Wow! That’s a big question. You know, I try not to be in the “pundit” business. I thought the Chicago Cubs would never win the World Series! But, since you asked….
As I read the ‘tea-leaves’ and begin to forecast where the industry is going, I think it’s clear that there will be more consolidation and that smaller Tier 3 and Tier 4 carriers will continue to face pressure, and will only be able to exist on the margins. We see the Tier 1 players in the marketplace re-investing in interconnect voice as they look to add scale to their voice traffic and infrastructure. These Tier 1 carriers typically have a robust retail base of minutes they can draw from to help them with scale and they will look to continue to add to that through expanded retail marketing and sales.
But we are also seeing a consolidation happening all over the industry in the tier 2 and tier 3 marketplaces. In the U.S. for example, we are seeing a lot of consolidation activity as private equity funds seek to help fund the “winners” in the marketplace and fuel acquisitions and mergers - just look at GTT acquiring One Source, or Onvoy and Inteliquent getting together. This consolidation gives the newly formed or merged entity more voice traffic with the ability to reduce costs and redundancies. The Tier 1 carriers are looking to figure out how they can hone their own traffic and use it to leverage better buying and scale across their infrastructure and interconnect relationships. Today, if there are several hundred or maybe 1,000 carriers in the interconnect marketplace, we estimate that number will decrease considerably over the next several years through natural attrition and consolidation.
But that’s good news! It shows the marketplace maturing and reaching stability. Marketplaces do better when there is order and not chaos; pricing is stable, and there tends to be more predictability. Of course, that means the industry becomes ripe for disruption. Which means new players can get into the market. Hello Apple, Amazon, Facebook, Google...
Bet you wished you hadn’t asked, huh?