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Gartner Predicts Telecom Future is Troubled

Mobile broadband, Internet Protocol (IP) technology and the desire to become full-service providers are increasingly driving telecom carrier strategies. However, according to Gartner, as they confront these industry upheavals, carriers face risks in building non-core telecom business units and over-investing in immature technologies.

Gartner believes that the reality for most telecom carriers is a future where they have to strive to be profitable on much lower margins than today. Historically, telecom carriers have been able to depend on high revenue growth from broadband or mobile services, but they now face the prospect of rapidly declining revenue growth.

Gartner predicts that year-on-year growth of total revenue from telecom services (80 percent of total global telecom market size) will shrink to just 1.7 percent in 2010. Gartner expects total telecom service revenues to rise only modestly over the next four years from $1.3 trillion in 2006 to $1.5 trillion in 2010. As a result, Gartner said that over the next few years more carriers will invest in new market sector, such as media or IT, to compensate for revenue losses in traditional telecom services.

However, Gartner warned that more than half of these new approaches will likely fail because many carriers have a limited knowledge of their existing subscriber base -- telcos think they understand customer needs, but they really don't. Also, they often don't understand the new business models they attempt to embrace.

"The synergies between the different business models and markets are very limited," said Martin Gutberlet, research vice president at Gartner. "This type of diversification carries a high risk of losing focus on today's core business priorities such as customer retention and cost cutting, with no guarantee of increased revenue growth in the long-term." Mr Gutberlet said that due to the high risk of failure, Gartner is advising telecom carriers to carefully define risk mitigation and potential 'exit strategies'.

These are certainly tough times for carriers, but the answer isn't necessarily to invest huge sums of money in new business models. Instead, Gartner recommended that carriers look for opportunities with existing customers as a less risky way of securing future revenues. Meaning, carriers should consider how they might improve on the services that they already provide in order to grow their existing client base.

Gartner outlined two potential scenarios for carriers who opt to develop opportunities within their existing customer base. The first option is to improve network access activity and become a pure connectivity provider. Carriers looking to safeguard their profits could do a great deal worse than becoming a 'really excellent bit-pipe'.

Alternatively, Gartner believes that carriers could choose to embrace Internet-based services and become an aggregator, concentrating on facilitating access to Internet content rather than creating it. Those carriers who do decide to diversify into new markets are likely to acquire companies to form new lines of business and Gartner predicts more partnerships between carriers and media or IT service firms.

Gartner advised carriers to separate network access and new non-telecom service units into individual companies so that they can be 'closed or sold' and to create partnerships for non-telecom services to share the risk. Perhaps IPTV services would be a good example.

From an enterprise point of view, Gartner warned that carriers will offer more complex bundles, which will make service selection and contract negotiation more difficult. It advised enterprise buyers to evaluate carefully the value of commercial telecom bundles to avoid buying extra services that are not needed. Clearly, these are troubled times for telecom service providers.

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