Press Centre

USD 9 Billion Wholesale Voice Market At Tipping Point

London, 11th June 2003 – A new report presents a compelling case that wholesale voice has reached a point of major structural and financial change, and is now entering a period of collaboration that presents a strategic challenge to market players.

The report, “Wholesale Voice – a strategic map for wholesale carriers”, published by BroadGroup, is the first, and most important strategic assessment to be conducted about the future of wholesale voice, and sets out a recommended road map for market players. The report holds key implications for the valuation of the large telco businesses worldwide.

“The status quo is not a realistic option,” states Nick Topham, report author, “and a fundamental strategic response is now required in the wholesale business, to address the changing environment”.

Documenting the decline in the value of the average voice minute by some 85% between 1996 and 2002, the report forcefully argues that the wholesale market – which the report values at USD9 billion- is polarising, and has now reached a tipping point, significantly surpassing the structural changes in the mid-90s to the ITU regulated Correspondent Trading System.

Although wholesale volumes have increased substantially over the past five years, margins in liberalised markets have conversely declined, the implications of which are profound for all players including telcos, aggregators, pure play wholesalers and single route operators.

Structural changes in the market, particularly in terms of the need by telcos to minimise the number of interconnect agreements have resulted in re-entry by aggregators, and in turn impacted termination rates. Compounding this effect, continued liberalisation of traditionally high value countries and regions (India, Sri Lanka, Malta, Eastern Europe) is reducing termination prices and reducing margins.

The US, which remains in heavy deficit on the telecoms current account continues to press aggressively for the reduction of termination rates in all destinations through institutions such as the FCC, World Bank, WTO and ITU-(T).

Collectively, the report suggests these environmental changes demand new strategies and that decisions and actions taken now by principal players in wholesale voice – the telcos – will impact the entire market. The report warns that VoIP players in particular will need to ensure they are strategically well placed to sustain their “out-reach” businesses in non-home markets or face market exit.

Financial models of wholesale voice services are analysed in forensic detail, and demonstrate that the competitive wholesale business of the major telcos, in its current form, is creating a negative drag on the retail IDD cost base.

In proposing business models that can deliver improved margin, the report calls for a re-evaluation and reform of the entire system, as the wholesale voice market enters a new period of collaboration, that must deliver the lowest cost base for retail IDD and improve the absolute profitability of the international wholesale business.

A unique forecasting database for international wholesale voice is additionally offered together with the report.

The report is available from BroadGroup www.broad-group.com Email: info@broad-group.com.

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EDITORS

About the Author
Nick Topham is managing director of Telco Resource Ltd, providing advisory services to clients upon “business turnaround”, acquisitions and market development in the TMT sector and conducting business development activities in developing world markets, primarily in the Middle East and S.E. Asia

His earlier roles include Founder and CEO of Equitel Communications focused on communications in developing markets, prior to which he was Director of the Global Communications and Entertainment practice at Arthur Andersen where he advised service provider organisations internationally on issues ranging from privatisation, valuations and acquisitions to the development of global services. His career has included thirteen years at BT where he was latterly Head of Market Development & Strategy for BT International Carrier Services. Nick was responsible for setting the wholesale strategy for BT in the context of the evolving international telecommunications market. He was also responsible for the strategy, product development and launch of the innovative wholesale refile product, Select, that subsequently carried billion of minutes.

He holds a bachelors degree in Bio-Medical Electronics, and a masters in Telecommunications Business from University College London.