WHOLESALE IP:

PRODUCTIZE OR STEP ASIDE Are white-label packages for wholesale providers to sell to their carrier clients empowering them or creating another layer of competition? by Ross OʼBrien

The wholesale end of the IP value chain is boom- ing although the low-cost retail services fueling that demand mean margins remain thin for everyone in the space. Wholesale providers and their technology partners are looking to a future where wholesale bandwidth is packaged into differentiated services for reselling to retail customers. But how far can a wholesale provider go before it stops being an “enabling partner” for retail clients looking to provision enhanced IP services cheaply, and starts becoming a competitor in the same space?

Despite the boom and their role as the fundamental building block of all next-generation services, wholesale IP services in general are only slightly regarded in the industry space. There is seemingly little to talk about in the “raw” bandwidth market–unless of course you don’t have any. Anyone supplying undersea cable capacity through Asia knows this all too well, as illustrated by what happened this past Christmas. A moderately strong earthquake in the straits off Taiwan severely damaged a lot of the submarine cables serving the region, and the Internet was sluggish to non-existent for many of the region’s biggest IP consumers, like PT Telkom of Indonesia and China Telecom, for days and weeks afterward. “We were hair on fire for a week afterward, and most of the world didn’t even notice it,” says Myrle McNeal, SVP of Voice Services for Level 3 ( www.level3.com). Restoring basic connectivity took on disaster recovery efforts for many customers. “We put up a transoceanic circuit between Taipei and Memphis in five days. This usually takes 45 to 60 days.” Gene Spinelli, VP for International Partners Solutions, Wholesale, at Verizon ( www.verizon.com) adds, “Quite a lot of us had our holidays interrupted, but the MPLS network held; we routed traffic the other way around the world to a fully meshed transatlantic network and had instantaneous recovery.”

So, outside of the core areas, the IP world didn’t even know that these Herculean undersea efforts were taking place, and herein lies the dilemma. Level 3, like Verizon and most of its wholesale brethren, considers itself “a building block provider, maintaining quality of service variables–particularly important in international space,” says McNeal. “We aren’t exotic; we don’t use grey routes.… Reliability is key.” But reliability in and of itself doesn’t sell itself, nor has it much margin, so wholesalers have to climb out the “building block” space to try and create additional propositions for their retail customers.

One area in which McNeal sees his firm “climbing out of the building block space” is in helping retail players meet underserved markets that are costly to provision. The small/medium-sized enterprise (SME) space is often pointed to as one key segment. “Retail providers continue to fine-tune SME offers, finding more things than just hosted VoIP, and in offering a broader bun-

dling including local access, Level 3 can layer on services that companies want and are simple to do. Our focus as a wholesale provider is on giving customers tools to win the business. For the ultimate end user, there is no better value proposition than good quality and acceptable price…. And in many cases, IP-based services today are a lot cheaper, and many companies out there are paying ‘post-divesture’ prices for connectivity services, so people get hooked on price, and only then look at features.”

Sometimes, this simply can’t be done for less, however, if you want to provision real carrier-class services worldwide. “Customers want to buy a suite of services around VoIP and IP, and either they don’t want investment in legacy networks, or they are migrating off of them,” says Verizon’s Spinelli. “Wholesalers’ MPLS networks allow access to multiple countries and possibly overlay some management on top, but when they just buy backhaul, the value-add is less. You might be able to do it cheaper, but with a real carrier-class SLA, this takes a different level of global, carrier-to-carrier relationships.”

Measurable Increases

One facet of the emerging trend toward “productizing” wholesale IP to create high-value (and ideally, higher-margin) offers is in offering “retail” carriers the ability to ensure the quality of their connectivity. Much of this is enabled through testing and measurement tools, but for many, it is difficult to see using routine maintenance gear to create added value. “A wholesale carrier can take many different views of the test and measurement function. Is it a tax? Is it a necessary evil? Or, is it an investment in the future of the business?” says Duane Sword, VP of Product Management and Marketing at VoIP/NGN infrastructure testing and management solutions provider Empirix ( www.empirix.com). “For wholesalers, there is a need in today’s market to prove quality and enable enterprise customers to tell them the quality of their network.”

This last point is significant, for what Empirix is offering wholesalers, according to Sword, is the ability to remain wholesalers. Testing and measuring-enabled bandwidth enhancements are, in his words, “not management services; they are getting visibility into the performance of the aggregation of traffic and passing that visibility onto the end user. Literally. We enable a view of a set of statistics” that carriers can pass onto their retail customers–and their customers in turn. This allows the IP offering to be sold at a premium, and yet still remain a “raw” bandwidth offering so the wholesaler doesn’t step into the managed network services territory (a market space likely already inhabited by many of the wholesaler’s best customers, who wouldn’t welcome the intrusion).