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Expansive Companies Suffer Due to Upscaling in the Telecom Industry

Most mid-sized companies that operate internationally have moved onto private or public cloud: cloud enables them to tap into foreign markets. And that is where data network connections have to measure up: “no connectivity, no cloud”. The “bigger is better” trend in the telecom market however is about to make things worse.

Bob Kukic, Solution Architect at Custom Connect

Expansive companies storm the world with a good product or service. They are innovative and use all modern technology available to them, and have, to a high degree, digitized their processes. Reliable data communication is their lifeline. Their dependence on WAN (Wide Area Network) infrastructure results in a greater need for specialist support by the networking company whether it be on sea, in the jungle or in a shanty town.

However, this need is at odds with the demand for “more and bigger” in the international telecom industry: upscaling, bigger clients and more services.

The most important drivers behind this development are:

  1. Decreasing revenue from legacy services: traditional telecom services (telephony, messaging, data connections, VPN etc). Their place is now taken by IP-based services such as Skype, Whatsapp, Viber, etc.
  2. Higher profits from managed applications and managed hosting services as opposed to traditional connectivity services. In order to strengthen their financial and competitive positions, international telecom companies are forced to broaden their service portfolios with value-added services that result in higher revenues than traditional VPN/WAN services. Examples: cloud services, WAN optimization services, managed LAN, SIP trunking, Unified Communications, Video Conferencing and Content Delivery.
  3. Increasing competition due to the consolidation of the international telecom market (Level 3’s acquisition of Global Crossing; Vodafone’s acquisition of Cable & Wireless; and Interoute’s acquisition of Easynet). Everyone wants to seize a good position within Gartner’s magic quadrant. A complete service portfolio is one of the most important prerequisites to achieve that.
  4. The aspiration to increase the company’s value: a hosting or cloud company usually has a higher stock market value than a networking company.

This shift in focus has far-reaching consequences for business operations of international telecom companies. They need bigger and more profitable contracts in order to cover investments in these new services. And they find these contracts in the international enterprise market. In order to mitigate their costs, most international telecom companies outsource their service delivery and sales support teams to low-wage countries.

In addition, many telecom companies struggle with maintaining the quality of broad service portfolios. Complex and fast changing technologies demand a constant focus and specialized teams of experts. These teams have become scarce, and, preferably, are deployed at bigger clients.

What does this mean for mid-sized, international companies? They require a broad portfolio of services and support – from “legacy” to managed services for their small but at the same time complex infrastructures that, moreover, are often required in difficult surroundings and/or in developing countries.

Such VPN/WAN clients that have fewer than twenty international subsidiaries are not of interest to international telecom companies. They prefer bigger companies and are less inclined to invest in mid-sized VPN/WAN clients or think beyond standard solutions. This client group of medium sized, expansive companies receives telesupport from account management teams in low-wage countries, and have only limited access to specialized knowledge.

Expansive companies are confronted with the following options:

  • Accept sub-optimal service and a “one size fits all” approach by international telecom companies.
  • Achieve greater buying power by purchasing several services from an international telecom company in order to receive more attention and better service for a lower price. However, this leads to supplier lock-in and other consequences.
  • Choose a specialized VPN/WAN supplier and make sure there is a healthy balance between the service supplier’s size and one’s own company. Important advantages to this are: direct contact with the client; specialized support; willingness to provide tailor-made solutions; speed; and flexibility.

In short: expansive companies are well advised to fully understand their own business needs first, and then look for a networking partner who understands their specific requirements, is active world-wide and complements their company’s corporate culture. “Bigger is not always better”, also applies to network services!

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