Technology | Media | Telecommunications

Thursday, October 03, 2013

Why Telecom Service Providers Must Evolve, Now

Communication service providers can no longer continue down their traditional path of revenue generation and expect to survive, due to the overwhelming evidence that their legacy business strategy is obsolete. Dramatic shifts and changes in the marketplace now require decisive action.

Small incremental tweaks to old business plans and established financial models cannot result in the desired outcomes. A major crossroads has been reached. There are two options; either adapt to the apparent market realities or continue along the road to perpetual decline and eventual ruin.

The global telecoms industry revenue will remain roughly flat over the next few years, with a decline in spending on voice services counterbalanced by growth in spending on mobile and fixed (broadband) data services, according to the latest market study by Ovum.

In a recent market forecast analysis, it was determined that as growth slows, market realities mean that communication network service providers must find ways to serve their existing customers profitability rather than simply growing their customer bases.

"Over the next five years, service and tariff innovation will be key revenue-generating strategies, while LTE rollout, network optimization, and creative approaches to partnerships will become focal points for cost savings," said Shagun Bali, analyst for telecoms technology at Ovum.

Moreover, Ovum believes that broadband service providers need to monetize new business models, leverage customer data (Big Data) by investing in analytics, and define their response to the growing body of successful over-the-top (OTT) service providers.

Ovum estimates that telco IT spending will reach $60 billion in 2017, growing at a CAGR of 0.6 percent between 2013 and 2017. Growth in telco IT spending will be driven primarily by investments in packaged software and system integration.

Spending in emerging markets in Asia-Pacific, the Middle East and Africa (MEA), and South and Central America (SCA) will drive global IT spending. In North America, communications service provider IT spending will grow modestly at a CAGR of 0.8 percent to reach $17.5 billion by 2017.

Although overall service provider IT spending will grow modestly, the trend is for telcos to reduce internal IT spending and increase spending on external IT projects.

To control costs, service providers are outsourcing the maintenance of legacy IT and turning to trusted partners, both to implement unified and standards-based systems and software and to provide skills -- such as those of data scientists for Big Data analytics projects.

Consequently, the overall addressable market for the most capable vendors will actually increase.

The combination of middling profits, high capital requirements, significant risk, and uncertain economic growth now requires service providers to place their bets very carefully -- including investing in growing revenue streams and managing customer experience more than ever before.

"The result is increased opportunities for the IT vendor industry. In the long term, telcos will place more focus than they have before on software to drive innovation," concludes Bali.