Asset-light model keeps prices down

22 May 2009

In the wholesale IP business where price is the crucial factor, only the most cost-efficient companies survive. And with internet traffic expanding more than 50% annually, staying lean is a constant challenge as companies ramp up capacity while having to cut prices.

For Tiscali International Networks, a pure-play provider of wholesale IP and Ethernet services, an asset-light approach enables it to quickly make adjustments in the fast-moving market and match the price customers are requesting, CEO Paolo Susnik told

"We focus on dong one thing well and have been profitable since 2007. Last year we grew revenue 35% and had ebita of euro 10 million," he said.

TINet, with more than 100 PoPs worldwide and a 3% market share, doesn\'t own any fiber. Its strategy from the start has been to have a simple business model and build a single platform, provided by one equipment vendor, to help it stay efficient.

"It\'s hard to be efficient when your platform is complex," CMO Paolo Gambini said. "A single platform allows us to have faster customer activation, better support and proactive SLAs."

He said that while quality of service and the resilience of the network can be important differentiators, they are not usually key considerations. "They help us win in only one out of three or four RFPs. Price is the main parameter because other aspects are highly consistent."

According to Renesys, which monitors the state of the internet in real time, TINet along with China Telecom and KDDI have been the fastest growing IP transit providers over the past three years. TINet last year moved from No. 13 to No. 10, with increased business from Telus, Interroute and Pacnet.

Bob Fletcher from Renesys says that the big trend in routing is the huge increase in local content, which means that trans-Pacific traffic as a percentage of total traffic is falling. Current Analysis says traffic from emerging markets is increasing by more than 200% per year.

With internet traffic no longer US centric, some of the major providers of IP transit, like Sprint, AT&T and Verizon, are facing flat growth while many of the tier 2 and 3 providers are experiencing strong growth.

Fletcher said that the number of top-tier IP transit players will grow to 15-20 from just a handful as growth in and out of Asia soars. He said last year Sprint dropped from the top spot to No. 2 while Verizon fell to sixth place from No. 4 after losing business from Teliasonera.

TINet announced in February that was being acquired by BS Investmenti SGR for about $60 million. Susnik said the deal will likely be completed by the end of May but could take longer.

The move can\'t come soon enough as the provider of IP transit strives to distance itself from its parent company, which recently sold its UK ISP operations to Carphone Warehouse after shutting down is IPTV service in Italy at the end of last year. The sale marked the end of its ambitions to be a pan-European ISP.

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