Wholesaling not plain sailing

There is a common held belief that if telcos fail to monetize bandwidth adequately they will be relegated to the realms of becoming a ’dumb pipe’ provider. Once that level is reached it is assumed that they would become a mere wholesaler of network access and forget about the foibles and added cost of maintaining those fickle retail customers who are hell-bent on purchasing OTT products. 

Just now there is no option but to continue to persevere with the retail sector and all the challenges it throws up, but for many, providing wholesale services to larger customers and resellers demanding them is proving to be quite a challenge. According to a damning new report by analyst firm Ovum, wholesale telecoms suppliers are failing those customers.

Worryingly, Ovum’s biennial survey of wholesale customers (2011 Wholesale Customer Survey) found that the performance of suppliers has declined against most of the criteria that matter most to buyers. The service levels, repair times, and product and service features offered by suppliers influence the buying decisions of wholesale customers the most after price, yet supplier performance on all three has declined during the last two years.

In an introduction to the report it is mentioned that an increasing number of telecoms service providers now appreciate that wholesale is a valuable source of revenues that also helps reduce unit costs by increasing traffic volumes. Yet many are in danger of limiting or missing out on revenue opportunities by not responding to the needs of their customers as the financial crisis deepens.

No doubt price pressure and increased competition is not helping. For international commodity services, margins are being squeezed to a dangerous point and on the access side, the situation is even worse as intermediaries find the gap between wholesale and retail prices closing and in some cases even flipping so that retail prices are lower than wholesale.

The report goes on to say that wholesale represents a growth opportunity for telcos but only if they deliver products and services at the quality and price that allow their wholesale customers to differentiate in their own markets. Wholesale customers want specialists that excel within their product sector, providing choice, expert support, and innovation.

For those providing network access and services to virtual network operators, the situation is sometimes exacerbated as the their own retail segments are targeted by the newcomers. For others providing global access to key accounts it often means developing third party relationships with network operators in markets they do not operate in. This adds another level of complication that requires careful negotiation and management of prices and QOS SLAs that can backup any wholesale contract.

The report concedes, however, that wholesale represents a growth opportunity for telcos but only if they deliver products and services at the quality and price that allow their wholesale customers to differentiate in their own markets. Wholesale customers want specialists that excel within their product sector, providing choice, expert support, and innovation. Wholesalers must understand their target markets even better and create business models that are sustainable for buyers as well as themselves.

Finally, the successful operator will be the one that appreciates that wholesale is very different from the retail market – every customer has different needs and priorities. Wow, sounds just as complicated as retail, but with even less margin. Might be time to re-think the ‘dumb vs smart pipe’ and ‘retail vs wholesale’ beliefs.