Vodafone Carrier Services to play LTE roaming trump card for IPX

Catherine Haslam, Senior Analyst, Telecoms Wholesale

Ever since Vodafone acquired Cable & Wireless Worldwide in July 2012, the carrier market has been waiting with some level of trepidation to see just what impact the newly minted wholesaler Vodafone Carrier Services (VCS) would have on the existing structure and market share. The waiting is over as VCS begins to leverage every advantage possible from Vodafone’s 28 operating companies to improve market share and margin.

VCS has begun by consolidating its voice buying and selling but is set to unleash its full force on LTE roaming. This will have an impact on competitors, especially those looking to use LTE roaming to drive IPX take-up.

Direct lock-in for Vodafone LTE roaming

As part of the Vodafone Group’s 2015 network development strategy, and at least in part as a result of the windfall from the sale of Verizon, Vodafone’s opcos will be fast-tracking LTE rollouts. At the same time, VCS is building out its IPX capability as fast as possible.

Although VCS lags the competition with IPX (its capabilities are not yet ready for external customers, although it has committed to launch by the end of 1Q14), it has a trump card to play: any operator looking to secure an LTE roaming agreement with a Vodafone opco will need to deal with the Vodafone Group directly and not through third-party carriers.

Furthermore, that Vodafone contact will be through VCS and its IPX. In other words, Vodafone opcos will not be using alternative carriers for LTE roaming. This will be a significant issue for other IPX providers counting on LTE to catalyze their IPX growth.

LTE roaming and the associated signaling are clear drivers for IPX take-up, according to a survey of mobile operators that Ovum conducted at the beginning of 2013 as part of the research for our report Putting IPX in Its Place. Furthermore, 60% of respondents stated that they would be prompted to move to IPX if Vodafone did. Therefore, by linking LTE roaming to VCS’s IPX, Vodafone is making a bold statement to the market about its willingness to take every advantage it has to leapfrog competitors.

Impact on competitors

VCS is no doubt laying out a challenge to its IPX competitors, particularly those without a strong opco base themselves. However, it has to deliver. While Vodafone’s opcos will use VCS’s IPX capabilities when they become available, they cannot be expected to wait for them. Therefore if VCS isn’t ready when the opcos want LTE roaming, alternative arrangements will have to be made and a key leverage point will be lost. Failure to deliver is not an option, and VCS has received and is working on LTE roaming requirements from several of its opcos. Assuming VCS is ready on time, we expect Aicent, BICS, SAP, Syniverse, and Tata Communications to be most affected.

We previously reported that BICS is developing additional quality-based capabilities for its LTE roaming services, which is an interesting and differentiating feature. However, BICS’ offering is unlikely to be enough to tempt LTE operators to push Vodafone further down their list of roaming partners. Go to any Roamfest where operators gather to make roaming agreements and the longest queues are almost always to Vodafone opcos. Vodafone is number one or two in nearly all its markets and therefore a strong partner. Add to this the new ability to deal once with VCS for the Group’s opcos, and VCS has a position of great strength to sell.

Many more non-Vodafone operators around the world compete in this arena, but if VCS gets its timing and proposition right, we expect it to slow up the LTE-related progress of other IPX providers. We certainly see more signs that VCS is capable of delivering on time, including concrete steps it has made toward its other objectives.

Single buying and selling function paying dividends

When Vodafone Carrier Services launched at ITW in May 2013, its stated aim was to become the gateway to and from Vodafone’s opcos. The first articulation of this was to improve the efficiency of the international activities of the 28 operating companies by creating a single function to buy and sell all international voice traffic.

Through a combination of sound reasoning, a strong hand, and embracing opco specialists rather than overriding them, VCS is benefiting from the almost instant scale of a carrier with 50 billion minutes. Whereas each of the operating companies previously negotiated all their own interconnection agreements based on the best deal they could get for their own traffic, the introduction of central negotiation will enable VCS to make significant cost savings on many routes, as well as reduce the number of agreements and number of suppliers.

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