Wholesale Changes

The wholesale market never was the sexy side of the business — particularly after the telecom bubble burst and bandwidth was abundant and cheap. But the continued expansion of business data usage has gradually chipped away any bandwidth glut, and growing demand for wireless backhaul promises new appreciation for fat pipes.

Wholesale also is changing in a more fundamental way, becoming more about services, including managed services, and less about providing bandwidth or wavelengths.

“I think the wholesale model and the business is changing, and it is changing because customers are demanding changes and the conditions are changing,” said Roland Thornton, executive vice president of wholesale markets for Qwest Communications. “Wholesalers will have to change or lose out on opportunities. The days of providing big pipes and thinking that is your business model — those are gone.”

The change has not been sudden. Back in 2007, John Romagnoli, analyst with Yankee Group, was advising wholesale providers to develop a managed services strategy, noting that “now more than ever, wholesale solutions must do more than connect the dots on a network map; they need to support solutions that deliver critical applications to end users.”

Earlier this year, Yankee Group predicted the “global market for selling managed network services to fixed and mobile telecom operators will triple during the next five years and be worth in excess of $27 billion by 2012.”

Many wholesalers say market trends are pushing them in that direction.

“I definitely believe that we are seeing where people want to go beyond access to network features and functionality,” said Bill Ferraiuolo, senior vice president and general manager of wholesale services for Covad. “It's a combination of a number of drivers. The economics of the times are one driver. People are saying, ‘How can we control costs, manage costs? Or swap a fixed cost to a variable cost? That helps, as my revenue may be variable as well.’”

In other cases, the service providers and resellers buying the wholesale service want to get a kind of feature functionality more quickly than they can deploy themselves. “They'd like to buy versus build, as the pace of demand for higher bandwidth and feature functionality grows,” Ferraiuolo said. “It's easier and preferable.”

Global Crossing, which in November announced the extension of its managed services portfolio to the wholesale market, found itself drawn into this approach by its customers, said Frank Piotrowski, its senior product manager.