Telecom service providers with regional strongholds are challenging the dominance of global telco giants.
Ovum’s report Global deals analysis 1H11: Challengers in Focus shows that 15 service providers signed multinational services deals with total contract values (TCVs) of more than $10 billion (€7.6 billion) in the first six months of 2011.
Both the type of deal and the type of enterprise customer is changing under the influence of new ICT and emerging markets.
Deals are more compact
The typical telco contract for multinational services signed in the first half of 2011 came out at just under $9 million, a year-on-year increase of nearly $2 million per contract on average. However, the average TCV of the 250 biggest contracts was down sharply, from $43 million in 1H10 to just under $30 million in 1H11.
It seems that enterprise customers are looking for smaller, more compact deals, and not just because they want total cost of ownership (TCO) reductions on renewals (although that is a factor in the first half of every year). There were fewer big deals above $100 million.
Verizon is the standout performer in the deal rankings, not just because it took the single biggest share of the deals going into the pipeline, but because it showed consistently the biggest deals in complex managed services with multinational and multiservice requirements.
Looking down the lists, it has been harder to find end-to-end contracts including services across the spectrum, from bandwidth to hosting, and applications to IT, although conversely it is easier to see value-added services from the applications and IT end of that spectrum. It looks like enterprises are readier to add to their range of services in the contract, which is good news for the service providers that are moving up the value chain.
Buyer profiles changing
The first of our 2011 contracts reports bears out what we saw in our enterprise surveys of CIOs and telecoms managers: the increasing presence and influence of large enterprises and potential multinational corporations based in emerging markets.
These companies are starting to grow regional and global operations, and the marketing and business systems associated with them, and they are signing their first managed ICT agreements. At this stage, their deals are relatively small when compared to the standards of US and European multinationals, which is another reason for the shrinkage of the average TCV number, but they are important growth opportunities for service providers.
2011 deals confirm challenger impact
The “Big 5″ telcos (AT&T, BT Global Services, Orange Business Services, T-Systems, and Verizon) have shown their commitment to emerging markets, with several announcements of investments in regions such as South & Central America and the Middle East & Africa; Mexico, South Africa, and Turkey are particularly hot targets.
However, the Big 5 are not going to have things all their own way. Challengers such as Telefonica and Tata Communications (TCL) have also won business in these markets. Telefonica led the charge: its major deals grew at a significant rate, enough to muscle in on the Big 5 at the very top end of deals, while TCL’s investments in high-definition and immersive videoconferencing have put it on a level playing field with the established players.
The Indian operator’s strong ratings on network performance in our user surveys show also that emerging players are catching up fast. It is up to established telcos to persuade the enterprise customer that the global telco can offer account management, service desk, and professional services that immature players cannot. Customer service support is fast becoming the new battleground.
David Molony is a principal analyst for enterprise telecom at Ovum. For more information, visit www.ovum.com/