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How to grow wholesale revenues in the Middle East

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It's wholesale's time to profit

Just like the retail side of the Telco business, the strategies, services, infrastructure, customers of wholesale are all changing. Updating the business model, developing the new product offering and adapting to the changing face of the customer is vital in remaining profitable. I recently interviewed two telecom consultants, one from the Middle East and one from the States to see how the wholesale revenues in the Middle East can be grown. 1. Voice 2. Who is the customer? 3. New services 4. Expansion strategy Anna Hadfield Producer Telecoms World Middle East

+971 4 440 2540 anna.hadfield@terrapinn.com

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ebook contributors
Dr. Vishal Sharma Principal Metanoia, Inc. Dr. Vishal Sharma (Senior Member IEEE, Life Fellow IETE) is Principal at Metanoia, Inc., a niche Bay-area firm providing deepdive technical expertise to clients in telecom network- and systems-design and strategy. Dr. Sharma and his team of experts at Metanoia, Inc. have helped players across the telecom ecosystem solve complex problems by providing services in technology strategy, architecture & design trade-offs, product development, hardware/software architecture, & competence building. Dr. Sharma is a seasoned international technologist, telecom industry expert, and entrepreneur with 20 years of experience spanning consulting, industry, academia, labs., and research. Louay Abou Chanab Principal Booz & Co.

Louay Abou Chanab has 15 years of management experience and has spent the last decade focusing on the telecom industry in operational and consulting roles. He specializes in ICT-sector policymaking, regulatory management, and wholesale growth strategies for the communications and media industries, covering an extensive area of the MENA region and some parts of Southeast Asia. He recently formulated a number of ICT, digitization and next-generation broadband policies and strategies. He has also helped clients define and pursue new organic and inorganic wholesale growth opportunities in Middle East and beyond.

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Where should the wholesale carrier focus on growing new revenues?

Louay Abou Chanab Principal Booz & Co. There are four categories for wholesale growth which can be leveraged, depending on the carriers existing capabilities. The first is traditional submarine and terrestrial capacity. International transport deployment still has large potential for growth in key emerging markets. Africa and Asia provide prime targets for deployment, as demand of bandwidth grows at a rate of 90% and 50% CAGR respectively. In more developed markets, route diversity is highly valued and provides an area for differentiation in the traditional transport market. Concurrently, carriers can expand their portfolio of services to

address new areas for growth. Services such as VPLS Ethernet for business access and backhaul solutions, Content Delivery Networks, MVNO, M2M and IaaS provide avenues for growth. In particular, the M2M retail market is forecasted to grow by 66% CAGR till 2014 and cloud based services is expected to make up 2.34% of enterprise spending in 2014, which is then forecasted to reach 14.49% in 2020. Thirdly, wholesalers can continue to expand their existing business into new markets by anchoring into key activity hubs within their region to leverage traffic scale. Finally, inorganic revenue growth through M&A must not be overlooked as it provides a prime opportunity for the expansion of capabilities, in terms of new services and geographic markets.

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Who is the carrier customer? How is the carrier customer changing and what does this mean for the future of the business?

Louay Abou Chanab Principal Booz & Co. The definition of a customer in wholesale is largely dependent on the carriers holistic strategy. Traditionally, licensed operators used to be the sole customer type seeking connectivity services. However, the market as a whole has evolved. Carriers now service international enterprises, content providers and system integrators. The growth of international enterprise is based on three key drivers; the increasing levels of globalization, increasing levels of outsourcing and centralization of enterprise services to the cloud. Accordingly, system integrators, requiring network connectivity from carriers, has evolved as a channel to service this market, which is estimated to reach US 340 Billion

by 2017. Concurrently, as the media market continues to evolve from a pure broadcast model to a more customized on demand model, it provides opportunities for carriers to evolve their solutions to cater for media delivery. Monetization opportunities lie in technology solutions such as content delivery networks (CDN), transparent internet caching (TIC) and service and performance enhancers (S&PE). As such, the whole ecosystem of the wholesale market is evolving.

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How must the Middle Eastern carrier approach foreign markets to grow their business? How does the strategy for going west differ from going east?

Louay Abou Chanab Principal Booz & Co. To grow into foreign markets successfully and in a sustained fashion, carriers must expand into adjacent markets of high trade volumes to leverage scale efficiently. This can then be followed by expanding into non adjacent markets for more strategic reasons. Middle East remains an important link between the east and west. Despite the vast differences between the two regions in terms of liberalization levels and consequently pricing maturity, the opportunities for growth are equally interesting and provide positive avenues for revenue diversification.

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What capabilities should carriers develop to deliver against new growth ambitions?

Louay Abou Chanab Principal Booz & Co. The successful pursuance of growth requires a solid foundation of core capabilities and organizational agility. Carriers need to invest in scalable next generation networks that provide more sophisticated networking solutions at a more efficient cost-base. This optimized network capability is critical to product innovation as it forms a key part of a carrier foundation for all service types. However network evolution should only be part of a carriers broader product roadmap for

new wave solutions. Carriers need also to invest in intellectual capital, such as expertise in key enterprise verticals which provide greater opportunities to monetize elements of the enterprise value chain. As competition intensifies globally, and traditional services get commoditized, customer service and satisfaction would also become key differentiators and a critical element to deliver enterprise solutions successfully.

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Where should the wholesale carrier focus on growing new revenues?

Vishal Sharma Principal Metanoia, Inc. i) Emerging markets Africa, South Asia, MidAsia. Opportunity in a traditional carrier way or developing new services? The first step is just to move traditionally into emerging markets. They may have lower ARPUs, the value is 5-10 years hence the growth in consumers and customer base will be. The volumes will be very big Africa is almost a billion people right there, and excluding some of the more developed parts, theres a huge population of mobile users that is only now coming online. (Only about 250M people lived in developed Africa so well over 750M people are still in developing countries, emerging economies) At the back end, the mobile phone infrastructure runs on traditional wireline networks optical fiber, Carrier Ethernet, IP/MPLS, and traditional telecom gear. This is where the more established carriers, whether wholesale or retail, have the opportunity to provide that infrastructure to get into these markets and provide relationships to other carriers. As more and more people come online and start talking, youre going to need international capacity to connect them to other parts of the world.

ii) New Services over and above just providing capacity. What kind of new services can the carriers offer. There is opportunity to provide services in the form of cloud services. A lot of the emerging markets dont have the infrastructure and the wherewithal to create these kinds of large storehouses of databases and information that a traditional carrier can do. Today, with connectivity you can have your data stored somewhere thats not even local to you. With high bandwidth networks and highcapacity data centers, its possible to have data stored remotely (literally anywhere on the planet). This is where carriers have an opportunity to provide this in emerging markets, where the ecosystem isnt developed yet, so there is nothing that prevents the carriers from moving in, providing that as a service, and thereby getting a completely new revenue stream that hitherto hasnt been there. So, the things the carrier can do is: provide capacity to emerging markets, and then provide services on top of that capacity, and one service they can provide is cloud services data storage over a cloud. The technology, infrastructure and hardware has gotten to the point where you can do that quite cost effectively. Therefore, the revenue on this service is much larger and has much higher margins than in the carriers traditional services.

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Voice is in decline, and data is up. What is the future of the traditional revenues in the carriers business model?

Vishal Sharma Principal Metanoia, Inc. A few years will be in transition. Some carriers have already made that transition of moving voice on to a packet infrastructure. This is independent of whether you are a wholesale carrier or a retail carrier. Data volumes are growing. Packet traffic is much higher than voice traffic. Eventually, youll get to a point where youll take your voice traffic and using SIP gateways and VoIP technology, bring it on to your packet infrastructure, and this will be a beneficial exercise because: i) You get to phase out the voice infrastructure, so the increasing opex to maintain it goes away. ii) Youre going to have a very large data infrastructure anyway, and invest a lot of time, energy, and capital in developing expertise to manage that infrastructure, and voice will be just another service/application riding on that data infrastructure, and this will happen in the next 3-5 years. As you move traditional voice onto the packet infrastructure, you are going to gain back some of the profitability (despite voice revenues/minute being in decline), because you will no longer need to maintain and service some of the more expensive voice/ TDM infrastructure for your voice traffic. When you transition voice to a packet infrastructure, the cost to carry voice as a mere application o

the packet infrastructure will also go down. So the expectation, in my mind, is that declining voice revenues and associated losses can be stemmed as you make this transition. Old days data was an add-on on voice networks. Now-a-days, data volumes are far in excess of voice volumes, so voice will become just an application on data networks. Even in emerging markets, when people come online with their cell phones, they are using the data part of their phones right from the get go. Their data usage tends to climb up very rapidly for stocks, markets, understanding wholesale markets, and so on. Voice will just be another application running on the data carrying, data-centric infrastructure, so the cost to carry that voice will incrementally go down, since youve already made the investments for the data infrastructure. This is a conversation happening across the industry, and has been ongoing for the last 8-9 years. Example: Telus, the Canadian carrier, began this process 10 years ago, to the point that today they have a packet infrastructure that carries all their voice data, their wireless data, and their enterprise data. So, they built a common backbone network starting 10 years back, and have expanded it to the metro and access network segments, and today have a totally packetized infrastructure carrying all their traffic. This is the direction many other operators are going or have gone already (or are well on their way).

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From a Middle Eastern Carriers point of view, which emerging markets are of particular interest to a ME carrier and why?

Vishal Sharma Principal Metanoia, Inc. Nigeria, Kenya, Uganda, Ethiopia, Sudan very poor infrastructure today. But have to deal with regulatory challenges in these markets. And why are these markets attractive: i) Have very large population of users. ii) Users have over a period of time are very conscious of their need to connect and communicate, and are not hesitant to spend a significant portion of their gross incomes on communication technologies. A phone in Africa an cost several 10s of dollars, which is a good portion of ones monthly income. (cheapest is $20 to $100) Huge population of eager users ready to come online provided there is infrastructure to support them. iii) These are not saturated markets yet, so present an opportunity for several years to come to keep expanding capacity, services, etc. in these markets.

iv) In terms of trade and commerce, there will be greater interaction between the established markets and the emerging markets. This increase in trade and commerce will bring requirements not just from the retail customer, the individual user, but from the enterprise customers. At the enterprise level, another very valuable revenue stream for operators. Now you can offer advanced services to enterprises, who want seamless communication between their offices for them to continue to function as efficiently in an emerging market as they are in a more established/ developed market (say ME). So this layer of opportunity is going to be coming soon itself.

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Wed love to meet you too...

Were hosting Carriers World at Telecoms World Middle East this October in Dubai and would love to see you there. Local and international operators will be talking about: How to leverage new technologies to offer new services and drive profits in wholesale How to grow wholesale revenues How to create your core collaboration by leveraging your strengths to attract new partners Show focus After 7 successful years, Telecoms World is back again to tackle the biggest issues that are bursting out of telco boardrooms, to equip them with the tools and strategy to navigate through the changing landscape of increasingly competitive telecoms industry. Telecoms World is the regions leading event for telecom operators to come together and discover how to build the telco agenda, drive industry innovation and create the services of tomorrow. www.terrapinn.com/twme How to navigate regulation and licensing laws How to gain access and extend growth in pivotal markets How to launch your extended footprint in a market full of emerging opportunity

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