Volcanoes didn’t erupt, nor did the seas boil, but it’s a Biblical event for the global telecom industry when a major operator announces that it’s pulling out of international voice. That just happened: In an estimated $1.5 billion deal, BT is outsourcing its international voice termination business to Tata Communications:
- Upward of 6 billion minutes are involved, according to my estimates: That adds neatly to Tata’s existing 24 billion;
- With 30 billion minutes under management, Tata tips the scales to become the world’s biggest international voice player;
- Tata handles BT’s international direct dial (IDD) and voice termination for all except a clutch of European countries, and becomes BT’s primary partner for UK IDD traffic.
A break with tradition. This is what I call ‘smart wholesale‘ for both BT and Tata Communications. As Yankee Group has predicted, telcos are breaking with tradition and remoulding their business model. Going forward, that may not involve direct management of commoditized services or networks.
Indeed, BT’s decision is not a sign of weakness in my view. Poor financial results have certainly triggered deep cost cutting across the group. But I believe this marks a bold assertion about BT’s strategic priorities. Managed ICT, cloud and sustainability services come to mind as prevailing core competences for the UK incumbent.
“BT wants to focus on the customer perspective; it doesn’t want to worry about how to manage the back end,” says Srinivasa Addepalli, senior VP of corporate strategy at Tata Communications. “But this is a core business for us.”
Wholesale is reborn. Bucking the recession, wholesale is on the uptick. Savvy wholesalers are set to grab a major proportion of the $145 billion that telcos will spend on outsourcing and managed services over the next five years. And BT is not the first to rethink international voice, it’s just the biggest: KPN, Swisscom, TDC and Tele2 have already struck deals with wholesalers including Belgacom ICS, Deutsche Telekom ICSS and iBasis.
Let’s also not ignore the ongoing voice revolution in which Tata now has a forcible say. VoIP represents about a third of Tata’s originated voice traffic and almost half of the voice traffic on its backbone, and these proportions continue to rise.
Meanwhile, Tata is also eager to court mobile operators. It is much involved with industry groups seeking to improve voice and content interconnect across fixed and mobile networks. This includes the GSMA-backed IP Internetworking Alliance with its potentially disruptive IPX model.
Competition is reinvented. BT Global Services will continue to cross swords with Tata for consulting and managed services deals targeting communication service providers in other competence areas. Not least, BT will still compete with Tata in the multinational enterprise segment in India and elsewhere.
But so what? The key to success is choosing specific battles to fight, and selecting allies where most logical in order to focus on the core business, whatever that might be.
As Adepalli says, “Other telcos spending tens of millions on international voice are going to ask themselves: Why keep doing this?” Why indeed.