B2B Telecoms: Agile Resellers Outpacing BT...

Here at Tech-Research we’re starting a series of interview-based blogs on selected topics – with key industry decision-makers, influencers and thought-leaders. This month’s blog looks at life from the perspective of the Telecom Reseller, with additional market data from Cisco’s (Visual Networking Index) VNI forecast.

The UK Telecoms Landscape
The fundamental shape of today’s UK telecom market still has its origins in the opening out and deregulation of the telecom market in 1984 when BT was privatised. However, the competitive landscape was slow to change and, as late as 2004, BT still had a stranglehold on both the retail and wholesale telecoms markets with, respectively, 60% and 80-90% market share.
However, competition in the UK telecoms market has become increasingly fierce, with companies such as Level 3 Communications, Virgin Media, Cable & Wireless and Easynet now owning their own fibre networks (and even small, new entrants emerging such as Gigaclear). This is supplemented by a whole other tier of telecom operators (with no network infrastructure of their own) who buy wholesale Telecom services from the likes of BT. And, on top of this there are the mobile networks operated by EE, O2/Telefonica, Vodafone and 3 creating a multi-segmented and multi-tiered telecoms marketplace .
Industry figures from Ofcom illustrate that in the five primary telecom segments, there is very little, if any, market growth. The only growth appears to be in corporate data services and retail mobile.

The B2B Telecoms Market
Examining in more detail the B2B telecoms space illustrates the quantum changes that have taken place since 1984. In the period from 1984 to 2004 there appeared little change as BT continued to hold onto a dominant market share of 80-90%. However, since 2004, BT has lost significant market share. Indeed, although BT remains a major player in the B2B market, it can now only lay claim to a 22% penetration in the SME business market, i.e. 1 million customers from a total of 4.5 million UK SME businesses (although 90% of these have less than 50 employees); and, it has lost a significant share in the local government market. One of the contributing factors here has been its inability to compete with a whole raft of third party resellers that can offer tailored, hands-on, local coverage and expertise beyond BT’s scope. 

Today’s Voice & Data Reseller Services
So, what makes a typical, non-BT reseller so successful? To understand this you need to look at the range of services available to their SMB, Enterprise and local government customers. This includes a whole range of services, from simple broadband, to fibre-based broadband, to dedicated leased lines; and, to MPLS and packet switching networks, i.e. anything to do with “IP transport”. Within this mix there are other, additional services that are increasingly being offered, for example voice over IP, wireless services, data back-up, real-time CCTV, encrypted email and remote network monitoring tools amongst many others.

“BT has now got its act together on pricing but they just can’t offer the flexibility that we can, nor the service levels that our customers expect.”

Taking a look at how resellers have traditionally differentiated their offerings from BT it is clear that price was a key differentiator; however, in the words of telecom resellers out there in the market...
So where is the battleground now? Listening to the telecom resellers we spoke to many regard BT as lagging behind on client management and flexibility (ease of doing business with); circuit/network reliability; and, support and service levels.
Examining service levels on fault reporting it is not uncommon to find telecom resellers quoting 24/7 coverage, with a 2 minute call pickup response time and an average fix time of under 2 hours - based on local UK call centres; for more complex faults, where an on-site engineer is required, then fix times are typically within 24 hours.
Another key differentiator, which has been the case for some time, has been broadband contention rates, with BT lagging behind with levels of up to 50:1; this compares with competitive contention rates of anything as low as 7:1.
Overall, the reseller is typically quicker, more dynamic and more flexible, with an ability to choose the appropriate supplier, with the best service for each product offering they make. An independent reseller will also have the ability to benchmark various suppliers to keep their prices competitive – offering the best of both worlds. 

Outlook: Data Driven Applications

Asking the telecom resellers their views on the business outlook it would appear that telecom services demand remains relatively strong. But, what is driving this demand? It’s difficult to say because “on-the-ground” visibility, from within the reseller community, is low. What they can see though is a continued growth in customers’ data and bandwidth requirements. To support this Cisco’s Visual Networking Index (VNI) forecast states that global IP traffic has increased eightfold over the past five years, and will increase threefold over the next five years, thus mirroring what local telecom resellers in the UK are seeing.

Global IP traffic has increased eightfold over the past 5 years, and will increase threefold over the next 5 years…

Source: Cisco VNI, 2012

At the macro level it is not difficult to see were the data demand is coming from… as Gartner states in its “Nexus of Forces” headline message, this is based on four key technology areas: cloud, mobility, big data and social. Interestingly, these aren’t trends that the Telecom reseller community can tangibly traced back to growing bandwidth requirements. They are seeing incremental interest in “point” technologies such as VoIP, wireless, etc. So, although there are clearly market changes taking place, such as growing demand for cloud-based solutions, this still does not account for the spurt in growing bandwidth requirements.

VoIP is clearly a possible driver and demand here is growing, but bandwidth requirements tend to be relatively low. Video conferencing would appear to be another likely candidate driving bandwidth demand however there doesn’t seem to be much evidence yet within today’s markets. Indeed, talking to the Telecom resellers we spoke to they are not yet seeing video as a primary driver for growing bandwidth demand - the exception being in local government where there is increasing demand for real time CCTV applications. This contrasts sharply with Cisco’s VNI forecast. 

Cisco VNI 2012 forecasts:

• Business IP traffic will grow at a CAGR of 22% from 2011 to 2016.
• Business Internet traffic will grow at a faster pace than IP WAN. IP WAN will grow at a CAGR of 18%, compared to a CAGR of 23% for fixed business Internet and 66% for mobile business Internet.
• Increased adoption of advanced video communications in the enterprise segment will cause business IP traffic to grow by a factor of 3 between 2011 and 2016.
• Business videoconferencing will grow six fold over the forecast period. Business videoconferencing traffic is growing significantly faster than overall business IP traffic, at a CAGR of 48% between 2011 and 2016.
• Web-based videoconferencing was 56% of total business videoconferencing traffic in 2011. Web-based videoconferencing will grow faster than overall business videoconferencing, at a CAGR of 45%.

So, what is really happening out in the marketplace? Perhaps, customers are absorbing and future proofing their bandwidth requirements with as many “fat pipes” as possible? Who knows, but it would seem that the typical telecom reseller cannot truly see where the application demand is coming from. Regardless, the bottom line appears to be that for continued growth network reliability and service levels remain the critical factors, even over price, in selecting telecom services. To many businesses, the criticality of their broadband connections means higher costs are fully justified based on the need for higher levels of SLAs to ensure the highest level of continuity for their voice and data services; the opportunity cost of lost business through downtime is just too great.

Near-Term to Long-Term Future Trends
Despite the economic climate, many telecom resellers remain relatively confident about the market. So, although they are seeing quite dramatic reductions in cost per MB/s, as bandwidth becomes significantly cheaper, they are ramping-up bandwidth speeds for their customers. Even leased lines, for example, have dropped dramatically in price over the last 24 months, from anything up to 75%, with the expectation of further drops in the next 6 months. Basic broadband prices are also falling dramatically with clients now looking at 80MB fibre broadband at the same price as an 8MB line would have cost 12 months ago.
However, as our world becomes increasingly connected, then the concept of the “Internet of Everything”(IoE) becomes more visible, with opportunities to extend telecom services into the world of M2M (machine-to-machine) data services.

Traffic from wireless devices will exceed traffic from wired devices by 2014… Source: Cisco VNI, 2012

Indeed, with only about 10 billion of the 1.5 trillion things currently connected globally (source: Cisco VNI, 2012), there is a vast potential to connect the unconnected via the Internet of Everything. Cisco estimates that 99.4% of physical objects in the world are still unconnected…  Thus, there is vast potential to connect the unconnected, via the “Internet of Everything”. Source: Cisco VNI, 2012

This vision of an “ultra-connected“ business and societal world, via the Internet of Everything, suggests that we are only just at the beginning of a mega data revolution. However, to realise this vision, the data network providers (and their partners) need to gear up both their infrastructures and skills to deliver on the potential benefits of a truly online world.
The IT and Telecoms marketplace could be an interesting place to watch over the next 10 years...

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