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The
US Resale Market
1997-2002
a market research report
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Telecom resale is booming in the US--so much so, in fact,
that the total number of resellers has doubled in the
last three years. It’s not hard to figure out why:
resale provides an easy way to enter a highly lucrative
market without the significant capital investments the
large carriers need to make.
The increasing visibility of these new players has helped
them shake off their “fly-by-night” stigma and
take market share away from the big boys. As they learn
of new offers and familiarize themselves with new
companies, customers are becoming more willing to leave
Ma Bell and opt for a small provider that can directly
address their needs. Insight predicts that the total
resale market will more than double from $14.1 billion in
1997 to $28.7 billion by 2002.
With an increasingly crowded playing field, service
providers need to identify and choose effective ways to
differentiate themselves, whether it be by price,
customer care, or through other services. This proves
especially difficult for smaller resellers, who also need
to know their competitors, market their services with
limited resources, and understand how to get the best
deal from ambivalent (even hostile) facilities-based
wholesalers.
The US Resale Market 1997-2002 chronicles the
success stories, examining resellers’ business
strategies, typical wholesaler contracts, and the major
players’ market shares, plus this report contains
extensive revenue forecasts. Insight also pauses to
consider how innovations, such as bandwidth and
minutes-of-use trading over the Internet, will affect the
long-term prospects of the industry.
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Report Excerpt
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Background
It is hard to imagine sitting down to dinner at home
anywhere in the US and not having been interrupted at
least once by a reseller promising a lower phone bill.
Resale is booming; three years ago when Insight published
its first report on reselling (Telecommunications Without
Networks: Resellers, Aggregators, and Rebillers in the US
Resale Market), there were approximately 500 resellers.
Now, in late 1997, the number has risen to almost 1,000.
Resale can broadly be considered to include all
transmissions over telecommunications networks other than
those sold and carried exclusively on the facilities of
the end-users' direct providers. Resellers profit by
buying bulk quantities of telecommunications minutes from
an underlying carrier at a discount and turning around
and selling those minutes at a price that is lower than
the customer could buy on their own. The price the end
user pays is higher than the price the reseller paid per
minute, but it is still less than the price the end users
would have paid if they had bought the minutes directly
from the underlying carrier.
The ability to use others' networks on a wholesale basis
makes market entry and seamless transmission by a broad
range of participants possible. Resale lets the RBOCs, as
well as entities like cable and electric utility
companies, enter long distance nationally and
internationally because it allows them to terminate and
even originate calls outside their regions.
Resale includes several methods of buying service. The
types listed here are not descriptions of the resellers
themselves but of the services they purchase.
- Leased facilities resale -- Facilities-based carriers
lease portions of their networks to other carriers, who
manage their leased extended networks as if they were
their own.
- Termination service resale -- Carriers sell service by
the minute to other carriers who lack facilities at the
terminating end (or originating, in the case of 800
calling).
- Switchless minute resale -- Per-minute service is sold
by carriers to purchasers who lack facilities at both the
originating and terminating ends, allowing these
resellers to offer the technical network quality of the
major carriers without the additional costs of
maintaining facilities.
- Exchange minute resale -- Terminating service is
provided mutually by regional carriers on an in-kind
basis in their respective regions.
Long Distance Resale
Long distance resale markets continue to grow rapidly,
providing alternatives to major carriers. These markets
will assume major new roles with the entrance of the
regional Bell operating companies (RBOCs) into long
distance, facilitating rapid entry and ubiquitous
coverage by these and other new carriers.
The value of wholesale markets will more than double over
the next five years. It will increase from $5.5 billion
in 1996 and $6.5 billion in 1997 to a projected $13.2
billion by the year 2002.
Correspondingly, the end-user retail value of the service
provided by some modality of resale will
increase--whether leased line, terminating minute, switchless, or exchange resale. Retail resale will grow
to an estimated $28.7 billion in revenue by 2002.
Growth Factors
The entrance of the RBOCs and other large categories of
new players, such as the cable and utility companies,
will be major contributors to growth. Current second- and
third-tier IXC players, as a segment, will continue to
grow ahead of the market following RBOC entrance, though
the growth will be slower than in recent years. The rapid
growth of international and other market segments that
help sustain long distance market growth will also
sustain the growth of resale.
The market effectively addressable by resellers will open
up as AT&T and the other big IXCs lose their market
dominance attendant on the entrance of the RBOCs into
long distance and as the intraLATA toll markets
increasingly merge into the broader national long
distance market. As customers leave the big IXCs, they
will become potential customers of the alternative
carriers.
At the same time, market consolidation and intensifying
competition are pressing resellers, and the entrance of
the RBOCs into long distance will press them further,
narrowing their margins and widening customers' choices.
The RBOCs will threaten resellers' residential customer
bases most. The personalized, customized service, lower
prices, and other advantages that resellers provide to
their small business customers will enable resellers to
successfully retain these customers against the RBOC
challenge, even though the RBOCs will show strength in
this market segment also.
Reseller Diversificaton and Consolidation
These trends are forcing resellers to diversify their
revenue streams. They must match the increasingly
one-stop shop offers of major carriers and somehow avoid
having their single commodity long distance product used
as a market loss leader, driving them out of business in
the process. Their problem is that most of the new
diversification in the marketplace is unlikely to improve
their profitability. While international, calling card,
and debit card services have helped, the new arenas of
local service and the Internet
look hard, if not impossible, to make profitable in the
short run.
Consolidation is another major strategy resellers are
pursuing. At the same time that some players are
consolidating, though, new resellers are entering the
market, so the population of the long distance market has
not yet dropped. The requirement for diversification and
convergence is a major driver of consolidation at all
levels. Over the forecast period Insight foresees
continued growth to this market so those dinnertime calls
will not be ending anytime soon.
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Market Segmentation
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- Service Modality
- Leased Facilities
- Termination Service
- Switchless Resale
- Exchange
- Retail and Wholesale Resale Revenue
- 800 Inbound and All Outbound Resale
Revenue
- Domestic and International Resale Revenue
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Table of Contents
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Chapter I
EXECUTIVE SUMMARY
1.1 Background
1.2 Long Distance Resale
1.3 Growth Factors
1.4 Reseller Diversification and
Consolidation
Chapter II
INTRODUCTION
2.1 Definition of Resale and Resellers
2.1.1 Types of Resale
2.1.1.1 International Resale
2.1.2 Types of Resellers
2.1.3 Services Resellers Provide
2.1.4 Differentiation Between Resellers
2.1.4.1 Rates, Resale Margin Estimates
2.1.4.2 Focus on Small Business
2.1.4.3 Billing Systems
2.1.4.4 Reseler Sales Channels
2.1.4.5 Range of Services
2.2 Resellers’ Value & Risk to Carriers
2.2.1 Advantages of Selling to Resellers
2.2.2 Risks of Selling to Resellers
2.2 A Short History of Wholesaling
2.3 Today’s Market
2.3.1 Factors Influencing Today’s Resale Market
2.3.1.1 RBOC Entrance
2.3.1.2 Influence of Optic Fiber: Capacity Glut or
Shortage?
2.3.1.3 Purchasing Switches
2.4 The Future of Resale
Chapter III
PROVIDER PROFILES
3.1 Selected Wholesaler Profiles
3.1.1 AT&T
3.1.2 Cable & Wireless
3.1.3 Frontier
3.1.4 LCI International
3.1.5 MCI
3.1.6 Sprint
3.1.7 WorldCom/WilTel
3.2 Selected Reseller Profiles
3.2.1 Excel Communications
3.2.2 ProCom
3.2.3 Star Telecommunications, Inc.
3.2.4 Telegroup, Inc.
3.2.5 Tel-Save Holdings, Inc.
3.2.6 TotalTel
3.2.7 Total World Telecommunications
3.2.8 Universal Communications Network
3.2.9 VarTec Telecom, Inc.
3.3 Band-X
Chapter IV
MARKET TRENDS
4.1 Forces Effecting the Resale Market
4.1.1 Telecom Market Awareness A
Boon to Resellers
4.1.2 Reseller Stigma Eases
4.1.3 Switchless/Hybrids & Residential
Resellers Pace Market Growth
4.2 Consolidation versus Proliferation
4.2.1 Agents of Consolidation
4.2.2 RBOCs as Potential Consolidators
4.2.3 Critical Mass
4.3 RBOCs’ Long Distance Entrance
4.3.1 Residential Customer Base at Risk
4.3.2 Small Business Value
4.3.3 Value-Oriented RBOCs Bleed AT&T
4.3.4 Intensified Price Competition
4.3.5 RBOCs and the Wholesale Market
4.3.6 Apocalypse Soon
4.4 Customer Churn
4.4.1 Customer Satisfaction
4.4.2 Increased Value of Incumbent Customers
4.4.3 Preventing Churn
4.4.3.1 Diversification Retains Customers
4.4.3.2 Maintaining Organizational Quality to Retain
Customers
4.4.3.3 Customer Loyalty
4.5 Hybridization: The Move to Switching and Partitioning
4.5.1 Migration Toward Virtual Carriers
4.6 New Kinds of Marketing
4.7 New Reseller Services
4.7.1 Local Service
4.7.2 Internet: Opportunity and Threat
4.7.3 International Resale
4.7.3.1 International Call-back
4.7.4 Resellers as W umber of Resellers, 1972-1996
Table of Figures
Chapter I
I-2 Total Wholesale Resale Market, 1996-2002
I-3 Wholesale Resale Market by Type of Resale, 1996-2002
I-4 Retail Value of Long Distance Resale Revenues,
1996-2002
I-5 Retail Value of Total Long Distance Resale Market, 1996-2002
I-6 Retail Value of Long Distance Resale Revenues by
Resale Type, 1996-2002
Chapter II
II-1 Number of Resellers, 1972-1996
II-2 1996 Resale Market by Resale Type
II-3 Countries Most Frequently Called, 1995
II-4 1995 Pure International Resale Revenues
II-5 International Long Distance Market Share, 1990 and
1996
II-6 Comparison of Number of Residential & Small
Businesses with Expenditures for Telecom Products & Services, 1996-2002
II-7 Switchless Market Share of Major Carriers, 1996
II-8 Percentage of Major Carriers’ Long Distance
Revenue from Wholesale, 1996
II-9 Estimated 1996 Wholesale LD Revenue of Major
Carriers
II-10 1996 Long Distance Toll Revenue of Largest Hybrid
and Switchless Resellers
II-11 1996 Market Share of Hybrid and Switchless
Resellers
Chapter III
III-1 Estimated Wholesale Revenues by Major
Facilities-Based Wholesalers, 1996
III-2 LD Market Share, 1990 and 1996
III-3 Carrier Leased Line Revenues by Major Carrier, 1996
III-4 Total Revenue of Excel Communications, 1992-1996
Chapter IV
IV-1 Comparison of Growth of Long Distance and Resale, 1996-2002
IV-2 Presubscribed Lines by Major and Second Tier
Carriers, June 1996
IV-3 Presubscribed Lines by Selected Resellers, June 1996
IV-4 Customer Satisfaction Criteria In Evaluating IXCs
IV-5 Ranking of IXCs
Chapter V
V-1 Retail Value of Long Distance Resale Market,
1996-2002
V-2 Retail Value of Long Distance Resale Revenues,
1996-2002
V-3 Long Distance and Resale Markets, 1996-2002
V-4 Retail Value of Long Distance Resale Market Delivered
by Leased Facilities, 1996-2002
V-5 Retail Value of Long Distance Resale Market Delivered
by Carriers Purchasing Termination Service, 1996-2002
V-6 Retail Value of Long Distance Resale Market Delivered
by Switchless Resale, 1996-2002
V-7 Retail Value of Long Distance Resale Market Delivered
by Exchange Resale, 1996-2002
V-8 Market Share of Retail Resale Market, 1996
V-9 Total Wholesale Value of Revenue from Resale of Long Distance, 1996-2002
V-10 Wholesale Value of Long Distance Resale Revenues by Service Type, 1996-2002
V-11 Wholesale Value of LD Resale Market Delivered by
Leased Facilities, 1996-2002
V-12 Wholesale Value of LD Resale Market Delivered by
Carriers Purchasing Termination Service, 1996-2002
V-13 Wholesale Switchless Resale Market, 1996-2002
V-14 Wholesale Exchange Resale Market, 1996-2002
V-15 Wholesale Resale Market Share, 1996
V-16 800 Inbound and Outbound Retail Resale Revenue,
1996-2002
V-17 800 Inbound Retail Resale Market, 1996-2002
V-18 Outbound Retail Resale Market, 1996-2002
V-19 International and Domestic Retail Resale Revenues, 1996-2002
V-20 International Retail Resale Market, 1996-2002
V-21 Domestic Retail Resale Market, 1996-2002
Table of Tables
Chapter I
I-1 Why RBOC Entrance Will Make a Difference in the
Resale Market
Chapter II
II-1 1996 Resale Market by Resale Type
II-2 Gross Margins on Domestic Calls by Company Type,
1994
II-3 Telecom Customer Sites for Residential and Small Businesses, 1996-2002
II-4 Forecast of Residential and Small Business Market Expenditures for Telecom Products and Services, 1996-2002
II-5 Potential Risks and Benefits of Resale to
Wholesalers
II-6 Proportion of Major Carriers’ LD Revenue from
Wholesale, 1996
II-7 1996 Toll Revenue of Largest Hybrid and Switchless Resellers
II-8 Revenue Changes in 1995 and 1996 for Large Switchless/Hybrid Resellers
Chapter III
III-1 AT&T’s Switchless Contract Prices for Long
Distance Service, 1997
III-2 Various Measures of the Decline of AT&T’s
Market Share, 1984-1996
III-3 Cable & Wireless’ Switched and Switchless
Contract Prices for Long Distance Service, 1997
III-4 Frontier’s Switched and Switchless Contract
Prices for Long Distance Service, 1997
III-5 LCI’s Switched and Switchless Contract Prices
for Long Distance Service, 1997
III-6 MCI’s Switched and Switchless Contract Prices
for Long Distance Service, 1997
III-7 Sprint’s Switched and Switchless Contract
Prices for Long Distance Service, 1997
III-8 WorldCom’s Switched and Switchless Contract
Prices for Long Distance Service, 1997
III-9 Transcend’s 1997 Transport Rates for
Switchless Minutes
III-10 Sample Band-X Offerings, 1997
Chapter IV
IV-1 Comparison of Growth of Long Distance and Resale
Revenues, 1996-2002
IV-2 Recent Consolidations of Resellers
Chapter V
V-1 Retail Value of Long Distance Resale Revenues,
1996-2002
V-2 Total Long Distance Market and Resale Market,
1996-2002
V-3 Wholesale Value of Revenue from Resale of Long
Distance, 1996-2002
V-4 800 Inbound and All Outbound Retail Resale Revenue, 1996-2002
V-5 Comparison of International and Domestic Retail
Resale Revenues, 1996-2002
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Telecom
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