Key Market Changes in International Telecom and Customer Messaging

The international telecom space is changing rapidly as voice and messaging traffic move to IP, consumer costs and carrier revenue decline, and vendors consolidate. Enterprises who rely on the voice and messaging channels for their international customer communications would do well to understand these trends.

In this Communications in Context video segment, CTO of HOT TELECOM Steve Heap, Nexmo Director of Strategic Carrier Relations David Vigar, and Nexmo VP of Wholesale and Procurement Dan Richards provide an overview of the key trends shaking up the telecom landscape.

To read the full transcript, scroll below the video.

Key Market Changes in International Telecom and Customer Messaging (Full Transcript)

Glen Kunene, Editor-in-Chief at Nexmo: So, Steve, maybe you could set the table for us by giving an overview of international telecom that can be the basis of our discussion.

Steve Heap, CTO at HOT TELECOM, a leading telecom research and consulting firm: Okay, you know, it’s always instructive to ask why do certain companies exist or certain types of companies. And in the international telecom space, it was primarily driven by technology, that the TDM structure, that traditional way that telecoms worked, set up an end-to-end circuit for every call.

So if you had a call from London to San Francisco, you had a circuit assigned to you for the length of the call. London to Tokyo, another circuit was assigned. And these were very expensive assets, so it was very important to, in effect, concentrate traffic. And so, you got this hierarchy of carriers that was established with the international carriers at the top of that hierarchy.

Steve Heap, CTO, HOT TELECOM
Steve Heap, CTO, HOT TELECOM

Now, as we all know, the technology is moving very quickly. There’s a massive move to IP, and specifically, voice moving on to IP. And the big difference is that an IP network is a shared resource. There is no dedicated circuit. Instead, you share the global IP network in effect with all the other users, and voice is a tiny share of that. And at some level, transmission is almost free.

And of course, things in the industry don’t change overnight with the structure. But these sorts of changes are actually setting in place what I think will be quite a major change in the players there. And you could say, “Well, okay, why isn’t voice free if it’s across the internet, and transmissions, basically, cost nothing?” Well, it’s a little bit like Netflix. You can get to their service for free, but you need to pay to watch the actual video.

And in the voice world, the equivalent of that is that you need to pay the terminating carrier, the one hosting the customer you’re calling, and you pay them on a per-minute basis. And so, the entire structure is set up to both connect the calls and then manage that payment scheme.

So the technological reason to exist is maybe gone or disappearing, but the financial reasons, the sort of paying per-minute charges is still there, but that is coming down rapidly. Regulators are pushing it down, there’s competition there that the over-the-top players, as we call them, are bypassing the system, as well.

And so, what we have is an environment with falling revenues, falling margins, and finally, some structural changes. Some of the big mobile groups, Vodafone for instance, used to be corporate entities so that they owned all the different operators in different countries. But now that transmission is so easy to put up, in effect, with the IP world, they’re becoming operational and they’re directly interconnecting their own mobile operators, removing even more traffic from the business.

So the end result in what I think is happening in the telecom world is that companies are looking to exit the business. They’re selling their business if they can, they’re merging, they’re consolidating. And probably in the next five years or so, in my view, we could move from 3 to 500 companies, working in this space, maybe down to 10, 20, 30 big companies that will dominate the industry. So, I think we’re entering, you know, a period of very significant change in that world.

“in my view, we could move from 3 to 500 companies, working in [the international telecom] space, maybe down to 10, 20, 30 big companies” – Steve Heap, CTO at HOT TELECOM

GK: Great, Steve. Thanks for that overview. So, before I ask questions directly to what you just said, I’m interested in Dan or David, your perspective on how Steve has presented the current market.

David Vigar, Director of Strategic Carrier Relations at Nexmo: I think that’s a very, I think, accurate overview of what’s going on today and where we expect to see the wholesale end of the market moving to. Obviously, I know Steve’s been talking about voice and I think we see a very similar thing starting to happen in the messaging industry.

David Vigar, Director of Strategic Carrier Relations, Nexmo
David Vigar, Director of Strategic Carrier Relations, Nexmo

The messaging industry, from a wholesale level, is…we’ve always said it’s maybe five years behind the voice wholesale market, and in that, you know, the period of transition where you had a small number of large players who held the assets becoming a large pool of lots of players because the assets were much cheaper.

I think we’re going to move again in the messaging space to a time when there’s going to be a smaller number of very large players. We’re a little bit behind the voice industry, but certainly, I think that the same trend is going to happen there as well.

GK: Okay, thanks. Anything to add to that, Dan?

Dan Richards, VP of Wholesale & Procurement at Nexmo: Yeah, I’d agree with what both Steve and David have said, the messaging industry, its maturation is following the same path that the voice industry did over 10 or 15 years.

So you have saturation of the market, and then heavy consolidation, and then the revenue pressure from the customers, and the price point, you know, the per-minute fee for making phone calls now is a fraction what it was 20 years ago when I entered the market. We’re seeing messaging follow that trend, but I think at a much faster pace. We’re going to reach revenue decline a lot quicker than the voice market did.

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