While exploring the relationship between wholesale strategy and infrastructure investment, we found that some carriers do not factor in wholesale requirements when making infrastructure investment decisions. In these cases, retail requirements (i.e. for consumer and business customers) determine where, when, and what the carrier will build. These carriers can then turn to wholesale as a low- or even no-cost vehicle to drive additional revenue and improve overall return on investment. As a result, wholesale units gain the financial freedom to leverage the infrastructure to meet their customer needs in creative ways.
Wholesale drives network utilization and adds revenue
Some telcos that operate retail and wholesale groups within the same organization use wholesale as an additional channel that can drive extra traffic and revenue over infrastructure completely cost-justified by consumer and business customer requirements. Executives running the wholesale division can take advantage of this by exploiting the carrier’s service portfolio and core infrastructure to address their customer needs quickly and without the burden of investment justifications.
To maximize their opportunity, wholesale carriers must have access to highly reliable and flexible access and long-distance network resources to provide consistent and efficient services as well as guaranteed SLAs. If this is in place, using existing end-to-end resources without regard for their cost basis can enable wholesale executives to become creative with pricing models to reduce potential margin stacking. They can minimize the prices of legacy transport services while building higher margins into their value-added services (e.g. CDN, TDM-to-IP transition, billing, and professional services).
This model can help reinforce wholesale customer loyalty and foster long-term relationships. Wholesale customers can take advantage of the supplier’s ability to speed their time to market and guarantee SLAs based on existing levels of service delivered to retail customers.
Overall, the carrier benefits from wholesale activities to decrease the amount of unused capacity and improve network efficiency. When retail bears the responsibility for network cost justification, wholesale becomes an engine for incremental revenue generation.
This analysis is based on primary research completed while preparing the forthcoming Ovum Wholesale Telecoms report, The Importance of Owning Wholesale Infrastructure.
Migrating Wholesale Services, TE0012-000529 (January 2015)
Carrier Services Units Come of Age, TE0012-000516 (August 2014)
Wholesale Service Structure for 2013 and Beyond, TE012-000464 (July 2013)
H. Paris Burstyn, Senior Analyst, Wholesale Telecoms