In our recently published report which discusses the future of international carriers (Addressing the wholesale paradox through digital transformation), we find that international voice traffic declined for the first time by almost 2% in 2017 with revenue dropping by a steeper 4% in the same timeframe. As this trend is forecasted to accelerate, with international voice traffic expected to decline by 15% over the next 5 years, wholesalers can only expect more pressure on traffic, revenue, margins.
Most wholesalers are already suffering from increased competition for the shrinking minute pie and things will only get worse before the market consolidates and things start to improve for the wholesalers who remain.
When we look at the traffic declared by each of the top wholesalers, we see these warning signs. Almost all the top 20 wholesalers transported less wholesale traffic in 2017, compared with 2016. The range in traffic decline is between 2% to 15%, although the few who are also part of the global mobile groups enjoyed traffic growth between 1% and 15%. This only shows the deepening precipice between wholesalers who benefit from captive organic retail traffic and pure wholesalers, who are suffering the most from the international voice traffic decline.
When it comes to revenue over the longer term, the picture is sadly not rosier. Continued pressure on per minute prices and margins mean a forecasted average revenue decrease of 3.4% over the next 5 years for wholesalers.
Of course, things are looking more promising when it comes to A2P messaging (the new golden boy of wholesale) and data roaming, with both segments forecasted to enjoy an average revenue and traffic growth in the double digits over the next 5 years. Nevertheless, the gap left behind by the declining voice revenue (which generates hundreds of millions of dollars for many wholesalers) will never be filled by much smaller revenues generated from data roaming and messaging services.
Thus, speaking to wholesalers from all parts of the world, a common theme comes to the fore. They are facing two major conflicting priorities and objectives to ensure their long-term existence: increasing their revenue, while decreasing their costs. The challenge of addressing both at the same time is considerable, as it requires wholesalers to foster a split personality, which nurture different sets of people, skills, culture, processes, technology and to some extent management approach. Not a small feat.
In part, the solution for wholesalers to succeed in addressing this conundrum, in our opinion, is digital transformation.
Tackling the efficiency challenge
Making the massive improvements in efficiency that are required to compete with perhaps nimbler competitors with less history in this space, while taking reduction after reduction in the cost base of people and facilities, is one seriously hard challenge. Some will continue to tinker with it, but we believe that to truly become one of the leaders in the space will require a transformational approach – a full digital transformation, in fact – that needs to be driven from the highest levels in the organization.
Some technologies are already on the horizon to assist with this – API-enabled interfaces, cloud based network elements, blockchain based immutable system and artificial intelligence driving many decisions that perhaps were either hard coded in the past or manually manipulated.
Far better perhaps to grab the bull by the horns and drive through organizational wide changes that are all designed to treat the network and its associated systems as one entity that is intricately woven into the requirements of both current customers and those that the company is hoping to attract.
Tackling the revenue challenge
When it comes to addressing the revenue challenge, one thing is clear. There will not be one big thing or the next big thing to replace the loss in voice revenue. This will most probably never happen. Instead wholesalers have to gear themselves up to tackle a large number of smaller big things which pooled together will start to fill the gap.
To achieve this and help retail service providers better address their own customers to generate new revenues themselves, wholesalers have no other choice than to start understanding what the end customers require: low cost, flexibility and control. This also means moving away from offering generic voice, data or connection services towards a use-case focused philosophy. Developing solutions for specific requirements and verticals will be the way of the future for IoT and blockchain for example, where carriers will act as platform providers, bringing together an ecosystem of players and partners.
This also means moving their business away from the traditional model towards a more integrated, partner-orientated ecosystem, which also means evolving from a network-centric towards a customer-centric business model.
Tackling the digital transformation challenge
In our view, digital transformation is the way forward for wholesalers to enable this split personality requirement and address both their efficiency and revenue challenges. Reinventing the way they conduct business from top to bottom and moving towards a platform-based ideology can only but trigger the type of revolution required for wholesalers to play a central role in our society’s digital economy.
Through this digital transformation, wholesalers can benefit from the aggregation of customers, suppliers and partners through an ecosystem, resulting into improved efficiency, accelerated concerted innovation, and in many cases, the creation of value and new potential target segments. Additionally, as the world is increasingly one supported by a platform economy, wholesalers should look to capitalize on this to foster a marketplace for innovative service and consequently create channels to new market segments.
Digital transformation is however a significant challenge in itself, as it is all about change. It is about letting go and embracing the idea that everything we do, in networks, systems, services and approaches should be designed in such a way they all have the intrinsic ability to be continually changed.
If you want to find out more about our view of these opportunities and of international carriers’ trends, evolution, market statistics and 5-year forecasts for the voice, messaging, roaming and IPX segments, please see our latest report ‘Addressing the wholesale paradox through digital transformation’
Isabelle will moderate the Corporate Transformation session "Restructuring business models to accelerate digitisation" at the Total Telecom Congress on the 30 October 2018. Find out more here