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Driven by economic concerns and increased competition, many telco carriers have turned to consolidation to strengthen their bottom lines and grow market share. However, for customers, consolidation may not be a good thing. After all, consolidation tends to limit choice and reduce the competitive pressures that drive carriers to innovate.
The real worry here is that consolidation will replace innovation as the primary strategy for growth. That proves to be viable concern, as illustrated by Oracle CEO Larry Ellison back in 2005. Ellison declared that the software industry has entered a “period of contraction and consolidation.” Some 12 years later, the carrier industry has entered an equivalent period of contraction and consolidation.
However, that does not necessarily mean that innovation will come to a standstill, at least according to industry pundits, experts and analysts. That’s a good thing, since consolidation is a reality for the carrier market. Jodi Burrows, VP, SDR Ventures offers that “competition within the telecommunications industry is fueling mergers and acquisitions, albeit at a slower pace than in years past. There were 269 telecom mergers in 2015, down 11.5 percent from the 304 mergers that took place in 2014 and off 20 percent from the 339 in 2013. Since the start of 2010, the industry has seen more than 2,400 M&A transactions. The number of telecom players is dwindling, but industry consolidation is still robust between mobile and fixed line/cable operators, resulting in bigger players occupying more dominant positions.”
It is from those dominant positions that the players can offer innovation in the areas of integration. Mary Stanhope, VP, Global Marketing, Global Capacity said “the most critical innovation resulting from consolidation comes from the need to integrate systems and data. Achieving a single pane of glass for customer data feeds innovation in communication services and processes across the customer lifecycle.”
Stanhope added “In the digital era, integration no longer means physical system and data integration into one system.”
Phill Lawson-Shanks, Chief Architect and Vice President Innovation for EdgeConneX added “consolidation has fueled the shift of traffic flows from traditional telecoms to the internet and cloud providers, many of whom didn’t exist just a few years ago.” Lawson-Shanks added “Those providers are free of legacy platforms, and utilize a new breed of adaptive and intelligent technologies such as SDN, NFE and Orchestration. The network is now just another part of a programmable workflow that ensures that the customer’s data resides and transacts in the most optimal location – irrespective of its origin.”
However, Jezzibell Gilmore, SVP, Business Development, PacketFabric, sees consolidation taking a different course when it comes to innovation. Gilmore said “consolidation creates distractions for the companies that are undergoing M&A, because they must focus their resources on integration rather than innovation.” Gilmore warned that “consolidation and integration results in creating patchwork solutions based on legacy technologies, rather than new “greenfield” implementations and platforms, to fulfill market needs.”
Yet, Gilmore points out that innovation may take a different path due to consolidation, and said “This exposes opportunities that allows newer players to focus their attentions towards innovation and development of new business models, which allow them to gain market share. New business models may include, carrier neutral network platform, cloud-like commercial terms, or easy and convenient interface to engage customers.”
Simply put, carrier consolidation seems to be driving innovation, although not in the traditional sense. That still leaves a big question, what exactly does this mean for telco/connectivity/ISP customers?
Gilmore said “In the short term, the customer may see better economics from the M&A companies to win deals and industry/public support. However, long term, due to the lack of competition, price will not only creep up, but likely far surpass today’s prices, where it will then stabilize. This will give the smaller and innovative companies the opportunities to create new business models with significant economic advantages and flexibilities for the consumers.”
Stanhope offered a different perspective and said “the innovation that comes from consolidation directly improves the customer experience. The company as a whole will have better insight into the end-to-end customer journey, experience and service performance from a single pane of glass.”
Stanhope added “consolidation will not have a significant impact on pricing models. The largest impact on pricing models in the market today are application and over-the-top services.”
A view echoed by Lawson-Shanks “Even with consolidation, the carrier market is healthy and there is growth from a new group of competitors such as CSPs, Content Delivery Networks (CDNs), Over-the-Top (OTT) providers, mobile operators, Internet Service Providers (ISPs) and cable operators.” Lawson-Shanks added “Pricing is an ongoing topic, but we believe that the consolidated players along with the new entrants, the internet, cloud and application providers, will increasingly adopt an open pricing model to service the highly-informed customer base who regard these services as a necessary commodity to their business.”
Beyond pricing concerns, there are some other ramifications from consolidation. Gilmore said “customers can expect to be serviced by fewer service providers, which are covering increasingly larger geographic areas, providing a more common set of services.” Gilmore offered some sage advice, “Companies should look for service providers that leverage standards-based technologies that facilitate building to their average usage today, but with ample headroom to support bursting and growth.”
Stanhope added “For customers, it is less about preparing for the innovations that come from carrier consolidation versus embracing and demanding them.” Lawson-Shanks added “Customers should adopt a “cloud-first” mentality (be that private, public or hybrid) and explore the next generation of Internet Exchange providers, Megaport, Console, EdgeConneX, Global Capacity and PacketFabric to name a few. These companies are growing rapidly and offer the services necessary to protect their data and better manage their cost models.”
For the most part, experts prove to be on the same page when it comes to carrier consolidation. For all intents and purposes, innovation will continue to be a theme that is driven by consolidation, and not harmed by it. As for the long-term prognosis, customers may be faced with higher costs, but will undoubtedly be offered more services, options and capabilities.
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