Innovative wholesalers pitch for central role in telecoms future

Innovation is often seen as the domain of retail telecoms services. That is after all where most exciting developments in apps, devices, and new services reside. However, faced with commoditized services, squeezed margins, and competition levels that would make their retail colleagues’ eyes water, wholesale divisions are showing that they too are actively pursuing new growth opportunities.

Wholesale telcos certainly have many of the assets to become far more active participants in the development of new converged communications services. However, to take advantage of this opportunity they must innovate at least in line with, if not ahead of, their retail counterparts. This is beginning to happen and many recent innovations from wholesalers are indicative of emerging models in which wholesale is an integral part of the telecoms value chain.

Wholesale innovation covers product spectrum

The rate and even more importantly scope of innovation in wholesale are increasing. In our Wholesale Innovation Analyzer 2011, Ovum classed 14 different wholesale innovations worthy of specific mention. Of particular note is that wholesalers are not just innovating with their products and services but also in their go-to-market strategies, business models, and use of technology.

In 2011, forward thinkers, from both national and international wholesale companies, targeted technology and business evolution trends in the overall telecoms market to build solutions to enable the next generation of communication service providers. They are stretching the definition of wholesale to include more services, while aggressively attacking the cost base, and targeting both traditional telcos and new customer groups, such as webcos and new media players.

All the innovations we highlighted had one thing in common: they understand the impact that IP is having on the communications business and the potential this brings for new wholesale revenue streams. Retailers cannot address all the possible markets by themselves and wholesale carriers can move beyond connectivity to play a bigger role in new services based on IP if they get their strategies right.

As a result, in addition to technology advances, we identified three major groups of developments in 2011: go-to-market strategies for IPX designed to catalyse the market, hubbing services that provide easy connectivity for telcos into international networks, and services targeting relatively new wholesale market segments such as finance and multimedia.

Of the innovations analyzed, it was Tinet’s Ethercloud, which interconnects partner networks to create one holistic Ethernet cloud, or hub, that attracted our highest score. As such it will become stronger and more influential as its customer base grows and could provide a new model for connecting smaller Ethernet carriers. However, nothing is stopping larger carriers using their scale to take over the model.

Overcoming barriers to IPX take-up

IPX represents a new delivery model for international IP services. Many retail telcos are unsure how to develop their IP-based product portfolio and are experimenting in their domestic markets. However, over-the-top (OTT) service providers, such as Facebook and Google, are global in reach and outlook. To compete with these new players telcos also need to be able to operate and interoperate internationally. IPX is one possible solution to the interoperation of different telcos’ IP services, and one that puts carriers at its heart. However, it is a daunting technology and business challenge for telcos. Several wholesale carriers are innovating to make it less so.

Tata Communications has built a framework around its IPX product to bring this together with its mobile data services,OSScapabilities, and managed services. All these elements exist separately but the framework taps into the operator mindset. Tata Communications has understood that operators are not only looking for an easy migration to IPX for voice but a framework that will enable them to launch and manage many IP services quickly and efficiently.

Coming at the barriers to take-up for IPX from a different angle, BT’s Global Telecoms Markets (GTM) group has recognized that not all IP service providers will have the credit levels many IPX carriers demand before agreeing contracts. GTM has therefore taken a leaf out of the retail market book and is offering a pre-pay version of its IPX service.

Neither initiative will guarantee success for IPX. That will ultimately be decided by whether IPX is truly fit for purpose, but developments such as these will increase its chances.

Hubbing becoming a “no brainer” for new service entry

The growing cost and complication associated with bi-lateral international connectivity means that new business segments are turning to hub-based solutions. In 2011, FT-Orange introduced one such solution for international airtime top-up and Etisalat has created a hub to act as a one-stop shop for content companies wanting to access the Arab States. Unlike IPX, which aims to be a global hub for everything, these are specific hubs targeting limited market segments and demonstrate that the hub concept is increasingly applicable. Customers want plug-and-play services; taking the pain out of market entry for retail telcos is a growing business for wholesalers. We expect more companies to tap into this type of opportunity in 2012.

Blurring technology boundaries

The development of new businesses does not mean leaving the traditional behind. It too must change. Traditionally communications has been defined by technology silos – broadcast and private; wireline and wireless; full and limited mobility; and so on. The boundaries between these silos are breaking down driven by changing usage patterns, coupled with soaring data levels and falling retail prices. Wholesale providers are showing a greater willingness to be pragmatic and to work with the best solutions available, irrespective of which silo they fit into. Examples of this in 2011 include WiFi Mobilize from Deutsche Telekom ICSS and iPass, and the trial currently being run by BT Wholesale and Everything Everywhere to use LTE for fixed wireless access.

Many of the growth opportunities associated with converged IP communications require a much lower cost base to be commercially viable. These, and other developments that target the cost base, are vital to developing the new economics that will underpin services in the future.

To learn more about the innovations in wholesale in 2011, their challenges and chances of success, see Ovum’s Wholesale Innovation Analyzer 2011.