Wholesale comeback

09 Oct 2006

With the infamous bursting of the bandwidth bubble at the turn of the century, the international wholesale bandwidth market was a hard dollar even for those carriers that somehow emerged from Chapter 11 relatively intact or, more rarely, managed to avoid bankruptcy altogether. One of the first signs that things were turning around was spotted during a panel session at the 2004 Pacific Telecommunications Council conference in Hawaii, when Canadian carrier Teleglobe and VoIP wholesaler iBasis declared that wholesale was once again a good place to be.

By perhaps no coincidence, both companies have since been acquired. Indian telco VSNL added Teleglobe to its stable (which by then also included Tyco Global Network) last year. In June this year KPN struck a deal to buy 51% of iBasis and has plans to merge the wholesale VoIP offering with its Global Carrier division, which will adopt the iBasis brand.

The common denominator in both deals is IP. Teleglobe was one of the biggest IP transit players in the world when VSNL came calling, and iBasis was carrying VoIP for telcos back when VoIP was still laughed off as a computer app for college nerds who wanted to make free long-distance calls back home. According to TeleGeography, wholesale international ISPs have experienced demand increases for IP transit virtually unprecedented in other industries over the last five years as broadband services continue to roll out and - more crucially - bandwidth-hungry multimedia apps and services grow more popular, although the accompanying downward spiral of bandwidth prices has kept that demand from translating into major cashflow.

But that's changing - and fast. According to TeleGeography senior research analyst Eric Schoonover, in the last year, traffic volumes have grown fast enough to actually offset price declines.

'At the moment, nearly all markets have growth rates that more than compensate for the steady decline in wholesale [IP transit] prices, providing opportunities for carriers to increase return on investment,' Schoonover says. 'This is particularly true in high growth markets, including Latin America and Asia.'

For instance, average Internet traffic from Buenos Aires has increased by 119% this year, while the average price for STM-1 access to Internet networks fell only 11% to $187 per Mbps.

The same is turning out to be true for the overall wholesale bandwidth market, where many markets and routes are seeing capacity usage outpacing price declines. Which is why carriers are now scrambling to upgrade their current cable routes and even build new ones. VSNL International, for example, has three Terabit submarine cable systems in the works - one connecting India with Europe, another connecting Singapore, Hong Kong, and Japan, and its intra-Asia cable. VSNL is also upgrading its trans-Pacific TGN-P cable from 640 Gbps to 1 Tbps by the end of the year. Earlier this year, Telekom Malaysia spearheaded a new club cable, the Asia-America Gateway.

Put simply, wholesale is back with a vengeance. Even Asia Netcom - one of the first international carriers to distance itself from wholesale by altering its strategy to focus on the services market - is now in love with wholesale again.

Driving demand
Ironically, Thomas Tai, senior VP for Asia-Pacific at VSNL International, is taciturn about the wholesale Renaissance. 'To say that wholesale is making a comeback is still too optimistic,' he told Telecom Asia. 'In some regions the market is getting more rational, but it's hard to believe it's lucrative now like it was in say 1998 or 1999.'

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