Posted: 08/1998
Bandwidth Builders Employ Wholesale Strategies
Resellers Run Gamut of IXCs, CLECs and ISPs
By Ken Branson
Kent Lanum, director of brand management at UniDial Communications Inc., says it succinctly: "Voice will go wherever data goes."
With data traffic growing by 30 to 40 percent annually, and voice plugging along at 5 percent or 6 percent, it's not surprising that veteran resellers of voice such as UniDial are now more aggressively reselling data. The progression is logical for UniDial. The Louisville, Ky.-based switchless reseller has a long history of reselling voice. On the data side, the company had served as an agent for WorldCom Inc.--that is, the company sold WorldCom's data capacity labeled as such, so customers with problems and questions dealt with WorldCom, not with UniDial. Now, as a reseller, the company takes full responsibility for relations with customers, from sales to service.
"A large proportion of our traffic is still voice, probably the lion's share," Lanum says. "But we see data as a much larger piece in the future."
Lanum's view is common among resellers and wholesalers, according to Ray Horak, an analyst with Context Corp., Mt. Vernon, Wash.
Horak says it's almost impossible to tell for sure how much of the traffic flowing around the country or the world is data, especially if one is asking about data traveling over networks designed and engineered for voice traffic. "Five [percent] or 6 percent, tops," is Horak's guess.
However, he adds that the world is full of private data networks and leased line networks, and many new carriers such as Qwest Communications Inc. are building networks designed to accommodate data now and voice later, standing traditional communications strategy on its head.
Out of these new networks, we'll see the future's primary providers of wholesale data services emerge. Their desire to fill newly built data networks and the unlikelihood of cannibalizing their retail customer bases (a larger carrier concern) make them the likely source of bandwidth for resellers of all incarnations, from voice resellers such as UniDial to Internet service providers (ISPs) to competitive local exchange carriers (CLECs).
For now, the primary wholesalers of high-speed data capacity range from the usual suspects, such as AT&T Corp. and Sprint Communications Co., to nimbler, aggressive companies such as WorldCom (sans MCI) and Frontier Corp. Horak says that really large long distance companies, as a general rule, don't like wholesaling their capacity because such activity may hurt their retail data business.
One high-profile data network provider that resolutely does not sell its data capacity wholesale is MCI Communications Corp. "MCI has never been one to do much resale," says MCI spokesman John Howser. "Some other carriers are much more into that than we are. When we rolled out our frame relay and asynchronous transfer mode (ATM) products, we wanted to keep those customers for ourselves."
AT&T says it wholesales data, but the world's largest long distance company is reticent about revealing details. A spokesperson declines to say how much capacity the company wholesales, or to whom, on the grounds of customers' confidentiality and AT&T's own competitive interests.
At Sprint, there are marketing groups dedicated to selling data capacity wholesale, but the question of how far that group can go hangs in the air.
"The conflict you speak of (between wholesale and retail) is one that gets discussed," says Maria Goulet, Sprint's director of product development. "But there are market segments that resellers are more successful in, primarily small and medium-sized businesses. So our resellers hit a segment we can't get to directly."
Goulet adds that Sprint always sells a more feature-rich data product to its retail customers. "But for the market our resellers target, those differentiators are not necessarily what they need."
For example, Goulet says, Sprint is upgrading its frame relay network to enable customers to put a "warranty" over certain classes of service, and the company's wholesale frame relay offering wouldn't have that ability--at least, not initially.
Goulet adds that Sprint always sells a more feature-rich data product to its retail customers. "But for the market our resellers target, those differentiators are not necessarily what they need."
For example, Goulet says, Sprint is upgrading its frame relay network to enable customers to put a "warranty" over certain classes of service, and the company's wholesale frame relay offering wouldn't have that ability--at least, not initially.
"Of course," Goulet says, "our customers say they want it all. But in terms of the conflict, we feel that this is a better way to manage it than not to go to market at all."
Sprint says its market for wholesale data is growing, as its retail data market is growing. But Mickey Freeman, Sprint's director of marketing, tries to keep that growth in perspective.
"At the last TRA (Telecommunications Resellers Association) show, we got a big line of people coming to the booth, and we ran a survey," Freeman says. "We asked, 'What products and services are you buying today?' The respondents represented a cross-section of carriers, consultants, investment bankers, etc. Eighty percent of them said they were buying voice. And that's very telling. Data gets a lot of attention. It's very sexy. But the bulk of the industry is still voice."
The fast growth is in data, however, and there seems no shortage of smaller, aggressive carriers trying to take advantage of it. Although no one would describe WorldCom as a startup any more, it appears that the classic large carrier's dilemma--trying to sell wholesale without injuring one's retail efforts--is not much of an issue there.
"It might be a problem if we had 100 percent market share in any particular niche, but we don't," says Rick Gibbens, WorldCom's vice president of wholesale market management. "For us, there is an advantage to having wholesale customers develop a relationship and resell our services."
For WorldCom, the wholesaling of data capacity is part of a long-standing international strategy. "Since early 1994, we have had resellers reselling our international broadband network from outside the United States," says Gibbens. "That was in concert with the expansion of the broadband network outside the United States. If we installed a node where we did not have a sales presence, we would get resellers in that area to get us started."
WorldCom has been selling frame relay services internationally for about three years, and has used the experience to acquire the expertise for "a pure reseller program," as Gibbens puts it.
Gibbens says that while the bulk of the industry may still be voice, it's getting harder to differentiate oneself in the voice market every day. In fact, the difference between voice and data is starting to blur in parts of WorldCom's system. The company has completed one of two transatlantic fiber optic routes between the United States and Europe, and will turn up a second route later this year. WorldCom also is completing a cross-border fiber optic network in Europe, called Project Ulysses. The combined fiber optic network is "for all purposes," according to Larry Murphy, WorldCom's director of broadband product management.
One of the companies to whom WorldCom wholesales is GST Telecom Inc., of Vancouver, Wash. The fiber-based CLEC, which provides telecommunications services in the western and southwestern United States and Hawaii, follows what it calls an "NNI" strategy. NNI stands for network-to-network interface, and describes the physical and logical linking of different carriers' networks. In GST's case, NNI offers an opportunity to serve more customers than GST's limited geographic footprint allows.
In its agreement with WorldCom, GST can resell WorldCom's data capacity in international markets where it would otherwise have no presence at all. It has similar agreements with Intermedia Communications Inc. in the United States and Westel Telecommunications Ltd. in Canada. "Between the three of them, we cover 90 percent of the world," says Natalie Diggins, GST's vice president of data services.
The arrangements are transparent to customers, Diggins says, and absolutely essential to GST's way of doing business. "If I have a frame relay customer with five nodes, and only three of them are in my (geographic) footprint, that customer wants to know that I can come through for them," she says. "It's a matter of taking customers. I'd prefer to have my customer on-net (wholly served by GST), of course...But you gotta do what you gotta do."
Frontier Corp., also is an aggressive wholesaler, for much the same reason as WorldCom. "We are selling data capacity wholesale," says Rob Merrill, vice president of carrier marketing. "We make it available to ISPs, LECs, CLECs, carriers, resellers, etc. We make it available on a channel-mile basis, at OC-3, OC-12, OC-48 and DS-3."
As with WorldCom, Frontier doesn't face any real danger of cutting off its retail nose to spite its corporate face. "We don't have the retail presence that MCI has," he says.
Merrill explains that Frontier wants to be the service integrator for wholesale customers, just as it wants to be the service integrator for its direct customers. "Regardless of what the customer needs, we want them to come to one place for all their voice, data and private line needs," he says.
Accordingly, Frontier goes to the same companies who buy its voice product wholesale and tries to sell them wholesale data. But the future, Merrill thinks, may lie with large backbone ISPs and with companies who are striving to become integrated service providers.
"Level 3 Communications [Inc.], now there's a customer who probably didn't exist a few years ago. That's where we're headed--Level 3, Rocky Mountain Internet Inc.-new startup Internet companies, ready to offer Internet access, voice over Internet protocol (IP), that sort of thing. They need big back-office support. That type of customer is coming to us and asking for optical interfaces and OC-3 and up."
Rocky Mountain Internet Inc., a Denver-based ISP, has been certified as a CLEC in Colorado. Its president, Doug Hanson, has said he plans to file for certification in other states and has also said he wants his company to be thought of as a communications company, not just an ISP. Level 3 confirms, through a spokesman, that it resells Frontier's data capacity, and that it intends to target "large businesses for data services on private line, private virtual circuit and frame relay." Service will begin the third quarter of this year on leased capacity from Frontier, the spokesman says, and eventually migrate to Level 3's own IP-based network as that network is built.
