub-scale networks that do not serve end users. Look for sub-scale wholesale voice providers such as Peerless Network, Inteliquent, Impact Telecom, and others without deep end-user bases, to be rolled up into larger, scaled, third-party voice service providers. These companies are likely to follow IntelePeer’s sale of their voice peering business to Peerless Systems Corporation.
Now on to the Bad (but with silver linings):
• The base of regulated T1 special access will decline as carriers and their enterprise customers shift to Ethernet over everything (fibre, copper, coax). Although revenues for special access bring more money for less bandwidth, Ethernet growth offers great opportunities for prepared carriers. ATLANTIC-ACM expects wholesale Ethernet revenues to grow from $3.5B in 2013 to $4.6B in 2014. While wireless drives $700m of the $900m y/y increase, carrier spending on Ethernet will continue to grow as migration creeps along. (Fibre-to-the-tower will play a major role in this growth, but end office connectivity to other facilities will increasingly play a larger role in connecting facilities.)
• Tower companies emerge as competitors for fibre backhaul business with testing of small-cell backhaul opportunities. As wireless operators continue to explore the best paths forward for deploying small cells, tower companies’ roles in the small-cell ecosystem will shift from simply providing sites to developing additional services that enable cost effective small cell deployments. Look for tower companies to follow the path of Crown Castle, actively playing more of an all-encompassing role in small-cell deployments.
• MSO competition will ramp up and move well beyond backhaul. MSOs will continue to look for ways to leverage their existing networks to generate greater revenue. Look for them to actively sell Ethernet services delivered over fibre and coax into greater numbers of non-wireless operators. (Cablecos also will seek opportunities to leverage their technology investments in the wholesale arena by selling services like hosted VoIP platforms, IP Transit and cloud-based DVR platforms.)
• Cable company acquisitions will drive continued fibre market consolidation. Following Time Warner Cable’s planned acquisition of DukeNet and Cox’s acquisition EasyTEL, look for other cable companies to follow suit. Cablecos have long pursued clustering strategies in pursuit of economies of both scope and scale, and in 2014 will pursue fibre companies that enable them to increase density of their footprints and add greater data centre connectivity. (Meanwhile, Time Warner Cable is itself being pursued by Charter, Comcast and Cox.)
Finally, the Good stuff:
• Fibre growth will continue, driven by the myriad of new end-user desires. From medical records and contextual marketing to next-generation analytics, Big Data promises to continue its march forward, driving increased demand for connectivity between users and users, users and apps and, amid the API boom, apps and apps. At the same time wireless carriers facing insatiable demand for wireless data to feed mobile connections for all those services just listed will drive wireless carriers to seek future-proof builds with scalable fibre. And even small-cell deployments will rely on fibre.
• Carrier investment in API capabilities will increase, driven by cost cutting and the need to interface more effectively with wholesale customers. Carriers will move from adding APIs to their voice platforms over the last two years to opening up APIs for interfacing with their data services platforms. Look for carrier APIs to enable integrations of ordering, pricing and provisioning platforms, making it easier for customers to do business with their wholesale service providers.
So raise a glass to our changing times, position yourself well, and savour the ride.
