Industry Spotlight: Tinet Takes the Wholesale Path

For a while there, when one talked of pure-play wholesale carriers it was in the past tense.  But for the last six months Tinet has brought this business model back from the brink of extinction.  Formerly part of Tiscali, Tinet is now owned by private equity ^[1] and is boldly walking the path of the wholesale data specialist.  The now independent company runs a top-10 backbone and sells only IP Transit/Peering and Ethernet services to wholesale buyers such as ISPs, carriers, and content providers.

^[2]Is the wholesale business model finally ready to rise again?  This could be a substantial shift in the marketplace, and yet it gets little press amidst all the noise about network neutrality, iPhones, and layoffs.  Hence, I thought we could do with a bit more first hand information.  With us today to offer his perspective is Tinet’s Chief Marketing Officer Paolo Gambini.  Paolo was previously CTO of Tiscali España and originally came to Tiscali from Nortel.

Telecom Ramblings: Tinet’s largest product by revenue is wholesale IP transit, which has been one of the toughest neighborhoods in all of the telecommunications world for almost a decade.  How does Tinet differentiate itself?

Paolo Gambini: Tinet’s business model is based on focus simplicity:

• We focus only on one customer segment – the Wholesale marketplace.
• We provide only 3 services, IP Transit and on-net and off-net Ethernet Private Line

And we operate over a single platform based on a single vendor, this is what differentiates our company from the competition  We use the same Juniper routers across our network backbone which allows us to provide quick turn-up, guaranteed quality of service with the added benefit of being able to deploy new PoPs quickly and efficiently.

The entire organization is engineered to exclusively fulfill the requirements of wholesale customers for high bandwidth, high availability and high scalability IP and Ethernet connectivity.

All of our resources, expertise and investments, are focused on delivering the above 3 services to a consistent market segment over a single technology platform.

This enables us to optimize our network, our support organization and our cost base to deliver a great service experience to our customers around the world, Basically we do one thing and we try to do it well.

Also having presence in all the main Internet hubs in 3 continents ensure that our network footprint reflects the changing nature of the Internet where the fastest growth is happening in emerging markets rather than in the more mature ones. This makes our connectivity more and more appealing to customers as Internet traffic patterns keep shifting.

TR: Tinet sells two Ethernet products: on-net Ethernet Private lines, and off-net last mile connectivity to corporate networks for ISPs and carriers.  Why have you chosen these two, and are there other Ethernet and MPLS based products on the way?

PG: One clarification: Tinet sells end to end Ethernet connectivity (including the last mile) only to ISPs , Carriers, resellers and system integrators that offer our service to their own corporate customers. We do not sell to corporate customers directly as we do not intend to compete against our own customers.

The reason why we decided to offer Ethernet connectivity are many folds:

• On-net Ethernet connectivity has been part of our portfolio since the very beginning (2002) our backbone was designed to be a multiservice network  since the very beginning. This service has always been a high capacity one (> 100 Mbps) and has been used by our wholesale customers both to replace traditional IPLC services and to establish peering sessions at remote exchange points or with remote direct peers.
• Off-net Ethernet: we have seen the growing demand for Ethernet and VPLS services as a replacement of traditional IPLC and Layer 3 VPN in the corporate space and we felt that we could leverage some tangible asset of ours to fulfill this demand:
  • Tinet operates a network with presence in 24 countries over three continents, we have end to end Ethernet and VPLS native capabilities at every single POP,
  • We serve ISPs and carriers in 5 continents and we have relationships with literally hundreds of access providers around the globe. Many of them are suitable partners for us to  to set up Ethernet Network To Network Interconnects (NNI) that enable Tinet to deliver last mile Ethernet connectivity into more than 40 countries right now
  • Tinet does not sell to corporate customers and therefore does not compete with its wholesale customers. We tend to be perceived as a partner rather than a competitor by our customers and partners
  • We are therefore in a unique position to deliver end-to-end Ethernet and VPLS solutions on a pretty global basis

At this moment in time we are not planning the deployment of any new service. Our focus is simplicity and we believe VPLS and off-net Ethernet have a huge potential with our undistracted attention and efforts.

TR: Alone amongst the top 10 IP backbones, Tinet does not own or control the fiber its data flows on but rather leases almost all of its capacity.  In what ways does this help or hinder your business model?

PG: This has proven to be extremely helpful for Tinet as we gained some distinctive advantages:

• Our financial resources get invested exclusively into a single technology platform supporting our IPv4, IPv6, Ethernet and VPLS services.
• By buying connectivity from multiple fiber providers we ensure a degree of resiliency via fiber diversity that fiber owners themselves do not have as they all tend to operate fiber rings with 2 or max 3 fiber routes. Tinet core POPs usually connect to many diverse fiber rings.
• This degree of resiliency enable us to operate a network protection scheme based on N+1 protection. E.g. if a POP connects to the rest of the backbone via N different fiber paths, we can keep just one single link over a separate fiber paths to protect our POP. If we operated our own fiber network, most likely we would connect our POPs into a single fiber ring, obliging us to operate a 1+1 protection scheme (more expensive to operate).
• Finally, being able to procure capacity from multiple vendors at each location, enables us to pick and choose suppliers based on delivery time, route diversity, latency etc. depending on the specific requirements we have to fulfill at a given location.
• Buying capacity from third parties enable us to close reciprocal deals with suppliers that often become customers of ours too.

TR: Traffic levels are always rising, but not uniformly.  How quickly has Tinet’s network traffic been growing, and where has it been strongest?

PG: We have grown by 85% per year for the last 2 years.

US and Western Europe have slowed down a bit in 2009 while APAC and LATAM have been growing at very healthy rates. Eastern Europe is somehow in between as it has great growth potential but has been generally adversely affected by the ongoing economic downturn.

TR: The dark side of sustained internet traffic growth is of course sustained pricing pressure.  In 2009 where has pricing held up the best, and where has it been under greatest pressure?  Are we near a healthy balance?

PG: Pricing has been sliding fast in all markets as this is a truly global market with a nearly perfect flow of information with buyers being able to choose from a number of seemingly similar offers.

In APAC the deployment of new cable systems is driving price decline (and helping local broadband growth) while in North America and Europe pricing falls because of stiff competition among carriers.

Whether the balance is healthy or not really depends on the business model of individual carriers, Tinet has been profitable for the last three years and we hope to keep being so in the future too.

TR: Most discussion of internet traffic growth these days centers on content and especially video, and most networks are dabbling in content delivery networks in one form or another.  How is Tinet addressing the content market, and might there be a CDN in your future too?

PG: We serve a number of CDN providers and we believe both in specialization to deliver good services and be profitable and in not competing against our customers. Hence we do not have plans to get into the CDN space.

TR: Another frequent topic of discussion, especially in European markets right now, is that of inevitable consolidation due to a crowded marketplace.  How likely is Tinet’s participation either as a buyer or seller?

PG: We do not see any suitable target for us to acquire given the uniqueness of our business model. At the same time, our shareholder does not intend to sell the company that it has just acquired.

TR: Thank you, Paolo, for talking with Telecom Ramblings!

PG: Thank you Rob !