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July 16, 2012

Are Service Provider Strategies Shifting to 'More Wholesale?'

By Gary Kim, Contributing Editor

One clear conclusion to be drawn from the last decade of change in the telecommunications business is that service provider strategies, which once were quite homogenous, have become more variegated. Some contestants have expanded outside their “home” regions, while others have not.

Some have expanded into wireless, while others have not. Many operate their own video services, while others rely on third party partners. Some want to operate their own application stores, while others would not attempt to do so.

Some service providers focus exclusively on business customers, others are more consumer focused. And those differences likely will grow, in the future.

 Telecommunications service providers need to adapt their business models to a wider ecosystem and make firm decisions about which revenue sources they are going to target within that broader environment, consultants at Ernst & Young have argued.

Among the changes Ernst & Young expects to see, by 2020, a broader divergence in business strategies, based on reliance on “wholesale” or “retail” operations.

Today, a typical “telco” service provider has a split of revenue, roughly half coming from the consumer segment, with the rest divided between business and wholesale operations.

This split could evolve by 2020 into a “smart” operator with revenue dominated by products sold to retail customers or a “lean” model rebalanced toward wholesale service provision. That will, and should, worry most executives.

The “lean” or “wholesale” model assumes a service provider becomes more of a “pipe or access” provider, and a less direct retail provider of services. But it also assumes that more of the retail competition will occur between providers who source their network services from a “neutral” third party.

Current regulatory models in Singapore, Malaysia, Australia and New Zealand are examples of that approach, where all fixed network contestants will buy network services from a neutral third party.

The more speculative approach, for the moment, is an increase in network services sales to application and service providers who use network access and other services to create their own products.

Though many application providers will resist the notion, video entertainment services might well want, at some point, to source network services in ways that improve end user quality of experience, for example. “In general, telecoms revenue mix forecasts point to an increasing shift toward wholesale,” Ernst & Young argues.  

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Edited by Brooke Neuman
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