What commoditization‾

10 Jun 2008
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Industry watchers have in the past few years raised the bogey of falling prices and ineffective branding, but Telstra's Kate McKenzie - group managing director of the firm's wholesale business - isn't quite convinced.

For McKenzie, what wholesale customers are really looking for is reliability and quality, things that a player like Telstra can dish out and get noticed for. She feels that end-customers are increasingly becoming dependent on the services that are not necessarily just on the basic level.
"They want to know that they are dealing with somebody who can guarantee them reliability and quality, and have a high level of resiliency," McKenzie told Telecom Asia. "We've often heard that having an alternative path is critical when things like the 2006 earthquake in Taiwan happen or when people interfere with [an infrastructure]."

McKenzie explained that Telstra, faced with a security-conscious market, aims at being able to provide a higher level of assurance, for which many end-customers generally will pay.

"More and more even wholesale carriers are selling essential capacity and getting into different grades," she said. "If you want to get cheaper and cheaper, then you will get cheaper and cheaper, but if you want a really good quality product for business customers, we can provide that."

Telstra's believes that its wholesale business defies the commoditization dilemma in that the opportunity to differentiate is present in the customer's search for features and services levels that go with the various services they buy.

Further, McKenzie thinks that the market is up for some tight competition at a time of rising demand and decreasing supply of capacity. Unlike during the glut at the turn of the century, she argued that today the high demand for capacity makes it viable for a company to invest in infrastructure by itself.

Telstra itself is undertaking a project involving a submarine cable that links Sydney to Hawaii. The company expects that the cable will be built by October.

"We are in a process of talking to some of our customers about their interest in buying some of the capacity on the route," McKenzie said. "It will be the shortest route to the US and we have a lot of customer interests in buying capacity."

She downplays the importance of the consortium-sponsored cable projects as well as the argument that the capacity-pure business model is no longer viable.

Unlike many others, McKenzie does not see a drop in prices. She notes that there are particular routes that are approaching a point when there is very little spare capacity. And while there is a lot of talk about a surge in capacity build-up in the near term, the effect of this on the market has yet to be observed.

Industry watchers are sounding the alarm on a possible return of a bandwidth glut. But she reckons it is still too early to make tenable predictions on how the new cables would turn out since none of them have actually been built.

Back to the here and now, the picture is still of a voracious appetite for capacity. McKenzie sees the increasing take-up on broadband and end-users' increasing need for greater speed and more complex applications as the main drivers of growth.

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