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Exploring the Big Telecom Vendor Landscape in 2014

Most of the world's leading telecom service providers have already abandoned long-range strategic plans to diversify their business and thereby create new sources of revenue. As an example, the notion of a two-sided business model, where ISPs extract new fees from content producers, has failed to gain momentum.

Instead, most broadband service providers are now focused on two primary ways to optimize their infrastructure and cut-costs within their legacy business model. The first (near-term solution) is to outsource the management and operation of their core networks to vendors that offer full outsourcing or selective managed services.

The second (long-term solution) is to embark upon a supplier diversity program, similar to the AT&T Domain 2.0 announcement last year. This approach includes the adoption of open architectures, low-cost white-box hardware and emerging industry standard software-based platforms -- such as SDN and NFV.

A Race to the Bottom of Legacy Cost Structures

According to the latest market study by ABI Research, their fourth quarter 2013 competitive assessment calls out the recognized leaders in the $10 billion Network Managed Services marketplace. They found that the lead positions within this race goes to the companies with flawless execution on controlling costs.

Overall leaders in order are Ericsson, Nokia Solutions, and Alcatel-Lucent -- based on a combination of Implementation (market traction) and Innovation (managed service as competitive advantage) criteria.

Ericsson easily claims Implementation winner with an unmatched 36.6 percent market share and over 1 billion subscribers under its care.

Second is Huawei, at a projected 22.9 percent market share, and ABI Research believes it will nudge ahead of the third place contender, Nokia Solutions and Networks with 22.1 percent market share.

The Innovation leadership position goes to the challengers  -- Alcatel-Lucent, Nokia Solutions, and Networks and Ericsson -- based on advances in Managed Service automation, cloud offerings, and leveraging the potential of Managed Services for competitive advantage.

The Alcatel-Lucent focus on equipping its customers with competitive advantage, coupled with its focus on automation and cloud delivery, positions it as a most formidable challenger, according to ABI's assessment.

"Network Managed Services is an extremely competitive and tough business where scale and execution are everything," says Joe Hoffman, research director at ABI Research. "We now see Managed Services moving beyond outsourcing and cost reduction as service providers seek to deliver competitive advantage to their customers."

Raising the Bar for Telecom Services Innovation

The challenge for traditional networking vendors in 2014 is that those who aren't focused on cost-cutting must demonstrate that they can offer meaningful and substantive product differentiation. Vendors that plan to maintain a viable position in the status-quo environment of yesteryear are very vulnerable.

The middle ground of "good enough" technology demand will shrink rapidly, as the bare-metal open-source juggernaut gains momentum at the bottom of the value-chain and the relatively few truly unique offerings push downward from their pinnacle at the top.

The future market opportunities will go to the networking vendors that embrace this key market transition -- along with the more attractive forward-looking profit margins.  Professional services depth and breadth will increasingly be used as a distinctive competitive advantage.

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