Judy Reed Smith

Lucky ’13 Stateside Wholesale Forecasts

What a year we experienced in 2012. Mergers, new wireless network builds, new smartphones driving even more data use, the US economy clawing slowly upward (except when jitters over Europe sink the market), more patent suits over innovation ownership and unquenched thirsts for Ethernet connections. 2013 won’t be easy, but our outlook calls for continued shots of opportunity.

1. Wireless’ unquenched thirst for Ethernet
Wireless backhaul has been the wholesale growth engine for several years thanks to increasingly data-hungry smartphones, apps and users. In 2012, Ethernet accounted for 25% of the wireless segment’s wholesale spending. In 2013, fibre builds will continue, although with slowing growth and fewer greenfield opportunities. AT&T and Verizon have many more connections to transition to Ethernet, Sprint and T-Mobile have large new builds, and many other players are in the game. By 2017, wireless buyers will contribute about half of total wholesale local transport revenue, according to ATLANTIC-ACM projections, with 60% of that portion being Ethernet.

2. Ethernet over copper
Ethernet over copper (EOC) will continue to offer smaller players a strong product to compete with incumbent private lines.

3. Opportunistic consolidation
Carriers aiming to expand their on-net presence will continue to watch for Zayo-like horizontal acquisitions to add network breadth. (Players such as DukeNet, US Signal, Alpheus, XO, DukeNet, Integra and tw telecom are likely to have been approached other carriers.) On the scope side, carriers seeking better customer-site penetration will deepen their product lines with Verizon/Terremark-like vertical acquisitions that expand services and make sales “sticky.” For companies pursuing expertise and customer bases, watch for CLEC purchases by companies like Comcast, Time Warner and more as the FCC has lifted restrictions on CLEC purchases by cablecos, delivering new possibilities for these cash-heavy companies as they pursue larger business customers.

4. Partnerships open new distribution doors
Wholesalers targeting larger customers often partner for enhanced product distribution opportunities in vertical segments (think Sprint’s M2M partnership with Chrysler or Verizon’s cloud resale partnership with with Princeton Hosted Solutions and Cornerstone Telephone Company.) Wholesale, white label infrastructure-as-a-service will resonate with equipment-based value added resellers and independent software vendors, while wholesale mobile solutions appeal to original equipment manufacturers integrating connectivity functions in their latest devices.

5. Mobile reseller growth
Sales process simplification, particularly by Verizon and Sprint, has enhanced wireless opportunities for resellers, CLECs and incumbents without wireless properties. Better handsets, including smartphones, m2m possibilities and a range of price points have enhanced these opportunities. As growth comes new handset and services demand, government-supported distribution at the low end, and the stickiness of selling wireless contracts with other services, a broader population of resellers can pursue wireless wholesale. Growth in this segment, which was 28 % from 2011 to 2012, will continue at a still-healthy rate of 13% from 2012 to 2013.

6. Small cells offer emerging possibilities
To date, small cells have been more bark than bite, but major deployments this year promise new avenues for wholesale backhaul growth.

7. Regulation drives voice market change
FCC intercarrier compensation rules that reform TDM-based voice pricing/carrier compensation and set standards for IP-based minutes will alter the wholesale voice landscape. ATLANTIC-ACM expects US wholesale LD voice to decline by a CAGR of 19% from 2012 to 2017, with further declines as the industry moves to bill-and-keep in 2020. As a percentage of total wholesale revenue, all local, LD, and international outbound revenues will drop from 33% in 2012 to 21% in 2017. Furthermore, regulatory changes will create a harsh environment for sub-scale, third-party wholesale voice providers that do not own end users, driving consolidation among these providers over the next five years.

2013 offers wholesalers another year of shrinkage due to price pressure, technologies offering more for less, mergers old and new, and moves to on-net provisioning. Wholesaler leaders have faced these conditions for years and will continue to manage their departments to creatively seek new markets, verticals and extensions into managed services to solidify and stretch pressured revenues.

This analysis originally appeared in Capacity Magazine

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