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November 2015

Coping with Chaos: The Copernican Revolution in Wholesale

Coping with Chaos: The Copernican Revolution in Wholesale

The mark of a great scientist is his ability to create models that better explain the behavior of things.

In the 16th century, Polish astronomer Nicolaus Copernicus struggled to understand the movement of planets in the heavens.

He knew something was wrong with the ancient Greek view that the planets revolved around the Earth.  The Greek word for “planet” means “wandering star” and that’s exactly what the Greeks observed: a few, very bright “stars” (Venus, Mars, and Jupiter ) wandering randomly around the Zodiac.

Well, Copernicus came up with a better model.  Using what must have been very crude astronomical data — the telescope had yet to be invented — Copernicus put the Sun at the center and came up with the radical idea of a Solar System.

Yet despite his analytic powers, if Copernicus lived today, could he make sense of today’s wholesale business?

Probably not.  In fact, how could any genius — or even a super computer — predict the market forces affecting an individual wholesaler?  How could you accurately quantify the multi-layered effects of: fierce operator and OTT competition, relentless network innovation, and the market shifts toward IP, mobile, and cloud?

Well, with so many variables to consider, I think success in today’s wholesale business is less about following a static model and more about planning for change, then accurately analyzing and quickly reacting to unpredictable events.

Joining us now to help explain the chaos that’s at the center of today’s wholesale business is independent consultant, Jan Dingenouts, a 15-year veteran of wholesale and carrier management at places like Cable & Wireless Communications/Monaco Telecom, KPN/iBasis, and MTN.

Dan Baker: Jan, what do you make of the massive changes occurring in wholesale?

Jan Dingenouts: Dan, the pace over the past two years has been truly astonishing.  Wholesale margins have almost completely vaporized: a half a percent margin is not sustainable anymore.  Wholesale carriers are scrambling to find new services.  They’re also eager to trim costs by buying the right equipment so they can route to the right capacity, quality, and pricing.  The idea is to let the system do the work.

Bottom line, there’s a big investment in automation and a massive layoff of people.

What’s changed in the wholesale back office?  You still need brainpower, so I hope we’re not throwing the baby out with the bath water.

True, brainpower will always be required and it will always be there.  It’s just that instead of having 20 people in wholesale, you now need only 5 people.  I mean the technology that enables routing, quality management, and billing: it’s all automated.

Suppose I want to change the routing for Zimbabwe from carrier A to B.  Traditionally that meant I exchanged emails with carrier B.  You start by sending 50% of your traffic to B.  Then you check quality, and if it’s good enough you increase the volume.

Well, all that manual intervention is no longer required.  Today, if a new rate comes in that’s lower than the existing rate, the system automatically starts redirecting traffic to that new destination.

All those Skype and WhatsApp, and VIBER calls are really having an impact, too.

There’s no denying it.  Today it’s all about cost savings.  In 3 years time, I doubt there’s any more regular voice.

A couple years ago I had a frank discussion with my team at Monaco Telecom and I told each of them: “This weekend you better start seriously thinking where you want to be in 2 or 3 years time.”

And they had strange looks on their faces as if to say, “What do you mean?  I want to be here.”  But my point was their jobs wouldn’t exist in 2 or 3 years.

And the thing is, it’s not just voice.  The revenues from data are also declining very fast.

For example, when I was working at Cable & Wireless Communications, I used to also work for another subsidiary of the same group and they were paying $30 a minute for IP transit to a supplier.  When I discovered that, I made a couple phone calls and the price dropped down to $7 — a massive savings.

But the price cuts are only accelerating.  If you look at carriers like Cogent, they are a price breaker and their price is only $2 a month per Megabit.

The trend is unmistakable, but it’s curious: if you look at a wholesale show like ITW, it’s still attracting five or six thousand people a year.

I spoke to a colleague who goes to the ITW show, and he noticed a dramatic shift.  Before, maybe 50 to 60% of the people attending that show were pure voice, but he figures that number is probably down to only 15 or 20%.

The days of bartering to get a better price in voice are gone.  The world has changed: everybody knows what the standard list prices are, and what the correct rates should be.

From a pure international carrier point of view, of course, wholesale traffic routing is still a very big business with the likes of Orange, Tata, BICS, and iBasis, who have their quality premium routing to the mobile operators.  But those carriers are real careful with their traffic: they are deathly afraid that the end user customers at a Vodafone or MTN are going to scream.

The big guys still carry some wholesale products in their portfolio, but I think that traffic is diminishing fast, Increasingly they want to terminate directly to assure high quality traffic: they are tired of burning their fingers carrying artificial (low quality) traffic.

But there are still niche players out there.  Recently I had a conversation with MGI and they are one of the carriers who has adapted to the times.  MGI still has a wholesale division, but they have hardly any account managers now.  And their new hire account managers are mostly junior people being paid a low rate.

MGI is moving into niche markets.  For instance, they do specific interconnects in Africa and provide specific interconnect services to them.

Can operators at least slow down the transition to OTT voice?

I don’t think you can slow it down.  Vodafone, Digicel, and Orange — whoever — they need to move as quickly as they can into quad play services.

They need to do mobile voice, but also fixed network voice, IP, and television too.

One of my customers, Cable & Wireless Seychelles, used to have just fixed line and mobile voice.  But today they are also offering internet access and just installed IPTV for the whole island.

The CEO knows if they stay only with voice and a bit of data, he won’t exist in 5 years.  But with LTE and television, he has a chance to survive.  Of course, he still needs to look for niche markets.  He needs to make himself attractive to big corporations and organizations so they will keep doing business with them.

He’s exploring the cloud.  What can I offer to my big hotel groups, banks, etc. in terms of offering secure data on my cloud?  Regular voice is finished in a couple of years.

From what you’re saying, there’s a big move to consolidate around big wholesalers.

That’s what I think.  Companies like iBasis, Tata and BICS will ultimately be the winners.

Look at some of the consolidations that have already occurred. iBasis took over TDC — Telecom Denmark in terms of international wholesale.  The only thing TDC still does is the Nordic countries, its neighbors to the north.  But the rest of the world is taken care of by iBasis.

Then you have Belgacom taking over Swisscom International.  At Deutsche Telekom retail routing is still done by their internal T-Systems division, but wholesale for silver and bronze routing is completely outsourced to Calltrade in Switzerland.

How are the large wholesalers competing?  What services are they offering to win over retailers?

Certainly one of the most attractive offers is better rates in exchange for getting all a retailer’s outbound traffic.

New services are added on as well.  For instance, instead of manually calculating LCR with spreadsheets, a wholesaler will sell you the capability to do a much better job of routing.  It will enhance your business, protect you against fraud, and help you lower your costs.

Another angle is outsourcing.  If you’re a carrier like Monaco Telecom or Iceland Telecom, instead of having 10 or 15 people working in international voice, why not outsource international voice to a single carrier and you can cut your staff from 15 to 2 or 3 people?  Imagine if you have one big pipe going to one provider, everything is taken care of for you.

What sort of consulting do you do around wholesale?

Dan, these days the wholesalers themselves either have their act together, or they’re out of business.  Either way, there’s not much room for consulting with them.  I focus on helping the pure retailers, particularly the small guys like Malta Telecom, Gibraltar Telecom, and Iceland Telecom.

And there are several things these smaller operators can do to leverage their wholesale relationship.  Here are the things that have the most impact:

  1. Interconnect with fewer, but higher quality wholesalers — A quality interconnect carrier like iBasis can do a lot for a small operator.  They can protect you against fraud, give you reasonable pricing, and make sure your quality is at a high level.

    It’s no use for a small operator to connect with 15 or 20 carriers.  I think 5 or 6 wholesalers is plenty.  It’s a good idea to pick a couple of big ones and you make sure you have them under control and they keep an eye on you in terms of anti-fraud.  Then you just carry on with your business.
  2. Review your current contracts — It’s worth reviewing your current wholesale providers in terms of quality and price.  Make sure they are protecting you from fraud.  Always write an addendum to an existing contract to say: “If there is any fraud, I am not liable to pay for it.” Period.
  3. Pay attention to the details — The other point is simply being a better operator.  When I go in, I speak with the IT team about reporting.  I speak with the carrier relations team.  I speak with billing and technical to see how the routing is done.  And I speak with roaming to see if there are some relationships that can be coupled to make better deals.

So this is how I do my thing.

Great, Jan.  The wholesale business you describe is not a pretty picture, but understanding how the planets have realigned themselves is the first step to coping and capitalizing on the new reality.

Copyright 2015 Telexchange Journal

 

About the Expert

Jan Dingenouts

Jan Dingenouts

Jan Dingenouts is an independent consultant with an in-depth anti-fraud expertise.  He has 27 years of experience in Telecom Sales and Business Development.  His most recent 14 years were in International Voice and Carrier Relations.

Jan also has a successful track record coaching highly motivated teams to exceed their revenue, margin and cost targets.  His consulting and negotiating skills leverage the excellent contacts he has with International Carriers across the Voice & Mobile Data Business.  He also has experience working in multi-cultural organizations.

Jan operates out of his home in Monaco.   Contact Jan via

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