Telcos will survive 2014

Another year is done and dusted in the telecom sector, and that can only mean one thing: everyone will spend the last month of the year attempting to predict what's in store for telecom next year.     

Because it's tradition, you see. and our parent publication Telecom Asia are no exception, and once again we're leaving the predictions up to the experts - our readers - via our third annual Business Outlook Survey.

Figure 1: Changes expected in next 12 monthsConducted online last month, we asked telecom players around the Asia-Pacific region to share with us their expectations for 2014 - what will drive their business, what changes they expect, the challenges ahead, and whether any of that leaves any room for optimism.     

The executive summary goes something like this:

As challenging as this year may have been, overall it hasn't dampened enthusiasm for 2014. That said, many concerns and challenges remain the same - namely, finding new ways to make money, putting customers first, fending off new competition and revamping the back office to handle all of that. 

Meanwhile, for many players, 2014 is going to be all about 4G, the cloud, Big Data, OTT and mobile commerce. It's not going to be about voice. But no matter what it is, most companies expect to make more money from it - or at least make as much as they did in 2013. And the plan to achieve that, for many, is to keep doing what they're doing and stay the course.

No doom and gloom

When asked how optimistic they were about the growth prospects in their respective telecom sectors, respondents expressed more optimism than pessimism, although much of that optimism amounts to "steady as she goes". Over 44% of respondents expect no change in growth prospects from the previous quarter. 

Even so, almost 35% are more optimistic compared to the previous quarter, and another 5.8% are "very optimistic". It's also good news that absolutely no one expressed zero optimism on the growth front. So evidently there's a lot to look forward to in 2014. 

That includes money. Much of the optimism expressed in the above question also apples to financial performance expectations. 
More so, in fact. Fully half of respondents said they're more optimistic about their financial prospects from the previous quarter, and almost 10% are "very optimistic". Only 11.5% are less optimistic, and 29% see no change from the previous quarter. And again, no one is pessimistic enough to predict doom and gloom for 2014.  

As for what is going to drive that growth and financial goodness, it's all about the cloud, mostly.  We asked respondents to pick their Top Three business sectors that they think will drive growth next year. Cloud services (including hosting, storage and apps) topped the list for 73% of respondents. 

Interestingly, a close second was mobile commerce (at a little over 69%). That number is a reflection of growing enthusiasm over mobile as a commerce platform, especially in Asia Pacific. According to a recent survey from SAP, well over 40% of mobile users in the region have used mobile devices for a range of mobile commerce services, from buying things like clothes and ebooks to researching products, responding to promotions, and submitting meter readings to utility companies. And another 42% say they're very interested in using m-commerce services and apps in the future.

Rounding out the Top Three is a combination of value-added services (including RCS and content) and enterprise services (both of which were rated by 48% of respondents). 

Tellingly, traditional services like voice and SMS are no longer viewed as key business drivers. Only 13.5% of respondents listed voice/SMS in their Top 3. And even fewer - less than 2% - expect the advent of HD voice to stem voice's decline. That's not to say voice and SMS won't remain significant cash cows for some time - but they won't be driving the business forward.   

4G, Big Data and OTT

We asked respondents to rate the top three technology trends most likely to impact their business next year. 

Unsurprisingly, 4G is the big one. Next year will see even more rollouts of LTE (both FDD and TDD versions), as well as a wave of LTE-Advanced rollouts, which means the disruptive shifts we've been seeing in terms of smart devices, OTT content, usage behaviors, pricing plans, etc will move even more into the mainstream. Little wonder 73% of respondents ranked 4G as the main technology impacting their business. 

Meanwhile, Big Data and OTT/social media also ranked highly (both were cited by over half of respondents) as serious technology disruptors, followed by cloud computing (cited by 48%). 

OTT/social media may be an obvious one, given all the dithering about Skype, WeChat and WhatsApp eating up traditional revenues. But it's worth mentioning that not everyone sees OTT's impact as being wholly negative - a growing number of cellcos also regard OTT as a major partnership opportunity. Additionally, the impact of social media isn't measured just in terms of cannibalization or monetization - there's also the role of social media as a customer feedback channel, which is changing how cellcos look at customer care and experience. Whatever OTT and social media mean to CSPs, one thing is obvious - they ignore it at their peril. 

Meanwhile, Big Data is a fairly obvious choice as many companies inside and outside the telecom sector try to figure out how to harness it and use it to deliver personalized services - but without running afoul of local regulations (which in some cases still haven't been fully hammered out yet). 

At the bottom of the list is SDN, which was ranked by 21% of respondents. However, it's worth noting the impact of SDN does depend on what part of the ecosystem you play in, how well you understand it, and how ready you are to deploy it. And by most accounts, CSPs do understand SDN but have their work cut out for them in terms of actually implementing it.

More money

In terms of changes in the business, we asked respondents what they think will go up, go down or stay the same in the next 12 months. 

The optimism revealed earlier is reflected in the fact that around two-thirds of respondents expect an increase in both sales turnover and earnings in the next year. 

Apart from that, however, the responses are more spread out, with few decisive majorities in each category. Around two-thirds of respondents expect their R&D spend to stay the same. And slim majorities expect no change in wages/salaries and IT upgrades. 

But when it comes to capex/opex, head counts, network upgrades and outsourcing, it really does depend who you ask. 
Generally speaking, however, the survey reveals that most respondents expect them to either stay the same or go up. Interestingly, according to 46% of respondents, the most likely thing to go down is prices (although another 38.5% expect prices to stay level).      

Pressure from customers

As always, telecom players face external and internal pressures, and we asked them to rank their top four pressures for each. 
For external pressures, competition from non-traditional players remains a top overall concern these days - even more so than competition from peers. Telecom players expressed similar concerns last year, and it stands as a signpost of the morphing nature of the overall market as IT and OTT players muscle in on the telecom services space. 

So does the fact that telecom players still face pressure from their own customers. Slowdown in consumer demand is a big worry for our respondents - it made the No. 1 slot more than any other single item. At the same time, respondents said that rising consumer expectations are putting pressure on them to deliver what customers want - to include OTT content - at a reasonable price. Last year's survey reported similar findings. 

Meanwhile, government regulation is a perennial external pressure for many respondents, who typically ranked it in the No. 2 or No. 3 slot. 

On a positive note, graft and corruption is a concern only for around 15% of respondents - and even then, half of them ranked it at the bottom of their Top Four.       

Sorting out the back office

As for the top four internal pressures companies expect to be dealing with over the next year, the answers are rather spread out across the different items listed. 

However, the top internal pressure by far is finding new revenue streams to make up for declines in traditional voice and SMS. Of the respondents who rated it in their top four, 53% put it at the top of their list. 

The back office is also a major pressure point. Almost three-quarters of respondents said that restructuring the back-office infrastructure to enable more flexibility to deliver a better customer experience was a major concern. And indeed, a nimble back office is a key component of finding those new revenue streams by launching new services quickly and efficiently. 
Not far behind the back office is attracting and retaining qualified employees, as well as streamlining IT operations and cutting costs. Meanwhile, items such as increasing network capex to keep up with capacity demands and Big Data investments also made the list for over half of respondents.      

Staying focused

So with the challenges identified and the mood generally more optimistic than not, how does all of that translate into strategy? What will telecom players be strategically focused on in 2014? 

Pretty much the same things they were focused on in 2013, as it happens. We asked respondents if their strategic focus has changed significantly in the past year - over 65% said "no". 

For the ones who said "yes", the reasons given varied greatly, from changes in roadmap portfolios and greater customer focus to revamped business models and plans to deal with OTT competition.

As for specific strategies, many respondents say they'll be looking to expand into new market segments and/or geographical markets in the next 12 months. Of the respondents who selected that item, 67% ranked it No. 1. (It was also the top choice in last year's survey.)

Reducing costs will be the second biggest strategic priority for 2014. Flexible service creation is also on the to-do list for the majority of respondents. The least popular items from our list: M&As and a renewed focus on R&D.

This article first published in Telecom Asia Vision 2014 Supplement

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