Price vs. quality and ongoing industry consolidation are two major themes shaping the global and regional wholesale marketplace, as glimpsed at International Telecoms Week in Chicago last week.
Price vs. Quality
More than one carrier alluded to a desire not to be identified as a price leader. While that might sound a little crazy, the point in each case was that the operator wants to provide such a high level of quality, such a rich set of capabilities and features, and so much value, that ultimately customers should expect to pay for what they are getting. We noted in a report last week that TeliaSonera feels that way, but TSIC isn't the only one. (See North America Takes Center Stage for TSIC.)
Telstra Corp. Ltd. (ASX: TLS; NZK: TLS), which recently acquire Pacnet , is in the process of altering Pacnet's previous identity as a low-cost leader. "Pacnet has been perceived as a price leader, and we will not go that route," said Martijn Blanken, group managing director and chief customer officer at Telstra. "If a customer wants to make a choice based only on price, we may not get that deal, and I'm fine with that." He added, "That doesn't mean we're going to jack up our prices. It just means that we aspire to a higher quality level. With us, a customer is going to get more than a cheap deal."
The de-emphasis of pricing-centric competition is part of a broader transition in the wholesale space, according to Andre Beaulieu, senior vice president of wholesale, procurement and value creation at Bell Canada. "There is move from old wholesale to new wholesale. The old is about selling it cheaper than anyone else. The new is about getting the right bits to the right location on the right network. It's less about voice and more about content, gaming, digital software distribution -- applications that have their own quality requirements."
Consolidation is nothing new to the wholesale market -- Zayo Group has built an international empire almost completely through acquisition, Level 3 helped its fortunes immensely by acquiring Global Crossing in 2007 and Telstra bought an gateway to China, as well as important SDN capabilities, by acquiring Pacnet. That said, mergers and acquisition are not the preferred growth strategy of all participants.
Colt Technology Services Group Ltd acquired KVH Co. Ltd. last year, but Colt doesn't see M&A as its main method of growth. "We're not like Zayo,” said Falk Weinreich, executive vice president at Colt Group. “We have done more organic growth, and in general that is what we prefer. For that, you need patient investors, and we have them."
Falk's latter statement referred to majority owner Fidelity Investments. The KVH deal, in fact, was more a match of two companies controlled by Fidelity than it was a pure expansionist move -- though it did get Colt into Asia, and may have made a lot of sense in other ways. (See Colt-KVH: A Hook-Up Bound to Happen.)
Colt isn't currently setting its sites on attracting more North American customers -- both carriers and enterprises -- in need of a partner in its European and Asian markets. It has no current plans to acquire its way into North America.
One wholesale operator that has been busy acquiring its way into a larger US presence is GTT Communications Inc. Since last fall, GTT has purchased MegaPath's managed services unit and cloud provider UNSI, deals which came after a handful of other acquisitions by GTT between 2011 and 2013. (See GTT Buys MegaPath's Managed Services Unit, GTT Acquires More Cloud Prowess and GTT Snaps Up PacketExchange for $20M.)
GTT president and CEO Richard Calder said the company is aggressive about M&A when it sees a chance to own valuable capabilities, like MegaPath Inc. 's managed security services portfolio, or gain important new accounts. "We still have a deep funnel of potential acquisition targets to the point of maybe we can do a couple of years if the deals seem right. We do expect to be acquisitive in the future."
— Dan O'Shea, Managing Editor, Light Reading