The Smart 7

11 Dec 2006

Thanks to VoIP, convergence and NGN, the telecom outlook has never been so uncertain. But Telecom Asia's research has uncovered fresh and surprising ways in which operators are finding new sources of growth and strategic advantage. Here's a close look at our top 7 paths to growth for 2007

Success in the dark
Segment: Fixed
Description: Wholesale

The Pipe Networks tale is a classic of the customer-turns-table-on-supplier variety. It began four years ago when Australian entrepreneurs Bevan Slattery and Steve Baxter founded the firm in Brisbane as a peering company.

'Our bandwidth demands were going to be increasing, so we wanted to buy some dark fiber,' explains Slattery.

But their jaws hit the floor when the saw the prices offered by the local telco. 'We said for what you are trying to charge us, it would be cheaper for us to build our own. They said, 'If you think you can do that, we dare you.''

And a niche business was born - quite a lucrative niche in fact. With revenues up 180% to A$13.21 million ($10.16 million) this year, and after-tax profit of A$2.84 million, Pipe can rightly claim to be Australia's most profitable telco.

The baby carrier is now Australia's largest peering provider and deploys the country's third largest metro fiber network.

Pipe listed in May 2005 and has market cap of A$75 million. Sales growth hit 120% in 2005-06 and the firm predicts a 60% rise this financial year.

Slattery describes the dark fiber product as 'a very long fiber optic path lead.'

Its great competitive advantage is that it's not only too small for tier-one players, but also unsustainable for them.

'You can't sell a 100-meg service cheaper than a 50-meg,' observes Slattery. For Pipe Networks' part, 'we don't have any products to cannibalize!'

Where Telstra or Optus do offer dark fiber it is off a 24-core cable. Pipe sells capacity from 216 or 312 cores only.

The two great attractions of dark fiber are security and flexibility, says Slattery.

It's secure from electronic eavesdropping 'because there's no electronics - the only way to hack into the cable is physically.' For little extra cost, it is easy to scale. The same might be said about the business.

Banking on VAS
Segment: Mobile
Description: Emerging market financial VAS

Thanks to the $30 handset, emerging market mobile is showing some of the hottest growth in telecom. Yet the real business is not voice, where ARPUs can go as low as $4, but in value-added services, and financial services in particular.

Philippines operators two years ago pioneered services that allow customers to add credit to other SIM cards over the air. That's opened up a whole new layer of low-cost distribution for operators for one.

In the absence of bank branches and accounts, it's also kicked off the m-banking sector by allowing end-users to transfer money between SIM cards.

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