2014 The rise and rise of the Neo Carrier ?

The last year has seen the real emergence of a new type of user of telecommunications facilities and capacity. Call them Datacentre providers, OTT operators or just part of big data a situation is developing where the companies that have recently been the carriers biggest customers are becoming bigger than the carriers themselves in terms of the capacity they need and the capacity they are trying to source. Perhaps intentionally , perhaps circumstantially these parties are seriously impacting the traditional carrier business model with wide reaching and high capacity networks of their own they are perhaps Neo Carriers This is happening on a number of levels, in metro fibre network build outs, the erosion of the importance of PoPs and their replacement by data centres as natural network nodal points and investment and thus control over submarine cable capacity. The trend began around three years ago when some mobile operators woke up to the fact that mobile data was in some markets overtaking traditional wireline based broadband and internet access but has accelerated as OTT services have flourished and the ever increasing demand for secure data centre space and related services has soared. This represents a real threat to carriers especially those in the unprotected markets of Europe and North America. Traditionally these operators through the aggregated demand for capacity that they managed built and controlled networks and turned their traditional telephone network based central offices/exchanges into; points of presence. Located in key city and business district locations they had a natural advantage in terms of access to local and trunk networks and also an economic advantage through the scale of their operations. But this is now changing rapidly and the old networks are often being replaced with completely new facilities, admittedly the local distribution side is confined to high volume rather than SME/Residential users but that in itself means the bulk of the volume of data transport is headed for data centres which are not typically controlled by the carriers. Trunk networks between these centres have for many years been subject to strong completion as regional or new entrant network providers overbuild on key city pair links. On the international scene the North American and European carriers have already chosen to walk away from a controlling position on Atlantic systems where for example the country with the largest direct influence over capacity and systems is India through TATA and reliance and the systems they own. Some would argue that this does not matter to the likes of BT, Orange Verizon and ATT; they argue that they can buy capacity on demand and do not need to make large upfront and sometimes perceived high risk investments. However while this model has worked in the past because the carriers as the largest users got the lowest costs they are now no longer going to get the best price because other parties need lager volumes than they do . Without control and without the best price position and with major users deserting PoPs for Data centres the traditional economies of scale cost advantages of the carriers is dwindling away and where will this leave them. The huge but diverse market made up of residential customers cannot be relied on as many individuals abandon landline for mobile only connections for both voice and broadband internet.

While this is happening in the European/ Atlantic region it is not necessarily a global phenomenon. In Asia many traditional carriers have a strong mobile arm; regulation is more rigorous and restrictive in terms of allowing carriers carrier operations and the incumbents remain in a dominant position. The most dramatic contrast between policies and strategies though is in the submarine cable arena. In the Atlantic the big carriers have walked away from any direct involvement and therefore control whereas in Asia the sponsors , owners and controllers of the new Supercables are essentially the traditional Asian carriers , the Chinese companies , NTT and KDDi , SingTel etc. They are clearly putting their marker down that if it comes to cost of capacity and access to it they will be the ones calling the shots. While the Asian carriers are investing in brand new technology cables, in the Atlantic the carriers are content to see aging and often ill planned hold overs from 10-15 years ago be propped up by 100g technology upgrades that are economically attractive today but provide nothing for the future. Of course some of the bigger western carriers realise to an extent that something is going wrong. Some have invested heavily in their mobile arms or looked to become involved in the content wars for their triple play services. However mobile itself is reaching a watershed as Android or iOS Apps and the growth of WiFi increasingly supplant the basic voice business and 4G network buildouts demand substantial amounts of available investment capital. In the UK BTs investment in TV rights for various football tournaments and events is close to 1Bn, 25% of the cost of a UK wide fast broadband network; perhaps something they saw as a competitive imperative but hardly the right choice for UK Plc. And not an enduring investment like fibre networking. As the carriers struggle with reductions in economies of scale, consequential losses of high volume wholesale business and loss of control over both customers and the shape of the network will we see one or two new Atlantic super cables built. Funded by specialist infrastructure lenders to connect not PoPs but data centes and with the major users being Google (already in the game) Facebook, Equinix, Zayo etc what the traditional carriers want could be more or less irrelevant. We know from past experience how quickly change can come upon this industry , will we see another dramatic shift where in a few years these big customers become the Neo Carriers and at least in the western hemisphere become the dominant telecom operators .