Johannesburg, 20 Aug 2008
Telecommunications carriers, facing increased competition from companies taking advantage of the global Internet, cost pressures and consumer demands must restructure now, or resign themselves to being utility providers, says Gartner principal analyst Will Hahn.
Hahn was speaking on day two of Gartner Symposium/ITxpo 2008, in Cape Town. Carriers, he said, need to restructure their businesses, and should finance the transformation from utility to service provider on the back of declining voice revenue.
"For the first time ever, the fixed voice services market started to decline in 2005; if the VOIP sector is subtracted, this decline becomes even worse. And, in developed regions, the entire fixed retail market declined in 2005 for the first time ever. We predict contraction for the global fixed services market after 2009," he said.
"Another aspect of this transformation is that fixed data does not grow as a proportion of the total and neither does mobile voice. So three of four elements in the legacy telecoms services pie are static or shrinking. Imagine the plight of the fixed-only carrier under these circumstances.
"Another view is looking at the proportion of the total telecoms market in services and equipment. Clearly, the amount of equipment sold in a given year does not directly lead to services revenue - carriers buy over the medium-term and install much of what they purchase later. But over a period of years, more or less traditional patterns emerge. Historically, the ratio has always been close to four-to-one (as in 2005 and today). In 2001, the telecoms equipment markets were taking an historic beating as a result of the dot-com bust, and the proportion shrunk closer to three-to-one: that is, three dollars of services revenue for each dollar of equipment investment.
"We predict this tighter margin will re-emerge by 2012, not because of an implosion in the carriers themselves (though in individual cases that is certainly possible), but because the revenue mix will be shifting off this chart, and into converged video and content services. But speaking to the legacy sector, this proportion reinforces the sense of crisis. For carriers, standing still is surrender."
Telecoms is also shifting in terms of spend, noted Hahn, with Asia Pacific overtaking Western Europe last year and set to overtake the US this year. "As usual, Middle East/Africa will still be the fastest growing region with nearly twice the CAGR of other regions, but it's still small (though we do see it surpassing Latin America in total size soon).
"Carriers should focus on high-impact/low-predictability events as that is where major discontinuities will come from," he warned. "Take for example the mobile services market. Flat-rate data pricing is coming to mobile data services, coupled with the trend towards open mobile Internet. Third parties and non-carriers will start to formulate their mobile Internet strategy independently from mobile carriers.
"New competitors could emerge from broadcasters, media and entertainment firms. Improved devices capabilities allow for the democratisation of consumers. They have the freedom to choose access channels of their choice. If mobile Internet is too prohibitive price-wise, they can side-load or go to a WiFi hotspot. Mobile carriers stand to lose control. Alternative wireless broadband technology will inject new competition as well."
On the broader market, he said: "Regulators will insist on breaking up bottlenecks in the market. Already the EU is mandating price caps for mobile roaming charges. Structural separation could be imposed on next-generation networks. We expect the levelling of the playing field where competitive advantage will no longer reside with access network ownership or control, but in user experience and service innovation. This change may require new business models.
"Leading communication service providers are transforming their networks, systems, processes, operations and organisations to provide information, communication, and entertainment services to consumers and enterprises in a more efficient manner," he commented. "Several important technologies, (MPLS, FTTx, near field communications, for example) lurk in the near future and have very powerful potential to change the landscape: and in the wave behind that, a crowded tsunami of innovation, new services, consumer trends and improvements to process is on the way."