Where's the value in wholesale?: The phrase 'value-added services' has become a cliche — what does it actually mean and what role will it play for wholesale providers striving to increase revenues? - Value-added Services - Brief Article

Telecommunications International, Jan, 2002 by Sanjima DeZoysa

With the current downturn and increased market consolidation, wholesale providers will need an improved market strategy to survive. As bandwidth prices continue to plummet, will value-added services (VAS) become the new differentiator in this competitive landscape driving revenues and helping maintain and attract customers?

Opinion varies about the status wholesale providers should give to VAS. "There is no proof that wholesale customers will buy or want VAS. The main reason service providers are pursuing VAS is the pressure on the base business," argues Gail Smith, VP of global business for Level 3, which wholesales IP services. "It is not necessarily the right long-term strategy - just a reaction to current market conditions."

In contrast, Helen Stott, PR manager for Europe and Asia at Telia International Carrier (TIC), which provides bandwidth, voice and IP services, claims, "VAS is an important part of our strategy. It will help us enhance quality of service and improve customer retention."

Whether VAS is a 'reaction' to market conditions or a revenue driver is clearly debateable. Definitions are key though in this confused marketplace, especially as so many conflicting statements exist under the VAS banner.

"VAS are services that you wouldn't buy without a 'base product'. For example, a sun roof is a VAS but you wouldn't buy it in isolation without a car," explains Alastair Hall, practice director at consultants, Tarifica, PBI Media (formerly The Phillips Group). "A value-added product is something you get on top of the base product to leverage extra revenue."

Tom Wright, senior consultant at Tarifica, PBI Media, continues, "A VAS would be something like security or firewall protection with a service such as web hosting."

Who needs VAS?

The debate about whether VAS are important in the survival strategy of wholesale providers raises some conflict.

"I don't know if VAS are playing a bigger role in wholesale provider's portfolios in driving revenues," says Tarifica's Wright. "They are still happy to sell bandwidth which is an important product and fundamental enabler of the market."

Although, Tarifica's Hall adds, "Wholesale providers need to provide a spectrum of services - not just pure provision of connectivity."

Level 3's Smith agrees in part. "We are not convinced that the way forward to profitability is through VAS. However, Level 3 is looking at VAS in some areas - maintenance services for customers on our long distance network, for example."

TIC's approach on the other hand is that the carrier wholesale market is about improving its customers' (carriers and service providers) offerings to its end-users through voice and IP-based services. This can be enabled through VAS. TIC claims a growing list of voice and IP-based services, including IP transit, IP VPNs, international voice termination and the Telia Clearinghouse portfolio.

According to TIC's Stott, "IP and capacity have shown the biggest growth in revenue in Q3 2001, whilst the voice market consistently generates a substantial amount of revenue."

Other providers have different rationales for choosing to pursue VAS. Pierre-Louis de Guillebon, vice president of carrier marketing for the Long Distance division of France Telecom, adds, "Our strategy is to use VAS to complement the geographic reach of our network and our portfolio of products."

Guillebon is responsible for the Open Transit range of wholesale solutions. The base products within this range are Open Transit Mobile, Open Transit Internet, Open Transit Bandwidth and Open Transit Voice.

France Telecom's VAS include Multicast within Open Transit Internet. Guillebon says the Multicast service increases the capacity of fibre to carry data and enables a wider distribution of multimedia content that most frequently congest the network. The 'value-add' comes through simultaneously being able to distribute heavy content to a large audience through online video and audio streaming.

In response to whether or not developing VAS is an effective long-term strategy, Guillebon asserts, "VAS will be a major competitive advantage for France Telecom over those that do not offer them: If we can offer VAS at very little extra cast to the end-user we can drive revenue and build up our customer base."

In terms of revenues, he admits that VAS are still a small proportion but he insists "revenues from VAS will increase drastically in the coming years".

In fact, he points to voice as a potential market for VAS. Even though voice still accounts for a large chunk of revenues, there are very few VAS available in that market. France Telecom is developing a new VAS for mobile carriers that will enable end-users, when roaming abroad, to have 'caller ID' functionality.

Survival strategies

If VAS is the survival tactic for wholesale providers such as TIC and France Telecom, what will others that are not convinced by the viability of VAS use?

Level 3's Smith stresses, "Wholesale providers must be careful of cost -- what will differentiate those that make it and those that don't aver the next few months will be financial depth rather than the increase in VAS. We can also differentiate on ease of delivery and quality."