The wholesale Catch-22 and how to break out of it

It’s the wholesale Catch-22 – how can they reduce costs while needing to innovate and invest for growth? Here’s a possible solution.

Although wholesale – particularly international voice – is still a big revenue generator for many CSPs, the traditional wholesale voice market is no longer growing as it used to. Even with a reasonably static cost base, margins are shrinking dramatically, making it a challenging business to be in.

So, as competitive and regulatory pressures persist, we are seeing some carriers finding growth opportunities in new, emerging services such as IPX. Indeed, Korea was the first market to offer commercial interconnected VoLTE services. But this need to develop growth opportunities in a business with very tight margins creates an economic dilemma: how to invest in new developments to support growth when the additional funds needed aren’t available in the core business?

Ironically, this high-pressure environment where CSPs are pushed to reduce costs while needing to innovate and invest for growth makes many of them take the position of doing nothing, particularly when it comes to business support systems. Holding steady is perceived to be a good outcome; maintain the status quo, stand still, do no harm and most importantly, don’t break anything!

This approach is understandable, given those tight margins. But we have found in our work with more than 300 operators around the world that a CSP’s wholesale business is often fraught with hidden costs, and running a costly line of business leaves them even less prepared to implement new services, adapt to rapidly shifting business models and capitalize on revenue opportunities.

In CSP operations around the world, hidden costs are found in inefficient and manual processes, in duplication of activities, and in teams spending unnecessary time on low value, high cost system management tasks and not enough time on strategic initiatives that can grow revenue. Business processes continue to be fragmented across the wholesale business. Revenue leakage occurs because organizations don’t have well integrated, real time access to service or contract data and they are forced to conduct manual analysis rather than rely on automated processes and tools to provide them with the visibility into crucial information required to run their business.

Overall, the wholesale business has become more and more dependent on individuals and their knowledge, to create workarounds and provide band-aid fixes to keep the lights on.

We see this fragmented approach causing three major problems:

• The total cost to manage the wholesale business is much higher than necessary
• Possibilities for optimizing the current business are limited
• Innovation to monetize new business opportunities is next to impossible.

Our experience shows that carriers typically spend around 30% more than they should in their wholesale billing area on infrastructure and operations. In addition to this, we often see a 10% reduction in revenues through lack of investment in modern systems that optimize operations and new business opportunities. This translates into a total negative impact on the bottom line of around 15-20% every year.

The economics also have a human cost. Key resources get disheartened and start to look for new jobs. It’s difficult to excite staff and show them a growing future worthy of all their hard work when they’re spending all their time fire-fighting to keep the old systems up and running and avoid any business disruption.

So how can a CSP move forward in a pragmatic way to modernize and energize the wholesale business? It is possible to simplify the business, significantly reduce cost and focus on driving growth by capitalizing on new opportunities like IPX, A2P, and IoT. We’ve seen other carriers successfully evaluate three key areas:

• Examine the true cost of ownership of the current wholesale business architecture and compare against modernized alternatives. These days, most spending on enterprise application software is going towards modernizing, functionally expanding or substituting long-standing business and office applications with cloud-based software-as-a-service (SaaS). Out of this exercise, you should be targeting a 30% TCO reduction.
• This move can free up valuable and hard-working staff to look at end-to-end processes, gaining visibility into and reconciling information, and closing gaps. Look for automation or outsourcing opportunities.
• The previous two areas provide the scope to focus on strategic options for future revenue growth. Because a modernized SaaS architecture delivers new features frequently and without the need for costly upgrades, it opens up opportunities that were previously not an option.

It’s not all about technology. Although SaaS, delivered from the cloud, significantly reduces the typical CSP’s cost base, it also enables the simplification and modernization of the wholesale business. It does this in two ways. Firstly, it provides the opportunity to examine business processes and offerings, and optionally place responsibility for day-to-day operations in the hands of a specialist. Secondly, it allows for easy integration to the entire wholesale and digital ecosystem to create market leading solutions. With SaaS, upgrades are provided frequently, allowing carriers to access the latest features to adapt to changing business models and quickly launch new services and thus keep ahead of the competition – economically.

Written by Ian Watterson, president of the Americas & APAC Customer Business Unit at CSG International. 

Going to ACC2017 in Cebu? Disruptive.Asia and CSG International will be there exploring these and other issues facing the wholesale sector at an exclusive breakfast roundtable at Shangri-La, Cebu Cowrie Cove, on September 14: The wholesale revenue dilemma – chase the new or protect the old? Breakfast starts at 0800 and the discussion starts at 0830. Contact Jebb Lewis for details. 

If you haven’t registered for ACC2017 yet, you can do that here. To get USD50 knocked off the ticket price, use this code: GCOMAAAKYVRRJA.