Editor's note: This is the second piece in a two-part feature on the changing wholesale telecom services market....
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Read the first part on how Tier 1 operators can improve their wholesale portfolios, "Wholesale telecom services: Emphasize services, not access."
Purchasing wholesale telecom services used to be a straightforward move for carriers, who leased capacity to extend services where they didn't have infrastructure. But today, regional and niche operators who lease wholesale telecom services are doing more than peddling the excess capacity of larger service providers.
Instead, they differentiate themselves by developing specialized services their network landlords couldn't or wouldn't bother to market.
When mobile virtual network operator (MVNO) agreements emerged about a decade ago, companies like The Walt Disney Co. and ESPN invested in wholesale telecom services to become virtual wireless carriers. But many MVNOs slinked out of the market within a few years because the revenue never materialized -- in part because they mostly offered simple access as opposed to market-tailored services. Faced with undifferentiated services, consumers gravitated toward traditional wireless carriers.
But the MVNO business model -- like all wholesale telecom services -- is beginning to change. The emergence of more advanced services, either resold wholesale or developed by the MVNOs themselves as differentiators, is gradually reshaping the market.
"In the past, [wholesale vendors] have been very much focused on a traditional carrier-subscriber relationship development. [Their outlook] was basically, 'You go find another way to get traditional wireless customers for us," said Paul McAleese, CEO of i-wireless, a Sprint Nextel Corp MVNO that has differentiated itself by incorporating wireless services into grocery shopping. "I think their wholesale attitude has changed dramatically by acknowledging there are places where the Sprint brand doesn't reach."
Wholesale telecom services can focus on cultural diversity
The growing immigrant population in the United States is one area where major carriers have fallen down. McAleese said there is money to be made from specialty services for immigrants, such as cheaper calling plans for their home countries or services in their native languages. MVNOs and other wholesale buyers can step in and offer these "things that big carrier would never really do," McAleese said.
"There are really strong wholesale opportunities that focus on groups of ethnicity, which is a growing class in America, but one that is not really focused on and served by a major carrier," he said. "Major brands across the globe recognize there are wholesale opportunities where some brands do a better job [than carriers selling directly to consumers]."
Paris Burstyn, a senior analyst for Ovum, said wholesale customers historically shopped for only dark fiber. Market demand eventually moved onto managed network access, but now carrier customers "are buying applications that run on" their leased networks.
"Wholesale is going to be increasingly more customized," Burstyn said. "We're seeing [wholesale customers] look for more sophisticated services -- including some managed ones, such as Voice over IP and high-speed Ethernet capabilities -- and as a result, it's just getting to be a much more complicated market."
Machine-to-machine becomes part of wholesale telecom services
Wholesale buyers are also differentiating themselves as the market for machine-to-machine services gains momentum. Although Amazon's Kindle delivers services over AT&T's wireless network, Burstyn said consumers perceive Amazon as the service provider.
Car manufacturers building wireless broadband-based services such as roadside assistance into automobiles also represent the new face of wholesale, he said.
"That's the new generation of customers that are going to become increasingly important," he said, adding that wireless wholesale telecom services are "a huge growth market, and it goes beyond just backhaul now."
McAleese agreed, predicting that "future wholesale buyers are going to look different from past wholesale buyers" as the machine-to-machine market matures.
"You look at things like embedded devices," he said. "I see that a lot of this volume is almost going to be in the form of hidden subscriptions or more opaque subscriptions, rather than, 'I would like to buy a wireless phone and buy it from you, rather than Sprint.'"
Wholesale telecom services tie into niche markets
As the private-label wireless brand of The Kroger Co., the second-largest grocer in the United States, i-wireless sets itself apart from Sprint by integrating its MVNO services into the grocery shopping experience and offering it as a value-added service, McAleese said.
Kroger customers can buy prepaid cell phones and service plans off the shelf as easily as bread or milk. Sprint handles all of the support -- network, operations, customer care, billing and authentication.
On the front end, i-wireless has tied its services into Cincinnati-based Kroger's loyalty card program. When grocery shoppers spend $100 at a Kroger store using their loyalty card, they receive a text message indicating they have received free airtime or $10 credit toward their bill for unlimited plans.
The Kentucky-based MVNO recently expanded its offering to include 3G dongles and is launching Sprint's personal hotspot product, MiFi, under its brand. McAleese said he expects i-wireless' wholesale agreement will also pave the way for sophisticated mobile coupon services, which could alert customers to grocery discounts via their mobile devices.
"Today in a Kroger store, i-wireless is exclusively available, so there's certainly a possibility a customer could [choose Sprint instead]. We need to just make our proposition sufficiently compelling for our Kroger customers," McAleese said. "Our great advantage is that we operate at the intersection of the wireless user and their grocery experience."
NPG Cable -- a cable operator that serves about 100,000 subscribers across parts of Arizona, California and Missouri -- recently became a Sprint MVNO to expand its triple-play services into a quadruple play, said Bill Severn, chief operating officer for the Missouri-based service provider.
NPG is testing the wireless service among its employees, anticipating a full launch later this summer, Severn said. With most customers already using bundled services, NPG wants to link its wireless service to customers' cable and broadband subscriptions to push TV and movie content to mobile devices, he said.
NPG customers with HBO subscriptions will eventually be able to load an HBO movie from their wireless devices -- authenticated by its tie to the wireline services, Severn said.
"I think we're moving to a convergence of wired and wireless and portability of content between wired and wireless," he said. "Do I see NPG as a dominant player in the wireless or cellular business? No. But do I see it as a key strategic device platform for us to bundle with our linear product? Yes."
Let us know what you think about the story; email: Jessica Scarpati, News Writer