London, 1 April 2007, Mary Lennighan
Virtual network operators tell network owners to leave the mid-size business customers to them.
The relationship between virtual network operators and their network-owning counterparts can be uneasy at the best of times. But as competition for networks business intensifies, VNOs are calling for operators to forget competing for contracts from mid-sized business customers and consider embracing a wholesale-only model instead.
VNOs say telcos can still capture a slice of the business by providing them with network capacity.
Matrix Communications, which has developed from an IT services and integration business, recently won a contract in the UK ahead of Cable & Wireless and BT that had previously been served by C&W, says managing director Andy Mills. Matrix then provided the client with a managed service using circuits across multiple carriers including BT, Cable & Wireless and ntl:Telewest Business.
Mills claims telecoms carriers are not good at serving mid-tier companies with 300–3,000 end-users.
Virtual network operator adapt, which changed its name from MNet last month, found itself in a similar situation recently. Having bid against a telco and won the deal, CEO Peter Knight says he ended up talking to the sales representative at that same telco. “He gets the original order he’s bidding for,” says Knight.
“[Telecoms carriers] don’t see us as a threat any more,” adds Knight. “They are [effectively] partnering with us.”
When adapt wins a contract with a business customer ahead of an operator, that operator can still benefit by providing adapt with the circuits to fulfil the contract, explains Knight.
VNO Vanco says there is already a changing relationship between network operators and their virtual rivals. Carriers such as Orange, AT&T and BT want Vanco to win business because it provides them with a channel to market, said CEO Allen Timpany at a press symposium in Prague in March.
“Without us, asset-based carriers like the BTs of this world aren’t able to service international business,” said Timpany.
That’s not entirely how the telcos see it. In January, Swisscom restructured its deal with Vanco, freeing the Swiss incumbent to use other suppliers.
Analysts at Current Analysis called it “a blow to Vanco” and said: “The first PTT to sign an exclusive deal with it is changing its terms.”
In a separate research note the analyst company says: “[Vanco] has its virtual foot in the door at IBM and channel partners are helping to drive sales, but questions remain over its ability to scale and deliver on the big global deals.”
What’s more, telcos and VNOs will have to compete with bigger international players moving into the European market. Earlier this year, Indian powerhouse VSNL launched a virtual network operator business targeting medium-sized enterprises with 50–5,000 employees and an international presence (Total Telecom, February 2007, p.14). Headquartered in Paris, its directors have backgrounds with big network services companies, including Equant, now part of Orange Business Services.
Some say the growing presence of VNOs in the market can have benefits for all players. “It expands the market, rather than being purely substitutional,” says Cameron Rejali, managing director for products and strategy at BT Wholesale. “VNOs have their own USP.”
Cable & Wireless agrees that VNOs do provide a revenue stream for it currently, but says it does not need the relationship. “I don’t understand the requirement [for VNOs] now,” says Jim Marsh, chief executive for Europe, US and Asia at Cable & Wireless. “The whole emergence of these kinds of virtual operators was simply to be a layer between telecoms companies, who weren’t that good, and the customer, and of course they shouldn’t exist because we can do everything that they do and we’ve got a network.”
Colt has a similar message. “Telecom carriers are definitely well-placed to serve medium-sized as well as enterprise customers,” says Jonathon Howard, head of communications at Colt UK. “As we own and control our infrastructure…we can offer customers much higher quality and better price points than a VNO can in a competing deal.”
Some simply point out that the whole relationship is symbiotic.
VNO activity is increasing, says Rejali at BT Wholesale. And competition is growing on the wholesale side, because telcos that invested in local loop unbundling have entered the wholesale space “and are now selling to VNOs”. Rejali names Cable & Wireless as a prime example.
And some analysts say there is scope for telcos to leave the customer service side to VNOs.
“If the VNO could put managed LAN and network together in a non-standard way such that BT gets a nice network sale out of it at little management cost, then that might make a good business case, at least until 21CN is in full swing and BT can build networks quicker and more cost-effectively,” says David Molony, principal analyst, IP enterprise, at Ovum. “The VNOs have a window of opportunity, but I don’t think BT is going to accept a wholesale-only role medium term.”
© 2007, Total Telecom. All rights reserved
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