It is no secret that telecom service providers (SPs) are being squeezed. Voice revenue is falling, economic uncertainty remains global, and data revenue, while growing, is hard-pressed to generate the returns necessary for the investments needed to accommodate the data storm being generated by video and bandwidth hungry apps. According to research firm Ovum, this trend is likely to go on for another five years which means SPs are going to continue to be focused on cost control.
That is the gloomy news. The silver lining here is that in a new research report, Ovum says this focus on cost control means that (SPs), “have the potential to gain greater economies through their global vendors in terms of network rollout, network operations, network optimization, customer experience, and service quality management.”
In the new report, A Growth Opportunity for Vendors: Telco OpEx, Ovum forecasts just a two percent annual growth in telecom SP revenue between 2012 and 2018. It attributes this to:
Ovum also noted that with revenue moderating, SPs are going to keep a tight lid on capital expenditures (CapEx), but this is only part of the story.
“Service providers will keep a tight rein on their CapEx budgets, but they do need to spend heavily on technology – both their customers and the competition demand this. What’s changing is that operators are more smartly attacking their operating expense (OpEx) budgets, which opens new opportunities for vendors,” says Matt Walker, principal network infrastructure analyst at Ovum.
“However, to take full advantage of this growth opportunity, it’s crucial that vendors have a true understanding of telco OpEx – something, which until now has been complicated by the lack of granularity and consistency in carrier financial reporting, amongst other barriers.”
Ovum’s newly created taxonomy of OpEx segments across all operators reveals network/IT operations account on average for 18 percent of telco operating costs, of which 60 percent (US$126bn) is for spending internally, mostly using salaried staff.
“If you’re an operator, this is a huge cost that needs to be managed,” comments Walker. “As operators look to lower operating risks and their cost bases, one option is additional services projects that involve the transfer of employees.”
However to meet operators’ needs, vendors will have to develop far more complex solutions for carriers than in the past. Carriers need help monetizing their networks and retaining customers, not just deploying the equipment.
“While services projects don’t come with guarantees of profitability, there is clearly some upside for vendors as carriers look to outsource more of their operations. As telcos explore this, vendors need to be creative and aggressive about winning the business – but should not forget to protect themselves,” concludes Walker.
The point about monetization is the critical one in the report in terms of pointing vendors to where and how they can get traction with the service providers. Reality is that one of the biggest challenges they face is in avoiding a scenario where they become so-called “dumb pipes,” and that third parties get the lion’s share of value-added revenue while the network capabilities continue to be commoditized even as the need to accommodate the explosion in traffic creates the need to invest in infrastructure to keep up. (Note: if you are coming to ITEXPO in Miami, don’t miss the featured session I will be moderating on this subject).
Let’s face it. The last thing service providers want to do is emulate the history of the airline industry where traffic increases but profits become problematic. All is not lost since service providers have critical assets, including customer relationships, trust and reach, which can be leveraged along with new services into making them critical and profitable cornerstones of evolving ecosystems. However, they cannot do it alone.
As Ovum points out, this creates opportunity for those who sell solutions to service providers to profit by helping their customers assert their centrality what many have called the “new normal.” This is a huge opportunity that Ovum has investigated, and for those of us who believe in the core and sustainable value of service providers, this may be hard work but the payoffs for everyone are equally as big with long-term positive results.
In what I have called in previous items, “The Age of Acceleration,” time is of the essence. This is about business transformation, sooner rather than later. It will be fascinating to see how service providers and their vendors answer the call to action.
Last June, Verizon closed a $4.4 billion deal to buy AOL. Executives said the acquisition would enable the company to layer AOL's advertising strength…
The Ryzen part is a powerful alternative to Intel's offering, which will result in several new, more powerful, and affordable systems for those that g…
Voice is in a unique position these days, judging from the conversations I've had over the past six weeks during CES and ITEXPO. Available quality is …
Uber, Lyft, and other ride services have pushed the bounds of location tech to the point of frustration for end-users, both drivers and customers alik…
There are a couple really big problems that will likely make human carrying drones more of a tourist attraction than a real solution for some time, bu…