Telcos are facing slower revenue growth, resulting in a slowdown in capital investment. The Ovum report Telco Purchasing Trends (the third annual report in a series previously titled What Did Telcos Buy From Their Suppliers?) demonstrates how telcos are responding to these trends, and provides suppliers with insights into current and future telco purchasing trends.
Our analysis shows that telcos are reacting to the fierce competition in the industry by taking a lean and agile approach to product development and service operations. This is illustrated by their increasing investment in the evolution of their networks to meet the growing demand for data and data services, the drive towards proactive care, and the transformation of their overall business operations to focus on improved efficiency and the exploration of growth opportunities.
The need to drive more agile operations is also reflected in the gradual change of the supplier landscape. Within the IT domain, vendors with analytics and data skills have increased their contract wins by adapting their solutions to meet the telcos’ growing demands. However, the main network equipment providers (NEPs) maintained their lead positions in the network domain.
Capex growth has slowed across the board
Average capital expenditure grew more slowly in 2012, increasing by just 4% following growth of 15% in 2011. This slow growth in capex is a direct consequence of the reduction in the growth of revenues experienced by a majority of the telcos analyzed in Ovum’s report.
Much of this slowdown is due to the poor economic conditions in Europe, competition from new entrants, competition from OTT players offering cheaper substitute services, and unfavorable regulatory conditions. As a result of the reduction in revenues and the slowing of capex growth, fewer contracts were awarded in 2012 than in 2011.
Optimization, monetization the way forward
Telcos have aimed to remain relevant by extending their growth opportunities as well as improving their existing service delivery. The aggressive rollout of 4G/LTE networks; the upgrade of the network core; and the increasing number of IT contracts such as OSS, BSS, Big Data analytics and service delivery platforms (SDPs) all stand as a testament to this trend.
Telcos are embracing IT systems in order to optimize and monetize their assets. Telefonica and Vodafone are strengthening their IT capabilities, as demonstrated by the increased number of IT contracts they awarded in 2012 compared to 2011.
SDPs offer telcos the opportunity to make use of their network infrastructure for the rapid development and deployment of converged and multimedia services. Big Data analytics is becoming increasingly relevant as the volume of structured and unstructured data generated by the network grows exponentially. Identifying actionable data quickly is central to driving the agile approach, and is highly relevant to the competitive telecoms landscape.
Main NEPs held their ground
The main NEPs retained a positive outlook in 2012, despite the structural and business challenges they faced. The restructuring process that NSN resumed in 2010 seems to be paying off; the vendor won a larger proportion of the contracts associated with the evolution of networks to 4G and the deployment of 4G/LTE networks. Alcatel-Lucent and Cisco, which were joint leaders in terms of contracts related to the network core in 2011, maintained their lead positions especially with regard to IP Infrastructure.
There is a growing confidence in vendors’ ability to manage the network, as shown by the increase in the number of managed services contracts that were extended in 2012 and the fact that the average duration of new contracts is now five years or more. Telcos are leveraging vendors’ competence in managing the network to drive opex savings. Vendors have indicated that it is necessary to increase the duration of contracts in order to realize and continue to enjoy these efficiencies and cost savings. This is because contracts with shorter durations (less than five years) do not provide them with the scope and flexibility they require to carry out the cost and network optimizations that the telcos demand.
However, the dominance of the main NEPs in the network domain is not mirrored in the IT domain. The supply landscape for contracts related to IT is fragmented, with large software and IT services players getting involved. For example, apart from traditional NEP players such as Alcatel-Lucent and NSN, which won the majority of the OSS and BSS related contracts, IT service players such as HP, IBM, Oracle, and other IT niche suppliers shared the contracts.
Telco-specific software and services is a particularly busy area of the market, and is destined to provide many opportunities and challenges for suppliers of all backgrounds. This level of competition will give telcos an advantage at the negotiating table, and so suppliers will need to carefully plan their campaigns based on removing business pain for the telcos. If they can do this, they will be richly rewarded – the telecom industry today provides more long-term opportunities than in previous years.
Adaora Okeleke is an analyst for telco operations at Ovum. For more information, visit www.ovum.com/