Wholesale voice providers must evolve to survive

Catherine HaslamHaslam and David James/Ovum
22 Nov 2011

On the face of it, the international wholesale voice market is sliding into a state of terminal decline. Average prices are reducing dramatically, margins are being squeezed, and volumes are not increasing at the rates necessary to offset declining prices. Indeed, in some markets traffic volumes are even falling.

International voice wholesalers must act now to address two considerable challenges: the intense margin squeeze, and market transformation as VoIP begins to dominate. Ovum’s new report The Future of International Wholesale Voice analyses how the international wholesale voice market will evolve, and makes recommendations for wholesale carriers to consider if they are to avoid being sidelined by the growing range of OTT (over-the-top) VoIP service providers.

The report is published in conjunction with the Wholesale Voice Forecast: 2011-16, which demonstrates the impact of the decline of fixed-originated wholesale traffic in favor of mobile-originated wholesale traffic, and estimates the net revenues that may be earned from carrying wholesale voice traffic.

The forecast increases in wholesale international voice traffic volumes will not be sufficient to cover the overall downward trend in revenues, and margins will be squeezed more and more. It is no surprise that carriers are increasingly talking about bottom as well as top lines: managing costs and gaining economies of scale are at least as important as, and in some markets more important than, volume growth. Our latest forecasts project a doubling of international wholesale voice traffic over the next five years, but we expect revenues to fall over the same period.

International wholesale traffic volumes will grow to 349 billion minutes in 2016 (8.2% CAGR 2009–16), with the greatest growth in Asia-Pacific and South & Central America. However, in the same period net wholesale revenues (i.e. excluding termination) for carrying international voice traffic will decline to $2.9 billion as a result of continued downward pressure on prices.

Consolidation of the market is inevitable, but this is taking the form of outsourcing contracts rather than mergers or acquisitions. National carriers are increasingly outsourcing international termination, and even some wholesalers are outsourcing their international off-net traffic to a small subset of international wholesalers that have the scale and efficiency necessary to garner the economies that make the business viable.

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