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Darwin be Damned: Avoiding Wholesale Telecom Extinction


By George Grabowich, Arbinet

Financial market meltdowns are not the only global threat we face. For those in the voice wholesale telecommunications industry, the threat has been around much longer than the woes caused by the subprime mortgage mess and the resulting credit freeze-up.

Wholesale telecom has been in the throes of a recession for quite some time. Despite overall high single-digit to low double-digit minute growth in voice traffic in 2007 and 2008, some providers may face the prospects of depression and extinction. To achieve success in an increasingly competitive environment, wholesale carriers will need to manage their businesses with intelligence, efficiency and flexibility.

I am a telecommunications veteran of 28 years and have experience in every aspect of the industry, including domestic U.S. and International voice – both wireless and wireline – and data services. As an employee of Arbinet, operator of the world’s largest marketplace for buying and selling telecommunications capacity, I am in a position to see new trends develop and understand how they shape the overall industry landscape.

Approximately 2 percent of the world’s total international voice minutes pass through Arbinet’s voice termination Exchange annually. More than 1,000 providers buy and sell international termination on thexchange. Arbinet’s customers represent a cross-section of the industry: PTTs; Tier 1 & 2 transit carriers; and small boutique niche sellers from around the globe. At Arbinet, you have the opportunity to see the interplay between carriers, observe the laws of supply and demand on a raw and relentless level in a highly competitive and dynamic environment. In essence, one can see the good, the bad and the ugly all in a day’s work.

International carriers have had interconnections with their primary trading partners around the globe since the beginning of the international dial business. These arrangements, referred to as reciprocal traffic bilateral agreements, were then and are still the basis of a majority of the telecommunications business. These were very rigid agreements, stipulating exacting traffic flows between members over specific periods. It is in the rigidity of these agreements, and the ebb and flow of voice traffic, where the wholesale business began. Commitments with key trading partners for specific traffic volumes created the need for carriers to find external demand if it did not materialize from their own base of end users. Often, traffic came in under or over forecasted demand. Wholesale carriers provided a reserve tank of supply and demand to help fill a provider’s commitments. The alternative was to pay your partners overage/underage fees. Therefore, achieving balance on bilaterals meant optimal cost and maximum margin.

Providers saw the wholesale industry as a complementary and synergistic part of the equation to improve margins and keep revenues growing. Wholesale departments grew and began to buy and sell independently of their PTT/Tier-1 demands. They became revenue and profit generating organizations on their own, while still fulfilling the mother ship carrier reserve tank needs.

Unfortunately, as many things go in life, the good times came to an end as several forces conspired to drive international prices downward. These include capacity overbuilding in the late 1990s, regulatory interventions, competition, technological improvements to infrastructure and network cost elements, growth of wireless, introduction of new technologies such as VoIP and the resulting reductions in transport costs as the public Internet grew to its present size. Taken together, prices started a plunge that follows us to this day.



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