Strong partnerships help to provide customers with competitive advantages in their markets through faster or more flexible communications, by improving customer's business processes and offering them new product capabilities to sell to their end-users.
It is not profitable to own the network any longer – carriers are moving to leverage networks for higher value services. Customers want managed services, they don't have time, but do want to reduce cost.
Fixed market players drop pricing and increase scale. There is a competition on quality, not price. Although there has been obvious price stabilization this past year. STM-1 monthly lease prices on long-haul routes in Europe have fallen approximately 89% on average since 2000. According to TeleGeography, in 2004 median STM-1 price on routes in Europe declined 18% compared to 25% in 2003. Quality adds 50% minimum to wholesale price. Wholesales market is all about names and relationships – brand does not mean as much in enterprise market as in wholesale. Keeping up your quality means keeping up your name. We should focus on what we do best and of highest quality! In low cost countries global carriers can have their own network – in other places they would just outsource. There are four ways to get to customer: build, buy, lease or partner. Nowadays, networks are used according to customer growing – if there's no infrastructure carrier would rather buy from competitors. Right now it is only reasonable to focus on your pan-region market and ensure global solutions with “technology” partners.
Partnership schemes make a lot of sense in emerging markets – in formerly closed economies – Russia , China , CIS – or niche and exotic destinations. Carrier relationships are not yet set up, markets are growing at unprecedented rates. For example, Russian capacity market is expected to grow at least by 25% in the next 2 years, mobile penetration already exceeded 51%, Internet users will grow 30-40% this year. China became the largest broadband player in the world with 15 million
broadband users expected to grow to 50 million by 2007. We expect the Europe-Asia transit will reach over 2 billion dollars by 2007. TransTeleCom is actively implementing the partnership strategy announcing the launch of the new terrestrial Europe – Asia route jointly with our partners in Mongolia and China .
Partnership will help not only emerging markets, but those who lived through carrier meltdown of recent years as well. Latest developments in carrier market confirm this tendency. A consortium of European and North American carriers is rumored to be seeking to make a bulk trans-Atlantic capacity purchase by the end of 2005. This move will lock in current market prices with long-term IRU purchases and provide these carriers with a hedge against possible future price increases.
Oversupply of funding dropped the market dramatically. The only way out of the better-sell-than-keep model and further pricing disaster was setting up strategic partnerships, and now during the long-awaited period of pricing stabilization those carriers finally need to talk to each other not to repeat mistakes of the past and sell based on cost and market and support the business model of mutual restoration and infrastructure support. Their revenue will be based on liable services to international carriers, network outsourcing, extension of networks, product portfolio. The market now is in the period of preconsolidation – when multiple carriers hunt one enterprise customer.
Enterprises, regardless of size or industry, have concluded that network consolidation for all communication applications onto a single network is inevitable. But here is the reverse side of the medal. There are limitations to what a single provider can do for a customer. Enterprise business requirements, not provider's network topology, determine where the customer network would go. So for enterprises with global operations several providers would be required to deliver optimal network coverage and performance. However, the business realities of network providers to own as much of enterprise relationship as possible has prevented large scale of interconnection from occurring. Despite the indisputable advantages of network outsourcing - economies of scale, predictability of costs, opex not capex, access to skills and competencies, risk sharing, focus attention, access to new technologies and products – carriers are still reluctant to get into tight relationships. Their major concerns are quite fair: loss of control, dependency on supplier, legacy issues, complexity, integration risk, balance sheet impact.
It is important to strictly differentiate functions and responsibilities of all the partners to avoid clash of interests. The period of technology and product segmentation is over - operator differentiation sticks mostly to meeting customer needs.
Partnership strategy always assumes a human approach. Successful winning of deals depends a lot on relationship. There should be a cultural fit between partners, same way of working, credibility, etc. It requires a specific type of employee – someone who is able to act and think as an entrepreneur, flexible, able to understand the partner and different cultures. Above all creativity counts – in routing, back up solutions.
One of major issues in multiple-partner scheme is competition between them on their own markets. Such contradictions can dramatically decrease the actual number of partners. To avoid it, the carrier should support non-interference policy towards its partners and give them equal conditions. Ideally partners' products and services should complement other partners' solutions, not compete with them. This means partners agree not to work directly with other partners' customers, nor have preferences for some partners to the detriment of others.
No doubt there is always a regulation issue, in formerly closed markets in particular. For example, Chinese telecom industry reform is moving, but slowly. However, it is obvious today that after market liberalization in 2007 Chinese regulators (MII, SARFT) will still have tools to protect Chinese carriers' revenue. For example issuing licenses for content delivery will remain SARFT prerogative and retain lots of specific requirements hampering foreign providers' operations in value-added services market. For example, delivery of any online game requires a separate permission. Similarly, Chinese Internet will preserve its specific character due to strict control over its contents. So monopoly of Chinese operators at their market will not disappear for quite a while, and the only way to get to such markets is via partnership.
Carriers seeking partnership relations should meet three major requirements: have their own customer base and leadership at national market, high quality services meeting international market requirements, financial stability.
We see the role of a carrier in a partnership scheme in organizing and setting up partner relations, providing capacity to partners in targeted markets, coordinating capacity pricing for economic and market efficiency of partners' products, coordinating interconnection and maintenance processes, providing marketing support of sales. Two aspects are of primary importance here: firstly, capacity price should support the win-win principle ensuring business efficiency of all the partners. Pricing takes into account both market environment and bonus for high service quality. Secondly, equal terms and conditions should be provided for all the partners in all the regions for the same services of their partner carriers.
About the Author:
Andrey Semin-Vadov joined TransTeleCom in 1999. As Vice President he headed first marketing and sales and later corporate clients relations department.
A. Semin-Vadov has a large work experience in telecommunications companies. Before 1998 he was Sales Director of DeTeSat (satellite operator of Deutsche Telecom) for Russia and CIS; in 1991-1996 - Sales Director of Sovam Teleport (GTS holding, today Golden Telecom) for Russian regions and CIS countries. Andrey Semin-Vadov first in 7 years' history of Sovam Teleport got a prestigious award "Best Seller of the Year" for successful activities in sales. According to the expert rating of the Career Magazine he is one of the top 30 commercial directors in Russia . In 2005, he was elected a Member of International Telecommunication Academy.
