As with any other
major industry, telecom is suffering as a result of the global economic
recession. But couple that with the ongoing trend of falling average
revenue per user (ARPU) that’s plaguing providers in many parts of the
world, and you have an even bigger crisis that can’t be solved simply
by focusing on top-line revenues and freezing the bottom line.
Generally
speaking, ARPUs are extremely low, so for providers to sustain their
businesses they have to introduce new services to market much faster.
So while the bottom line gets squeezed, they still need to make a
profit. Service Providers need to do more with less as investments may
fall, and they need to speed up major transformation programs and focus
on cost optimization and innovation.
As
market pace quickens, it is imperative for IT to change from its
traditional perception of bottom-line cost management to a new role in
top-line value creation. Instead of focusing exclusively on optimizing
internal efficiencies, forward-looking information and communication
technologies must support the business goal of achieving a competitive
edge and long-term profitability.
Today
it is more important for communications companies to target the right
customers and avoid debtor losses through inefficient credit management
processes.
After years in which
fixed-mobile-substitution (FMS) was the center of attention,
convergence is now taking its spot. While media companies have been
feeling the effect of data digitization already for some time,
telecommunication providers are just now putting an interest in
converging technologies. Both mobile carriers with their “home zone”
offerings as well as fixed line operators with their corresponding “one
phone” offering are bringing a new point of view to the market.
Outsourcing Stays Strong
Even if the recession originated in the U.S., the impact is being felt
in one form or another all across the globe. While providers of all
persuasions are being negatively affected by the economic crisis, I am
seeing that outsourcers have actually held up well, which makes sense
since communications providers will offshore or outsource parts of
their business to reduce costs even in boom times. So in leaner times,
this ability to lower spending becomes even more critical, and
outsourcing or offshoring can be a major part of this strategy.
I
expect that offshoring and outsourcing will probably increase or at the
very least continue at present levels. If you look at some of the major
global outsourcers, they really are not in bad shape at all. For
example, Accenture’s outsourcing revenues for a recent quarter were up
14 percent over the same period a year before; its outsourcing
contracts are at their highest levels in more than four years; and it
expects to improve its outsourcing profitability in 2009.
IBM’s
strategic outsourcing business grew 8 percent in the third quarter of
2008 even as long-term signings fall. HP’s outsourcing revenues grew 15
percent and its division had its best quarter in history with record
profitability and significant new wins. CSC also has experienced an
increase in outsourcing revenues, but it has had to reduce its
workforce to stay on target. So generally I’d say that global
outsourcers are weathering the current situation just fine.
Major
European outsourcers such as Atos Origin, Logica and Capgemini are also
holding their own. They are expecting low growth for 2009, but to be
honest that’s par for the course in this market, so they really have no
major concerns. In fact new types of outsourcing have been introduced
like Data Center Outsourcing, Desktop Outsourcing, IT Help Desk
Outsourcing, WAN/Managed Network Outsourcing, Near Shore Business
Process Outsourcing and much more.
The
top-tier Indian outsourcers – Cognizant, Satyam, TCS, HCL Technologies,
Infosys and Wipro – also appear to be in good shape going forward.
While this market previously enjoyed phenomenal growth in the 35 to 40
percent range, that number will drop quite a bit as will talk about
large transformation projects.
Focus on Cost Cutting
Long-term signings will decline, and rather than the big projects that
have been touted in the past few years, we’re most likely going to see
many more shorter-term projects where there is much more visibility
into return on investment. Before the recession, most operators would
depreciate their data center costs over the long term; but now it’s
more about what advantages can you get over the next year after buying
a system. So instead of seeing results in 10 or 15 years, they need
them right now.
I would say this is definitely the reality for the larger telcos today.
For
smaller providers, it may not be at this same level of concern, but
they also do have to squeeze costs out of their business by
consolidating their data center from a distributed environment to a
common platform and utilizing such technologies as cloud computing and
virtualization. Any possible means at their disposal to lower costs has
to be utilized.
Service Providers need
to focus on applying economies of scale to operations so that they can
offer better, cheaper and more reliable applications. They can look at
alternative pricing models and adopt current trends in technology
outsourcing including application service provider, cloud computing,
mobile enterprise and the Software as a Service (SaaS) platform.
The Future of Managed Services in Telecom
Managed Services began to gain a real grip and prominence as a distinct
service offering following the financial pressures resulting from the
telecom crisis of 2001-2002. A Managed Services provider can support
several operators in a geographic region. It can also provide the
necessary expertise for both transitioning between and managing
existing technologies at a fast pace.
Analysis
of current telecom industry trends and their likely development
suggests continued expansion of the Managed Services market over the
coming years. As the telecom industry matures, operators will continue
to increase their focus on finances, supporting the use of Managed
Services. The emergence of new technologies and converging networks
will support a continued interest among operators. This leads to a
higher potential for economies of scale and cost savings.
For
example, Vodafone Europe wanted to manage the supply and distribution
of spare parts for its mobile networks, including responsibility for
logistics, warehousing, repair and replacement. The benefits drawn out
of Managed Services were greater cost efficiencies through lower
average prices as well as enhanced service levels.
Creating New Business Models
I think the watchwords for the next 12 months have to be competence and
innovation. From a telco standpoint, being able to use innovation to
increase the top line is critical; and from a supplier or system
integrator point of few, we’re working in partnership with telcos to
focus much more on increasing competency.
Presently
when we face changing consumer and technological demands, companies are
often stuck with costly telecom management systems and processes that
fulfill neither their current nor future needs. For Telefónica in Latin
America, the problem was revenue leakage from its range of different
systems. T-Mobile in Germany wanted a partner to consult on ongoing and
future transformations. These are daunting tasks, but we see hope. A
proper telecom management transformation can turn this patchwork
liability into an efficient tool for both cutting costs and generating
revenue. This change requires a change in mindset. A broader business
view must now drive systems and processes management, not technology.
I
would also add standardization on the list of things providers need to
focus on to bring down costs. All the work we’ve done in TM Forum with
the Solution Frameworks (NGOSS), Business Process Framework (eTOM),
Information Framework (SID) and the Application Framework (TAM) will
help telcos to see where they need to cut down on any additional
spending they may have.
If operators work jointly with TM Forum and the right suppliers and system integrators and eco-value-players, it’ll be a win-win situation in the near-term and go a long way to keeping everyone on the path toward profitability.
By Alpna J.
Doshi, CSO Office, Global Business Head – Solutions Frameworks and
Industry Native Solutions at Satyam Computer Services and Member of TM
Forum’s Board Executive Committee