Slowing growth and pricing competition have made it difficult for wholesale providers to find profits in traditional areas of their business. While most operators continue to experience extraordinary growth in traffic volumes, the big question is how long will increasing volumes compensate for the decline in prices?
Telecom Asia surveyed a handful of the key wholesale players last month for insight on falling margins, value-added capabilities, the network as a differentiator and the need for innovation. We found that companies are expanding volumes, managing costs at all levels and investing to develop new margin-generating services and capabilities. Scale is increasingly vital to boosting efficiencies, and partnering is a critical strategy to improving margins.
The key issue for the industry is how to sustain growth in the future, given the continued decline in minute/bandwidth pricing.
Gert-Jan Huizer, SVP for product management and marketing at iBasis, reminds us that telecom margins have been under pressure for more than a century. He says iBasis is focused on growing volume and managing costs at every stage of the process while investing to develop new margin-generating services and capabilities.
He says its global footprint enables it to terminate voice traffic to virtually every phone in the world. The volume of traffic we carry (approximately 30 billion minutes per year) gives us access to growth opportunities and efficiencies of scale that smaller, regional players do not have.
Those attributes, he says, position it to take market share from competitors, to capitalize on geographies where there are still growth opportunities and to profit from the general consolidation in the international voice market.
BICS, according to MD for Asia Pacific Siddhartha Kohli, aims to maintain growth by optimizing the size and scale of its legacy business and by diversifying with more profitable products. We will expand volumes, the number of customers and create further efficiencies by implementing new technologies in the network and ensuring interoperability with legacy techniques, he says.
The main solution to preserve margins is to increase efficiencies through size and scale. BICS has been at the forefront of the voice market consolidation, illustrated by two successful transactions with Swisscom and the MTN group. But wholesale carriers should also develop partnerships with new/disruptive market players, like OTT players to join forces rather than fighting them.
Alexandre Pébereau, Orange’s executive VP for international carriers, say the company still expects extraordinary growth in data services, particularly mobile data. Voice traffic is also increasing, but at a slower rate.