Yankee Group: Decline in wholesale data transport revenue means imminent commodification
August 11, 2005 Boston, MA -- Recent findings by Yankee Group indicate that wholesale providers have reached an inflection point and are facing a significant gap in legacy services revenue. The group contends that the revenue gap is growing wider as wholesale buyers continue to migrate from formerly high demand transport services, such as frame relay, ATM, and SONET private line, to more flexible and cost-effective technologies, such as metro and wide-area Ethernet.
According to the group's recent report, "Wholesale Providers Must Add Value to New Technologies Quickly to Protect Margins," the frame relay and ATM revenue at risk makes up 23% of the total wholesale data market, making the industry vulnerable to a dramatic shift in the economic landscape.
According to the report, key factors that have led to the expanding wholesale revenue gap include: private-line services showing steeper than expected revenue declination, an accelerated decline in product revenue as a result of industry consolidation, and waning demand in growth of legacy services such as ATM and frame relay, as demand for Ethernet grows.
The report says that demand for low-cost market services such as Ethernet is expected to rise as wholesale customers seek more ubiquity in their network services. To effectively manage revenue during this transition, according to the report, wholesale providers must deploy value-added features of differentiation, along with relative pricing strategies, early in the Ethernet cycle. Tiered service-level agreements, prescribed levels of managed services, and network visibility are cited as examples of features that providers can "monetize," as cost-effective Ethernet services take market share from private-line products.
"Building strong management and visibility into next-generation offerings will give end users the control they are increasingly seeking," maintains John Romagnoli, senior analyst at Yankee Group. "Carrier investments in their core networks of this type of differentiated technologies, design, and services will rescue the wholesale market from its continued struggle for margin and revenue growth."
The report concludes that providers will continue to face major challenges to their business economics as traditional, lucrative wholesale data transport services enter the end of their lifecycles. However, the group notes that such a variable can be altered by providers choosing a course of action that speaks to and for the customer, as much as it offers value to the providers themselves.