Data Flood Drives Carriers to Managed Services

As demand for high-bandwidth mobile and VoIP applications, like Skype, soars, the demand for international transport is rising as well. And carriers, unable to meet the demand for transport and interconnections on their own, are turning increasingly to managed services from international wholesalers.

“Growing capacity consumption, resulting from increased broadband penetration and expanded global mobile traffic, is driving strong demand for international transport and IP transit services," said Fedor Smith, president of research firm ATLANTIC-ACM. The highly competitive market, he added, has resulted in “continued price compression” – i.e., transport is getting cheaper.

Chris Ward, senior director of marketing at iBasis, explained that the recession has forced carriers, short on funds to invest in infrastructure upgrades, to focus much more on core services and applications with the highest returns. International voice typically generates only around a 5 percent margin, as compared to retail margins that hover around 40 percent. That drives operators to seek efficiencies in their international transport business while driving profits from their domestic and regional networks. Often that means turning to managed wholesale services.

“A lot of operators and carriers, whose primary business is retail, provide international termination because they have to,” Ward said. “But it’s not core to the business in terms of its contribution to [the bottom line].”

Exabytes Per Month of IP Traffic

Overall IP traffic is expected to grow to 44 exabytes per month by 2012, and over 32 of those are due to consumer traffic. Consumer traffic, in turn, is driven by IP transport of enhanced services like video on demand. Source: Cisco Systems Inc.

Meanwhile, voice over broadband carriers are expanding their share of international retail traffic, driving the migration to IP to gain infrastructure efficiencies. But with capital harder to come by, it’s easier to outsource international termination to high volume managed-service providers like iBasis or InfiniRoute Networks.

“To rip out international TDM switches and replace them, well, the business model for the vast majority doesn’t justify that,” said Ward.

Buy, Don’t Build

Another driver for managed services is exponentially expanding content traveling over international networks. Carriers must deliver content via the cloud, on-demand, involving any number of connections and applications. And they must do so regardless of geographic location.