Wholesale Competition Remains Fierce

The seventh edition of ATLANTIC-ACM’s U.S. Wholesale Long Distance Carrier Report Card reveals wholesale voice and data industry growth will remain modest - and competitive - for years to come. Total wholesale long-distance voice and data revenue will grow at a compound annual growth rate (CAGR) of 3.57 percent through 2008, taking the U.S. wholesale industry to the $15 billion threshold. Within this overall figure, private line and data revenue represent the primary driver of growth. This growth in data is overcoming stagnating voice revenue which, after returning briefly to a growth trajectory following Bell entry into the long-distance market, have returned to a zero- to declining-growth path.

Further benefits for data have come with regulatory and market events that have accelerated demand - and network investment - for dataoriented solutions for voice traffic. Competition for wholesale revenue is fierce, however, as the 600-plus ratings of carriers by their customers that provided the foundation for this year’s study resulted in a less-than-one-point difference (see chart at right) between the highest-ranked wholesaler overall (WilTel Communications LLC), and the lowest (SBC Communications Inc.). Given that these rankings are based on a 10-point scale and only one provider exceeded the six-point range, significant opportunities for improvement are available to all wholesalers. This suggests that competition for wholesale revenue will continue to intensify.

Overall scores do not tell the story, however, as wholesale carriers were evaluated in seven key categories that have varying degrees of importance to individual customers - billing, provisioning, network, customer service, sales representative, products and pricing. Within these categories, carriers were evaluated on important details/characteristics associated with each key area. Summary scores derived from performance ratings in these detail areas were used to identify overall leaders in each key area.

For the third consecutive year, WilTel led the billing category, which measures ratings in such billing areas as flexibility, clarity, accuracy, timeliness, and dispute resolution. Global Crossing Ltd. ranked second and, notably, was the only carrier to improve its year-over-year rating in this category. Billing for wholesale services provides a crucial link to success for those retailing the services. Without accuracy and timeliness the retail provider misses or delays revenue. Flexibility, accuracy and clarity are the main billing differentiators. Whichever provider scores the best in these subcategories takes home the billing trophy. The winners have invested over time in software, processes and the people to deliver superior service. WilTel and Global Crossing have worked hard to earn their billing honors.

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Provisioning.

WilTel, Global Crossing and Sprint Corp. were the leaders in provisioning. Both WilTel and Global Crossing, which tied for fourth place in this category last year, dramatically improved their overall performance. WilTel improved greatly in its service level agreements and customer interface systems. In addition, Sprint showed dramatic progress in its service level agreements as it invested significant energy toward simplifying its contracts.

In the network category, which measures performance in such areas as quality and recovery, among others, AT&T Corp. and Sprint were the leaders, followed closely by BellSouth Corp. In AT&T’s case, the firm reclaimed its position at the top of the list as the company had lost the top seat to Sprint last year. Historically, AT&T has been viewed as the carrier that operates the top-notch network. Although it was slightly punished post-9/11, it claimed back its reign over that category this year.

Overall carrier ratings slightly declined in this year’s edition of the carrier report card. For the first time, the survey split ratings for customer service representatives from ratings for sales representatives. The rating decline is due mainly to low marks in “technical expertise” and “responsiveness” for customer service personnel.

On explanation is that carriers moving to cutting-edge technologies may not have found enough time to properly train and build knowledge bases for their customer service staffs. In terms of individual company performance, WilTel and Sprint were category leaders. AT&T saw its ratings in this category fall eight tenths of a point, placing the company well below average.

The sales representative category, which measured factors including consultative selling and marketing support, was led by WilTel, AT&T and Global Crossing. These ratings measure carriers’ effectiveness in the presale/sale cycle, as well as the proactive offering of new products and services.

Sprint and AT&T led in the products category, although AT&T suffered a drop of more than a full point in this area and lost the top seat to Sprint. WilTel, which had a second place showing in last year’s edition, also dropped considerably as it was ranked third from the bottom in this year’s edition.

Although the arrival of new packet-based products has stormed the market, the demand for voice products remains strong.

In the pricing category, WilTel experienced a slightly reduced rating relative to last year’s edition but was able to remain atop the listing. Global Crossing and Qwest Communications International Inc. also were leaders, and the “Big Three” IXCs - AT&T, MCI and Sprint - ranked in the bottom tier for pricing for the fourth consecutive year. Notably, the remaining RBOCs also were rated poorly in this area, creating a clear correlation between company size and price performance. Carriers that scored well in this category are not necessarily those with lowest prices on the market place, but rather those that priced their products/services at the best value for price.

The year ahead will provide considerable challenges for the retail voice and data providers that make up the wholesalers’ customer bases. The continuing shift of revenue from voice to data has accelerated with the rise of VoIP uptake in both business and consumer settings. Further turmoil faces wholesale purchasers that are being slammed by regulatory shifts on UNE-P and IP, among others. These shifts, as well as new telecom entrants, such as cable and utility providers, will ensure some new customers emerge as continued and increased pressure on traditional wholesale customers plays out.

Close ratings in all the wholesale categories - billing, provisioning, network, customer service, sales rep, products and pricing - demonstrate there is fierce competition in the wholesale space. Those who show long-term success are those who listen to and understand the traditional and new entrants to the retail telecom space. Many wholesale carriers have reorganized to move from a product-centric approach to a customer-centric approach to their businesses. The winning carriers will be the ones that effectively carry out customer-centric processes by listening and responding to customers’ needs, while getting the right people and processes in their organizations to provide outstanding service.