Competition forces companies to constantly re-invent themselves. It’s a perennial challenge to find the right marketing communication to position a business so that it is distinct from others that it competes against. This constant re-positioning forces companies to explore the versatility of the English language.
The sheer versatility and extent of the English language enables us to create combinations of words and phrases to which meanings can be attributed that are different to the literal meaning of the words.
In the telecoms world, we see this aplenty. So one might ask; exactly what is the difference between a “Carrier”, a “TSP” (Telecommunications Service Provider), a PTO (Public Telecommunications Operator), a Telco or a Network Operator? The answer is; not a lot.
However, sometimes in the telecommunications industry, where there is clear differentiation it is not really obvious because of this loose use of language. And a good example is the difference between the term “Aggregator” and the term “Integrator” which are terms often loosely used to describe business models. This paper examines this difference and explains why it is material.
Aggregation is defined as “To gather into a mass, sum or whole”
Aggregation is a central principle in many business models. It describes the manner in which one “thing” is created at a fixed cost, and then the ”thing” is divided into many parts and sold to many customers in such a way that the aggregate of the customer revenues exceeds the cost of the “thing”.
How a business is defined describes its intent. If a business is intent to aggregate in this manner then this forms the pillar upon which its judgments are based, its products are constructed, its priorities are established and its business is run.
Aggregation is of course, the essential principle upon which a physical communications network is built by a carrier (a TSP, a PTO or a Network Operator). The physical network is the “thing” that is built with a substantial capital expenditure outlay, the “thing” is built to cater for millions of “products”, the “products” are then sold as fast as possible so that the revenues can retire the capital and produce the desired return.
This is very simplistic, but illustrates the point.
The descriptive term “Aggregator” made its appearance in the 1980’s and was generally confined to those companies whose business models were based upon purchasing fixed bandwidth or capacity from a Telco and selling portions of that to many customers. The term “Aggregator” accurately describes this business model.
In Europe there were many such businesses throughout the 90’s that focused on international leased lines. These were the days when an E1 circuit between London and Paris would cost up to £100,000 per annum and thirty-two 64k circuits could be carved out and sold individually for between £6,000 and £10,000 per annum. The simple arithmetic shows you that this could be very profitable indeed.
Internet Service Providers are classic examples of aggregation business models as they aggregate large volumes of Internet-bound traffic and contend the traffic on a leased line network and then through an Internet gateway. With the rapid take up of DSL access services in the early noughties, and the end of the telecoms bubble, the term “ISP” became unfashionable, as it carried all the connotations of failure associated with the global collapse of the Internet Bubble (both Dot-com and Telecoms).
Aggregator became a term that was heavily marketed in an effort to describe a business model that was effectively that of an ISP. The model has changed a little over time as technology has changed, but the essential principles remain the same. An aggregator aggregates in two ways:
• It purchases capacity or builds a network on purchased capacity, upon which it needs to aggregate traffic or customers.
• It enters into large volume discount contracts with suppliers in which penalties are triggered for shortfalls on the volume commitments.
One of the most effective ways of understanding a business is to consider what is the most important and guiding factors in a business model;iewhat is it that might keep the directors of that business awake at night?
An aggregator commits to purchase a fixed capacity, and then slices it up and sells it multiple times over. What makes this model fail is if the volume of sales it achieves are less than the business plan requires. The priority therefore of a salesman operating in an aggregator business, is to sell the products that fulfil the commitments.
If an aggregator is failing to fulfil the volume commitments it has made, its behaviour is dictated by the need to sell up the shortfall. Therefore, if needs be, all possible customer requirements will be ‘engineered’ to be fulfilled by whatever the need of the times is.
There is nothing inherently wrong with an aggregator model; it is a business model that has stood the test of time. Carriers are essentially aggregators on a massive scale, but it is interesting to note that there are no examples of “third party” aggregators that have developed into particularly large businesses, which suggests there is some kind of limitation to this model.
Integrators on the other hand, operate a business model that is entirely different to an aggregator.
Integration works on a principle called “matched book”
A matched book is a business principle under which a company matches its revenue precisely to its cost of sale. It is the underlying theory of “just-in-time” manufacturing. If the customer orders product “A”, then the manufacturer produces product “A” and sells it to the customer. Therefore the company never has excess inventory or a contingent risk on volume sales. In other words, it always produces exactly what the customer requires, when it requires it.
In the telecommunications industry, this matched book principle produces some enormous benefits for customers. It means that a customer can access the connectivity for a particular location using the infrastructure that is available to that location at the lowest cost, irrespective of who owns that infrastructure.
This principle is illustrated in the simple example shown below. It is given that the example below is an oversimplification, but it shows the point clearly.
Serving customer location A below, where the customer requires a fibre connection, and C&W have lit fibre into the building gives C&W an outright competitive advantage.
Service customer location B, where the customer requires EFM, and the local exchange has been unbundled by TTB only, gives TTB an outright competitive advantage.
If locations A and B are for the same customer, a compromise is necessary. In this example, BT and Virgin Media Business are uncompetitive.
Iintegration creates commercial & technical benefits
Integtration enables the customer to select the most competitive access circuit for each location and the carriers are ‘integrated’ using a Core Integration Facility.
It follows then that for any substantial network requirement, it is likely that several underlying carriers may be required. These multiple carriers are integrated over a Core Integration Facility.
The diagram below illustrates the core integration facility that is operated by MDNX.
Whilst it could be argued that there are components of this model that are “aggregation” in nature, the Core Integration Facility represents less than 2% of aggregate cost of sales in MDNX.
Going back to the argument set out under the aggregator section above, ie what is the most important and guiding factors in this business model; what is it that might keep the directors of a carrier integrator awake at night?
It is clear that it is not the need to sell particular products to retire any capital investment or contractual commitment. An integrator does not lock a customer in to any technology or carriers network in the same way a carrier or an aggregator does. Therefore customers only remain with carrier integrators because they enjoy greater customer service benefits. The directors of integrators are therefore entirely focused on achieving their customer service goals, and the success of this business model depends upon it.
Advantages of working with an integrator
1. No carrier lock-in
MDNX offers its customers Maximum Choice throughout the term of their contract because we don’t lock customer in to any one carriers network or technology. Customers can select infrastructure from any provider at each of their site locations based on decisions around price, service, or technology.
2. Optimised design
Giving customers maximum choice gives us the ability to build Optimal Network Designs at a significant Economic advantage. Customers can also flexibly change the network to take advantage of new products and services or lower market prices – throughout the life of the contract.
3. Focus on service
MDNX Customers enjoy Operational transparency – sharing openly information on how we deliver and manage their solutions and ‘Real Support’ – a set of practical, measurable and meaningful commitments to service deliverables that out-perform the market.
4. Access to technical staff
MDNX realises that delivering great service requires great people. In this area, those great people need to be technically qualified and experienced. Our focus is on assembling the very best people in this field so that customers enjoy the responsiveness that comes with dealing with great competence. Over 60% of MDNX staff hold technical qualifications.
5. Enhanced flexibility
MDNX’s integration model combined with its focus on providing customers with ‘real’ support means it really can provide customers with choice and flexibility they need for their business critical data.