Wholesales Trends: 10 for ‘15
As featured in Capacity Magazine
2015 will be a challenging year for wholesale carriers, as was 2014. Traditional services still supply most revenues but they are shrinking and how those services are sold, and to whom, is shifting. New services are taking hold, but not as fast as the hype nor as easily as managers had hoped. Still, clear trends exist that can help wholesale providers navigate 2015. Here are 10 things to count on…
1. Spin-offs and REITS will continue at almost 90s-like speed: Opportunities will exist for the bankers in 2015. The Windstream REIT is looking like a good idea, and we hear others are toying with the strategy. A few will come to fruition in 2015.
2. The merger frenzy of 2014 will continue: Last year’s 3,512 technology deals – valued at $237.6 billion according to Ernst & Young’s Jeff Liu – topped every year on record except for 2000. Look for more of the same throughout 2015.
3. M2M growth: Back in the old days, as in a year or so ago, carriers spurned the fractions of pennies available with M2M, thinking the set-ups and sales were not worth the returns. In 2015, however, the speed at which those fractions add is recognised as a viable route to significant revenue. For example, wireless M2M service revenue is increasing rapidly, shooting to an estimated $1.2 billion in 2014, up from $660 million in 2009. Growth will continue, and we at ATLANTIC-ACM expect it to pass $3 billion in 2019.
4. Selling through, rather than straight to, customers: Carriers are recognising the importance of resellers and many are building those channels. AT&T, for example, touts various electronic interfaces, sessions with accountants or lawyers, as needed, and whatever other support is necessary to expand its reseller route to end users.
5. Application Program Interfaces (APIs) are growing as wholesale carriers enable customers to self-serve product management and integration through increasingly simple interfaces. In our ATLANTIC-ACM Global Wholesale Service Provider Report Card (2015) research, although carriers cited quoting, ordering, and billing APIs as strong tools, they rated network monitoring as most crucial in 2015.
6. Data demand will, happily, continue to grow throughout 2015, driven by increased purchases of smart devices, better quality devices, video on more and more mobile screens, wearables and continuation of near-constant interactions. (I wonder if New York City public schools allowing phones all day will make a noticeable blip?)
7. Ethernet, Ethernet, Ethernet is the refrain for the year as the high-speed and capacity products with lower margins replace higher-margin Tier-1s. We’ve seen revenue growth for Ethernet at 30% over the past year and see the pace of migration picking up. This growth is offset by total local transport declines as carriers find efficiencies, particularly in the wireless world.
8. Cloud: The hype of past years has blossomed into revenue, although not as rapidly on the wholesale side as in the business services sector. Wholesalers need to package their services in alignment with those who deliver cloud-based business suites.
9. Voice: With an expected compound annual growth rate (CAGR) or, rather, shrinkage, of about 12% expected from 2013-2019, the old cash cow is drying up. The decline has been hastened by the Intercarrier reform order (ICRO), terminating access and reciprocal compensation. Growth to offset these declines requires innovations such as Twillio, with API-based voice services earning over $50 million in 2013. Wholesale carriers are taking notice and considering ways to add more API functionality for their wholesale customers (see #5).
10. Innovation required: With traditional products being replaced and competition stiff, new ideas, combinations of products, routes for sales and distribution, and increased efficiencies in every process are the requirements for success.