Specialization in one or two services brings benefits to teleport operators, including in-depth knowledge of customer needs, the ability to invest in technology appropriate to those needs, and a high degree of expertise. But specialization also carries the risk of having too many financial eggs in one basket. When asked to identify service from which their companies generated at least 25% of revenues, respondents put enterprise networking at the top of the list, followed by broadcast video, civilian government applications, Internet backbone and VoIP and military government applications. By diversifying into multiple markets, operators hedge against the major dynamics that continue to transform the markets they serve.
Every year, the World Teleport Association surveys teleport operators and publishes a Top Teleport Operators ranking based on revenue. In a business that tends to look skyward, it’s a way of drawing attention to the hard-working folks on the ground who are an essential part of the space network.
Our 2009 Top Operator rankings will be published November 9. But before that, we will publish a report based on what teleport operators told us at the end of 2008.
What will you learn inside the covers of Inside the Top Operators of 2008? Well, if you’re expecting a centerfold – or to be equitable about it, one of those "Hottest Firemen of 2008" calendars – you are doomed to disappointment. But if you’re looking for insights into how satellite service companies have been doing business, it makes interesting reading. The annual Inside the Top Operators report describes what operators told us about changes in their revenues, pricing, services and areas of operation in the most recent complete fiscal year. What it lacks in breadth – covering as it does only the largest and fastest-growing operators – it makes up for in depth, because it reveals what the businesses of the best in the business look like "under the hood" and reveals the fundamental shifts going on within these industry-leading companies.
The 2007-2008 period was good to the Top Operators. The rankings include different companies in different years, but more than 20 companies have submitted data consistently for three years running, which provides a clear "snapshot" of the teleport sector. With $8.5 billion in revenue, these companies racked up combined revenue growth of 42% from 2006 to 2008.
More Value, Less Fiber
In recent years, many leading teleport operators have talked about diversifying their businesses out of satellite to fiber transmission. More than one large operator stopped using the word "teleport" at all in marketing materials in favor of "access points" or "nodes" – the language of fiber rather than satellite carriers. It seemed as though satellite transmission was going out of favor fast, driven by the much lower price point of fiber for point-to-point transmission.
Except it wasn’t. Our data shows that the Top Operators increased the percentage of revenue coming from within their own walls – that is, from teleport, value-added and other services they provide – and decreased the percentage of revenue earned from transmission. Surprisingly, it was the share of fiber revenues that plummeted the most (more than 70% from 2005 to 2008), while the share of satellite revenues declined only about 20%.
What was going on? In my view, the Top Operators were accomplishing their fundamental business mission: to continually increase the value to the customer of every megabit they transmitted. The 2005-2008 results show a continued diversification out of being just a "pipe" for the transmission of video, data and voice, into services that employ their own resources to generate revenue. And satellite turned out to be the best transmission technology for the purpose.
Pricing data from the survey backs up the story. From 2005 to 2008, teleport operators were successful at gradually increasing the prices they charged for teleport and value-added services. Not as successful, though, as their partners in space segment, for whom a tight capacity market pushed prices sharply higher.
Specialization vs. Diversification
Another set of numbers shows how teleport operators balance the twin goals of specialization and diversification. Specialization in one or two services brings benefits to teleport operators, including in-depth knowledge of customer needs, the ability to invest in technology appropriate to those needs, and a high degree of expertise. The Top Operators survey asked respondents to identify services on which they earned at least 50% of revenues. One-third of respondents cited broadcast video, while 27% identified enterprise networking and 13% cited enterprise video. Mobility applications – not including mobile backhaul – have already risen from effectively zero a few years ago to be the dominant revenue source for 7% of the Top Operators.
But specialization also carries the risk of having too many financial eggs in one basket. When asked to identify service from which their companies generated at least 25% of revenues, respondents put enterprise networking at the top of the list, followed by broadcast video, civilian government applications, Internet backbone and VoIP and military government applications. By diversifying into multiple markets, operators hedge against the major dynamics that continue to transform the markets they serve.
For more insights from Inside the Top Operators of 2008, visit www.worldteleport.org. The report is available free to WTA members and for sale to everyone else.
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Robert Bell is Executive Director of the World Teleport Association, which represents the world’s most innovative teleport operators, carriers and technology providers in 20 nations. He can be reached at rbell@worldteleport.org.
