Wholesale doesn't cannibalize sales but opens up new revenue streams

OvumFor the second time in less than two weeks, BT Wholesale has announced the extension of an established wholesale client relationship. Its deal to provide O2 with managed fixed-line services, hot on the heels of a similar agreement with Vodafone, illustrates BT’s ability to move beyond wholesale bandwidth to create incremental sources of revenue and profit.

21st century wholesale customers need more than access and backhaul to complete their networks

In the last two weeks, BT Wholesale has signed agreements with long-term customers Vodafone and O2 to enable them to bring sophisticated fixed-line and mobile services to their growing customer bases. These contracts underline wholesale customers’ growing demand for managed services and complex infrastructure that allows them to expand their customer base. For the wholesale service provider, such deals represent new revenue and profit channels from clients that would otherwise be too expensive to win or too difficult to maintain.

On 8 September, BT Wholesale announced that it would provide the IP-enabled managed voice and broadband services Vodafone needs to deliver its One Net service to SMEs. This week, BT Wholesale revealed that its contract with O2 – its first major white-label managed service deal for the business market – comprises a portfolio of fixed-line solutions that will underpin O2’s entry into the UK business market.

During the five-year contract, O2 will purchase wholesale line rental services from BT Openreach, with BT Wholesale providing wholesale calls, broadband and Ethernet, and BT Global Services delivering MegaStream, IP Clear and BTnet Premium. BT’s white-label managed services also include a single dedicated portal for O2 business customers and a managed service centre to deal with more complex orders.

BT already provides O2 with core network management to support its mobile customers. Under the new agreement, O2 will offer customers its own branded broadband and fixed-line telephony services, together with an array of key support services provided by BT Wholesale, which will design, manage and operate a dedicated order portal and service management centre for the provision of orders by the O2 sales teams. All end-user contact services and end-user billing will be provided by O2, with the BT Wholesale service management centre delivering second-line help-desk support.

Example to others

Historically, wholesale services have remained hidden in the recesses of carrier operations where they provided necessary but ‘boring’ complementary connectivity on a carrier-to-carrier basis. But 21st century wholesale customers extend beyond the traditional to the avant-garde. The advent of applications that depend on low latency, broadband wireless, wireline capacity and content distribution networks drive demand for managed services from enterprise and carrier customers that purchase network resources on a wholesale scale.

Some carriers are almost embarrassed to admit they have thriving wholesale businesses. One major wholesale carrier in North America combines the bulk of this line of business with its enterprise services, as if it were ashamed of its success in this arena.

Other carriers may not want to tout their wholesale successes for fear that they could undermine retail sales. But we don’t believe managed wholesale service sales will cannibalize retail revenues; rather they will generate new revenues and solidify strategic partnerships with both existing and newly emerging customers. These new customers may not be carriers per se, but their core businesses will depend on sophisticated, managed broadband connectivity to their customers.

With its recent announcements, BT Wholesale demonstrates the importance of exploiting wholesale services to bring in revenues that might have been beyond its retail reach. These wholesale deals have also helped sales of other BT divisions (i.e. Openreach and Global Services).

This contract extension creates a win-win situation for BT Wholesale and O2. BT Wholesale cements its relationship with O2 by coordinating the delivery of a range of services which O2 depends on, and which it uses to extend a broad range of services to existing and new customers without significant capital investments.