Wholesale network operations, or just ‘wholesale’ for short, has often been characterized as one of the least interesting components of a major telecommunications network. Since no network, no matter how large it is, has all the reach its owners and customers want all the time, every operator needs to regularly buy and sell capacity with every other operators. But what’s game-changing about that?
I joined the annual gathering of network executives focused on wholesale operations recently, International Telecoms Week in Washington, D.C.. There I saw first-hand the long-standing practice of wholesale “bilaterals”: simple tables set up in the basement of a large hotel (see below), where operators negotiate one-on-one (or, more typically, two-on-two) to insure their network reach and capacity. A bit weird if you haven’t seen it before, but it certainly doesn’t look like it’s any part of a cutting-edge change in the global network infrastructure.
Bilateral tables in the basement at ITW 2010
I’ve assumed for the last year or so that there aren’t that many interesting Anywhere issues within wholesale. But YG thought leaders Camille Mendler and Wally Swain have been telling me that Anywhere has big implications on wholesale. I was wrong, and they are right. Sally Davis at BT Wholesale first began to open my mind, as I mentioned in an early post. But here are two reasons, straight from ITW, why I now know she, Camille and Wally are all correct:
1. Wholesale execs have a new job to do. I led a panel of wholesale network operator CEOs while I was at ITW. It meant that I got to fire off a bunch of questions to the CEOs and COOs of the wholesale operations of AT&T, Verizon, PCCW, Cable & Wireless, BICS (Belgacom), Deutsche Telekom, Orange, and Telefonica, including this one: What changes lie ahead for wholesale operations? Their answers were scary in the aggregate: ‘The unrelenting expansion of the network.’ ‘Crushing demand: not just video, but HD video and 3D.’ ‘Consolidation of players.’ ‘More control at the edge of the network.’ ‘Many new business models for providing network resources.’
So I also asked, What do you have to do as a wholesaler to be successful? Answers included, ‘Move fast to IPv6.’ ‘Accelerate our investments.’ ‘Acquire more reach.’ ‘Customize our services’. ‘Learn what M2M service providers need from wholesalers.’ None of this sounds like business as usual — the bulk trading of indistinguishable bits — and in fact it all fits into the transformation imperative for network operators: to build the Anywhere Network of the future.
2. Commodification of bandwidth can automate capacity exchange. Wandering the booths at the event, I stopped at Nytex. Their big screens (below) looked like something from the floor of the NYSE or the Chicago Mercantile. In fact, that’s the big idea – making a public marketplace for trading wholesale network capacity, in the form of minutes. The firms bills itself as ‘the world’s first neutral international telecommunications commodity exchange’.
Nytex lets operators trade network capacity by referring to a standard quality
It works due to a core innovation in the Nytex system, because as co-founder George Metrakos says, “not all network minutes are alike.” Quality matters, and larger operators are less enthusiastic about buying capacity from smaller operators in emerging markets if/when their network quality is too low.
Nytex established the idea of a ‘reference minute’: a minute with a particular quality level. That serves as an index point; operators who want to buy or sell capacity can describe their appetites or assets in terms of quality, and adjust their bid and ask accordingly. The active trading is now one year old, and progressing nicely; one consequence is that it helps larger networks, such as European carriers, extend networks via deals with much smaller carriers in emerging markets that they might otherwise not be willing to risk business with; knowing the capacity and having the price adjusted for it de-risks their decisions.
But this is scary stuff, because acknowledging the need for a real-time exchange for network capacity means agreeing that in many ways, that product resembles commodity products like oil, gas, pork bellies, and more.
So why is it a proof point that the Anywhere Network implies the reinvention of wholesale? It shows that technology advances are helping submerge the human-centric, inefficient and uncertain approach of the basement bilateral tables, making the bit-trading aspect of wholesale more efficient. Thus the CEOs who spoke so passionately on my panel about the huge changes flying at their teams, giving them big challenges to step up, can actually hope to free up management capacity to make it happen.
Will they? Those are some of the very questions Yankee Group needs to be asking. One question for now: How long will the old-school bilateral tables last? Perhaps all gone by 2013? Any predictions out there?
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