Ovum's most recent analysis of communications service providers' (CSPs') revenues and capital expenditures estimates that their rolling 12-month revenues to the end of 2Q18 reached $3.2tn. The market segment with the greatest growth was internet content providers (ICPs, also referred to as OTT service providers) such as Alibaba, Amazon, Facebook, Google, Microsoft, Netflix, and Tencent. ICPs now account for 40% of total industry revenues, up from 30% in 2Q12. Their growth has been fueled by the popularity of the cloud, e-commerce, and OTT communications services they offer to enterprise and consumer markets. However, ICPs' rapid growth threatens many established CSPs' traditional revenue streams and business models and raises concerns among national regulatory authorities (NRAs) and competition authorities.
Many large CSPs are turning to digital transformation to improve their ability to compete with the flexible and highly innovative digital platforms offered by the leading ICPs. They hope that by lowering their costs and improving their efficiencies they will be able to compete more effectively head to head. They are also merging with and acquiring competitors and complementary service providers to achieve economies of scale. The impact of such developments on the wholesale channel is generally of lower importance to CSPs than on the retail (enterprise and consumer) channels. However, the impact of ICPs on wholesale business units can be considerable.
A growing number of large OTTs are bypassing the international wholesale market by investing in their own infrastructure. Despite these investments, it has become clear that ICPs do not want to become network operators themselves. Instead they prefer to work with existing CSPs to operate and manage this infrastructure on their behalf. The more forward-thinking wholesalers are developing opportunities for collaboration, shared investment, and joint development of new services and infrastructure with ICPs. For example, a wholesaler can manage the use of "spare" capacity over international cables by third-party CSPs to recoup some of its capital and operating costs.
ICPs only choose to invest in their own infrastructure where existing network capacity either does not exist or does not meet their cost and quality needs. Hence, there are plenty of opportunities for wholesalers to sell services to ICPs. ICPs can form a valuable (albeit very demanding) customer segment for wholesalers which can satisfy their needs to host, distribute, and monetize content and applications across the globe. Wholesalers must understand and respond to this segment's demand for highly reliable, keenly priced, end-to-end services. Although ICPs and OTTs are challenging customers and partners that are rapidly changing the shape of the telecoms market, they are only a threat to wholesale carriers unwilling or unable to adjust to the new market for international services.
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