Wholesale carrier market emerges from 'cheapest takes all' era

18 September 2003 London Lightwave Europe -- Clear signs are emerging that total value rather then just price considerations are being considered by wholesale carrier customers, according to Charles Zaiontz, Senior VP European Marketing, Strategy and Corporate Development at Level 3 Communications.

18 September 2003 London -- Clear signs are emerging that total value rather then just price considerations are being considered by wholesale carrier customers, according to Charles Zaiontz, Senior Vice President of European Marketing, Strategy and Corporate Development at Level 3 Communications.

Speaking on competing on other factors than price in the wholesale market during the Carriers World conference, Zaiontz uses research from Gartner to show how carriers are seeing the relationship between value and TCO.

Zaiontz's key factors
1. Availability of service
Seemingly small differences in service levels can make a dramatic difference. For example, a service level of 99.999% availability means that service is out only 5 min per year, while service with 99.9% availability is out for almost 9 hours. During those unavailable times, business processes are disrupted costing enterprises significant sum of money in lost business and damaged customer relations.

Just responding to end-user customers complaints can cost significant sums of money in overtime personnel costs in the call centres. The nominal credits which all wholesale operators offer in their SLAs for outages don't come close to covering these business and operational costs.

2. Operational activities
Most of these costs are the costs of people in the carrier organisation to manage the network and provide service. There are many advantages of standardising on a limited number of operators rather than choosing the cheapest provider for each extension to the network.

It is expensive to maintain multiple wholesale carrier supplier relationships. In case of network problems, often a large amount of effort is spent on localising where the fault is. This is made more complex as the number of supplier relationships increases.
Operational costs are also much higher than most carriers think. Even the management of the physical layer of the network, such as dark fibre, appears to be cheap and easy.

However, the costs for amplification equipment, management etc. are higher than most imagine. For example, Level 3 offer a special management service called "Managed Network Service", that helps eliminate all management cost of a dark fibre network and replaces them with a fixed, low monthly fee.

3. Speed of provisioning
Speed of provisioning is also an important factor, especially for carriers that must provide service to their enterprise customers on short notice. Often circuits ordered by a carrier for certain end-customer contracts are delayed or cancelled at the last minute, with the carrier holding the responsibility for all charges that they have to pay for the circuit they have ordered from the wholesale carrier.

As in the manufacturing environment, "just in time" provisioning can result in significant cost savings. Wholesale providers that have the flexibility to order and deliver service on short notice can reduce the TOC for carriers providing services to their end-user customers.

4. Customer intimacy
Taking the above three factors one step further is a concept called "customer intimacy". One way for a service provider to differentiate its services is to really create a partnership relationship with its customers. This means making the effort to understand the business of its customer and to evolve its products and services to align with their needs.

This level of effort tends to increase the costs for the service provider to provide service, but these are offset by the reduced costs of sales inherent in the partnership. For example these customers tend to be "stickier" and are reluctant to switch to another provider for a small difference in price when they know their wholesale carrier partner will pull out all the stops in case of a problem or new requirement.

Level3 is an international communications and information services company. The company operates one of the largest Internet backbones in the world and offers a wide range of communications services over its 22,500 mile broadband fibre optic network including Internet Protocol (IP) services, broadband transport and infrastructure services and colocation services.

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