European Wholesale Telecoms:

Sizing the Opportunity

Jan Hein Bakkers
Angela Salmeron

James Eibisch

 EMEA Telecoms and Networking

 June 30, 2010

© IDC
Copyright IDC. Reproduction is forbidden unless authorized. All rights reserved. 10/13/2010
Agenda

Introduction


Wholesale Access Services



Wholesale Voice Services



Wholesale Data Services



© IDC 10/13/2010 2
Introduction
Wholesale is an increasingly important


segment for many major operators,

generating up to around 20% of group
revenue
Regulation has put more emphasis on


wholesale segment
IDC analyzed three key segments, worth


$75.5 billion in revenues in 2009:

§ Access
§ Voice
§ Data

Total = $75.5 B

© IDC 10/13/2010 3
Agenda

Introduction


Wholesale Access Services



Wholesale Voice Services



Wholesale Data Services



© IDC 10/13/2010 4
Wholesale Versus Retail

Wholesale Markets Associated Retail Markets

Wholesale Line Rental Traditional Fixed Voice

Wholesale Broadband DSL simple resale

IP Voice
Access DSL bitstream access

Naked DSL

Wholesale fiber access Broadband Access

Unbundled Access Full Unbundling TV

Line Sharing

Subloop Unbundling
Data services (e.g. IP
Fiber Unbundling VPN, ethernet services)

© IDC 10/13/2010
Regulation and Broadband Have
Driven the Wholesale Access Market

© IDC 10/13/2010 6
Wholesale Access — Status by
Country, 2009

Bubble size indicates market size in revenues

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Access — Market Outlook
§Market contraction in retail voice
§Slowdown in growth in retail broadband access
§Next generation access drives wholesale broadband access
§Regulation inhibits retail market for next generation access services,
§...but will drive the role of wholesale in it
§LLU business model will come increasingly under threat
§Consolidation is wild card

© IDC 10/13/2010 8
Access — Essential Guidance
§Next generation access will drive wholesale broadband access
§LLU operators need to develop long term strategies
§For owners of access infrastructure, wholesale should be more
than just regulatory obligation
§ Strong wholesale portfolio can improve position against other
infrastructures
§ Wholesale services can improve business case for next generation
access
§ Cost based, regulated prices improve predictability of revenue
streams

© IDC 10/13/2010 9
Agenda

Introduction


Wholesale Access Services



Wholesale Voice Services



Wholesale Data Services



© IDC 10/13/2010 10
Wholesale Voice Markets and
Associated Retail Markets
Wholesale Voice Markets Retail Voice Markets

National Voice National TDM Calls to

Fixed/Mobile National Numbers
Interconnection Services
National VoIP Calls to
qTermination, transit Fixed/Mobile National Numbers
qTraditional voice, VoIP and mobile voice
q National Mobile Calls to
Fixed/Mobile National Numbers

International TDM Calls to

International Voice Fixed/Mobile Numbers
Interconnection Services International VoIP Calls to
Fixed/Mobile Numbers
qTermination, transit
qTraditional voice, VoIP and mobile voice
International Mobile Calls to
q Fixed/Mobile Numbers

© IDC 10/13/2010 11
New Wholesale Business Models
Expansion to non-voice services.
Partner of choice for managed
services at a global scale.
International partnerships (incl.
traffic outsourcing) to global
carriers with scale
Convergence, NGN architecture,
interoperability services, IPX
platform
Operational efficiencies: voice
routing; common infrastructure to
support new IP and multimedia
services
© IDC
Move up the value chain …

§From traditional voice interconnection to
innovative wholesale IP-based services
(including non-voice services)

§Transition from a minute/kbps model to a
consumption/seat wholesale model
(packaging of voice/data services)

§Pioneering wholesale carriers aim to
become partner of choice for managed
services
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SWOT Analysis — European
Incumbents
STRENGTHS
Extensive local network and
interconnection services
 State-of-the-art network and ability to
introduce innovative services
Extensive global on-net and off-net
coverage
OPPORTUNITIES
Partnership, alliances for economies of
scale and improvement in cost structures
IPX platform, interconnectivity services
Development of bundles, value added
services and voice managed services
 competitive environment
© IDC
WEAKNESSES
Pressure on profitability: capex for the
build out of new networks vs
maintenance costs for legacy networks
Large legacy customer base and
revenues to protect
Wholesale services are heavily
regulated in some instances
THREATS
Emerging players competing in price
and creating disruptive business
models
Negative impact on wholesale tariffs
Consolidation and aggressive
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Wholesale Voice — Market Outlook
§Wholesale voice traffic volumes will remain barely flat in 2009–2014
National voice traffic volume is expected to be well sustained despite the threat of alternative
technologies (SMS, email, IM): new opportunities in remote and flexible working
Healthy growth in international wholesale voice traffic from wireless operators and voice over
broadband (VoBB) players

§Pressure on voice termination rates and aggressive competition (mainly in

international and wireless voice) will bring overall revenue down

© IDC 10/13/2010 14
Agenda

Introduction


Wholesale Access Services



Wholesale Voice Services



Wholesale Data Services



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Data — Scope of Coverage

§Fixed-line wholesale data services:

§ Capacity — e.g. SDH/PDH private line, Ethernet private line,
wavelength services
§ Managed network services — e.g. wholesale IP/Ethernet VPN
§ IP transit

§Excluded:
§ Non-wireline services — e.g., microwave backhaul
§ Infrastructure — e.g., dark fiber/ducts
§ Network outsourcing, transformation
§ Pure play CDN — e.g., Akamai
§ Standard reseller channel


© IDC 10/13/2010 16
Data — Trends

§Volumes and pricing

§ High growth in volume persists, driven by Internet, video, mobile,
private networking and, in the future, cloud. Highly competitive
market in Europe: legacy pricing down but fairly stable; Ethernet
pricing varies considerably, declining strongly overall.
§Migration patterns
§ SDH to Ethernet migration in progress. Long-term migration to
packet circuits. Move towards wrapping wholesale as a managed
service.
§Interconnection
§ Ethernet exchanges becoming significant. IP transit will evolve.

§Supplier landscape
§ Scale will dominate mass market but niche players will remain.


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Data — Market Outlook

§Combination of volume increase and price decrease results in modest

growth in wholesale data revenues overall.
§Carriers should make a positive decision whether to target wholesale
actively (and so develop scale, wholesale managed services, sales —
marketing) or not; both are valid options.



© IDC 10/13/2010 18
Suggested Reading
§ EMEA Wholesale Access Services 2010–2014 Forecast and
Analysis (IDC #BT03S)
§ Western European Wholesale Voice Market Analysis (IDC #HP02S)

§ Western European Wholesale Data Services 2010–2014 Forecast

and Analysis (forthcoming)


© IDC 10/13/2010 19
Questions?

Jan Hein Bakkers

jbakkers@idc.com

Angela Salmeron
asalmeron@idc.com

James Eibisch
jeibisch@idc.com

© IDC 10/13/2010