Within next chapters, we will see how the “Dynamics” of the Telecommunications Industry will impact current wholesale sector and why VoIP and ASP business model has major presence into its ‘five' dynamics forces, which drives the wholesale evolution into new business models for success.
Dynamics of the Telecom Industry
Many authors has theorized about the telecom industry and categorize their inners and behaviour, and one of the most precise work in the field was the “Five Dynamics” concept (Fransman 1998?,University of Edinburg), who summarize into five driving forces the Telecommunications Industry evolution for many years.
The Wholesale sector into the telecom industry was born around twenty years ago as the result of these driving forces, and today such “dynamics” will act again due VoIP technology and ASP service delivery models. Wholesale sector has to evolve to achieve again business performance into the rising of the next Telecom Industry we foreseen, based on packet networks, packet services and at all ‘packet customers' ?. The Dynamics are:
- SPECIALISATION (Quasi-vertical Specialisation)
- COMPETITION (Four kinds of Competition)
- FINANCE (The role of financial institutions)
- DEMAND (Heterogeneous and changing customer demands)
- BOUNDARIES (Permeable industry boundaries)
Specialisation
Telecommunications Industry has evolved from a total vertical integration structure (the same company developed the telecommunications network and manufactured the equipment that it required) towards an ‘Specialist Supplier', both the network and the equipment nowadays.
In late 1980s, the wholesale sector (the carriers), emerged as network specialist suppliers for the new ‘new entrants' into deregulated markets, and hundreds of vendors around the world started to manufacture networking equipment for the increasing demand. Specialisation lowered significantly technology barriers for new entrants able to pay the market price for the technology, and consequently competitive strategies based on ‘network ownership' or ‘advanced equipment availability' were outdated and service providers started to look towards product differentiation, time-to-market and service reliability to succeed.
Unfortunately, during the last 20 years we have not seen major improvements in service differentiation into telephony offers, due the service itself was built within the equipment for an specialised network (able to carry only voice). Fortunately today, thousands of networks are based on packet data (or migrating to) and service creation is (or will be) based on software, hosted into the application servers, and again hundreds of vendors around the world will start to create software to implement such services, and barriers will decrease again for service development and innovation.
The Carriers into the wholesale business will have the opportunity to provide to their customers a more complete offer of services. These ones will be based on their own software developments or third party integrations, while in the past their offer was directly defined by the equipment vendor. This will become a major opportunity and impact into their business models, due carriers will be morphed into a Communication Application Service Provider (CASP).
Specialization Dynamic will enables an additional edge of specialization into the industry (software edge) thus, the vertical integration will be completely broken after this emergence, being specialised companies on every step of the value chain, and no more vertical integration will be seen in the industry.
Competition
Competition between the networks and the services they provide has been till today one of the major drivers into the Telecommunications Industry evolution. In particular, wholesale sector has been playing a significant role into the networks arena, rather than the services itself, due ‘the network was the asset' to compete with the others.
From another side, competition between technologies will impact the wholesale (carriers) due today packed-switched networks can support most of the services offered by telecoms companies using conventional circuit-switched networks, and this emergence of packed-switched networks will be a major force into the industry.
The carriers who implement packed-switched networks will have significant advantages from the others who operates circuit-switched in the way that competition within services becomes a reality, due services in this kind of networks are more related to software development rather to network technology.
Carriers will develop competitive strategies based on product and services differentiation, and packed-switched networks and applications servers will become technology enablers to compete.
Finance
Finance institutions had been influencing Telecomm Industry since the beginning, due the business itself was characterized by huge investments, big market shares and bigger capitalization, influencing in many cases top management, who addressed their strategy towards ‘stock' opportunities rather long term and solid business models. WorldCom crash has been an example of this ‘financial market' pressure and wrong business management.
Today, the networks has been deployed. New scenario in Telecoms enable new players to deploy services over broadband without proprietary network and this new generation business will not be anymore capital intensive, let's say these will be innovation intensive.
Demand
An important characteristic of the industry is the complex segmentation of consumer demand and rapid change in the characteristics that are being demanded, both at the end customer and in the intermediate ones (wholesale customers).
Demand coming from ‘packed customers'? will be significantly different of the conventional telecommunications one, were telephony was the unique service to provide and differentiation was based on tariff-distance paradigm, being today's service offerings closer to data applications rather than telephony. Voice communication (and not old POT telephony) becomes the common feature into several communications applications and devices, but not the unique one.
Messaging, conference, collaboration, web contact centres, etc … requires a common communication format between parties, which is voice, implemented through VoIP technologies. Heterogeneous and rapidly changing customer demands and products are important dynamic influences on the evolving structure of the telecom industry, resulting into a new value-chain.
Telecommunication markets evolution will be driven by ‘packed customers' demand rather than networks, technology or finance, changing many decades rules into this industry.
Boundaries
The fifth dynamic considers the industry boundaries, and how some other industries go into their business, and is probably the one with major influence into near future in the industry evolution.
While telecommunications networks moves towards packet-switching and IP, computer and software industries found several opportunities into telecom, deploying communication applications to end users and supporting packet-voice into not specialized hardware platforms.
Definitively, telecommunications evolution will be dictated by the integration of telecommunications, software and computing platforms, resulting into a more reach industry, similar to an ‘ecosystem' with many relations between each part. Those players will compete for the customer with highly innovation, efficient development and profitable deployment strategies.
Whole Sale Emerging Models
We have seen that Telecommunications Industry Drivers are the forces for the next step of evolution, thus every player into this industry will be influenced by these ones in a way or another.
In particular Carriers (with wholesale business models in place) will have new opportunities into the value chain to evolve towards new business models, with better performance they have, and those Drivers will force them to evolve or die.
Looking at the new value chain we foreseen in the industry, the network and technology are only some parts of the chain, and not the starters ones, and many other competitive assets arise to play with.
Wholesale carriers into the new value chain will have to provide to Service Providers part or complete required chain components. Starting at the development and deployment of differentiated products and services, a complete suit of applications through customer portals, their hosting, network interconnection and operational facilities, leveraging Service Providers with their ‘packed customers' acquisition and retention strategies.
Wholesale carries could evolve towards a more specific specialization into any part of the new chain, developing new business models as a response to new market opportunities. Some examples are:
1. Network service providers (NSPs) furnish network services and hosting centers. The network will host voice and applications.
2. Content delivery providers (CDPs) deliver broadband Internet content in innovative approaches that overcome some of the throughput capabilities of the current Internet.
3. Applications service providers (CASP) offer communications applications over the network to businesses and residential users on a ‘hosted model' paradigm, like IP Centrex and multimedia messaging.
4. Headquarters Providers (HQPs) consist of large enterprise businesses that have adopted wholesale like characteristics to serve their internal constituents as well as their external suppliers and customers.
5. White Label VoIP Application Service Providers, who offer a complete, and fully hosted turn key operated platform to service providers, which includes all the required components to develop, deploy and support communication services for end users.
One of the most interesting dynamics shaping up in the market for hosted VoIP services has to do with wholesale versus retail models for providing such services. The wholesale market model is emerging as an effective way for carriers to get into the hosted VoIP services market quickly, until such time as they can deliver facilities based capabilities. Many different models for this are emerging but it seems clear that participation will include many different types and sizes of carriers. For example, Tier 2 carriers might provide wholesale services to Tier 3 carriers. Some Tier 3 carriers might provide services to ISPs, and new wholesale entrants will shake competition.
Today there is a profitable strategy for service providers decision to ‘Build', ‘Buy' or ‘Rent' required value chain components. The hosted VoIP model follows the ASP concepts and the ‘Rent' alternative helps service providers maximize their ROI, reduce time-to-market, and manage their business with zero technology risk.
Hosted VoIP Drives the Evolution
Hosted VoIP services, such IP Centrex, can offer a rich feature set to end users. This includes not just VoIP transport and traditional business class features but a full array of capabilities for multimedia collaboration, desktop integration, and user-defined communications, all offered in conjunction with communications portal that acts as a “command and control” centre to seamlessly integrate all of this functionality. In addition, enterprises will be able to improve their core business operations as these capabilities gradually become integrated into customer-facing business processes, such CRM.
IDC expects revenue from business hosted VoIP services to reach close to $4.4 billion by 2007, compared with $3.2 billion in revenue from residential VoIP services. In 2008, the market for residential and business hosted VoIP service will total more than $13.7 billion, with business hosted services accounting for $8 billion.
Service providers, current and new entrants, face a number of technology, business and operational challenges in delivering hosted VoIP services profitability, and with the speed and reliability needed to win and keep customers. After service launch, to increase market share they have to open new sales channels, develop differentiated services and be responsive for customer demands. At the same time, service providers need to improve operations margins by simplifying operations, processes and environments, reducing their dependence on specialized vendors and high-priced technical specialists, minimizing the impact and cost of change.
In order to provide hosted VoIP services, service providers have to upgrade their network capabilities to be able to provision the new services. Soft-switches, media gateways, and application servers are all basic building blocs for established players, and for new entrants many other OSS and BSS components are required to compete with product differentiation and time-to-market strategies.
Into this scenario new small entrants, need to realize the cost of opportunity of not moving quickly to capture market share in hosted VoIP services. There are few dominant players at the moment, so service providers with the agility, speed and financial strength to profitably offer hosted VoIP services can create leadership position into their markets.
Wholesale market will provide the required services and solutions to service providers to support their hosted VoIP services. Companies like Level3 and VoiceOne, in the US, Inclarity and VozTelecom in Europe, enable service providers to offer innovative and differentiated hosted VoIP services over a fully outsourced IT platform, maximizing ROI and profitability, with zero technology risk leaving them to focus on their customer needs. This is an example of the announced industry evolution.
