From: Gabriel Nunes (gabriel.nunes@gmail.com)
Date: Thu Oct 09 2008 - 09:26:35 ART
The Influence of the Financial Crisis on Telcos
interesting...
Type: Advisory Report
Analyst: S. O'Boyle, B. Ostergaard
Report Date: October 06, 2008
Module: Business Telecom Services - Europe , Enterprise Mobility - Europe
SUMMARY
Issue
The credit crunch will negatively impact both clients and businesses
seeking expansion in the short term. But is it all bad? Lack of cheap
investment
money will rein in the ability to add new services, making it harder
to find customers, and toughen up the competitive environment, but
it's hardly a
surprise and it is not accompanied by other signs of crisis such as
inflation and mass unemployment. A greater emphasis on cash flow and a
closer
inspection of business margins and costs may not be a bad thing, it
can even advance restructuring efforts among telcos that under normal
circumstances would be difficult to achieve. There will be business to
be had, but service providers must help the bottom line for enterprise
clients
and provide QoS value and entertainment for consumers.
PERSPECTIVE
Credit tightening means a CapEx slowdown on all fronts. However, a lot
of investments have been made and there are many service development
opportunities in order to mine these investments. Carriers that are on
a NGN migration plan will be under pressure to maintain core
multi-year
strategic investments as it is fundamental to their future business
models and new revenue streams.
European incumbent telcos have used the availability of cheap loans in
2003-2008 to update their core infrastructure and their wireless edge
infrastructures. These investments will now slow down. The telecoms
equipment segment saw a steep decline in 2007 with a growth rate of
just 2%
compared to a growth rate of 7% in 2005 and almost 6% in 2006. The
inability to continue financing own infrastructure developments may
make
carriers more amenable to the idea of separating their services from a
commoditized IP infrastructure encompassing not only their own
infrastructure, but also MAN and utility fibre networks operated by
independent entities. Such a shift driven by EU institutions and
national
regulators may increase the speed of ubiquitous broadband. This shift
may also see more managed services activity from the major network
vendors (Ericsson, Alcatel-Lucent and NSN) to not only build but also
manage and operate national infrastructures, in order to offset the
decrease
in demand from their carrier customers.
European incumbents have used the past four years to reorganize
themselves away from technology determined divisions towards customer
defined business units. This has been an essential shift away from the
former days of monopolistic, public utility operating models towards a
more
competitive, customer focused outlook. With the fast shift away from
fixed line services to mobile services and the accompanying increase
in
competition levels, this is more important than ever before. The
financial squeeze will reduce household spending and enterprise
investments,
forcing carriers to shed cost in order to lower OpEx. Carriers with
too-high cost structures will be under financial strain compared to
those that have
gone through restructuring and have lower cost bases, thus
intensifying the ongoing consolidation in the European telecom
markets. In addition,
those carriers with deeper cash reserves will be in a strong position
to pick up assets as convergence of telecom, media, Internet and IT
industries is
also likely to pick up pace, further driving consolidation activity.
The ability to focus tightly on customer needs can provide significant
new business for the carriers because growing 'green' awareness will
significantly increase the appetite for collaboration services and
TelePresence video conferencing that can reduce travel costs and
increase the
efficiency of a distributed workforce. Machine-to-machine services
that reduce management and production costs will also become hot
properties.
In addition, enterprise service providers will increase their focus on
resilient verticals (e.g., hospital and healthcare, utilities,
pharmaceutical, food &
beverage, government and energy).
On the entertainment front ongoing infrastructure investments are now
evolved to the point where IPTV can deliver entertainment services
that can
compete with cable and satellite distribution, but with the additional
upside of triple, quad and penta play services. However, carriers need
strong
consumer brand partners to break through, and may lose their direct
customer contact in the process. Becoming an 'intelligent' bitpipe is
also not a
bad option for carriers.
As managed service providers have been shifting attention up-stack to
SaaS and virtualized data center services. Such efficiency
improvements
will continue to gain ground and generate more carrier revenues as
companies are forced to do more with less. European incumbents have
moved
a lot closer to their business customers over the past decade - into
the LAN, the desktop and data center management. These services are
based
on multi-year contracts that to some degree will shelter carriers in
the short-term from the crisis. Even the risk-reward contract types
will remain
profitable as they are predicated on creating savings in the network
and IT operations.
RECOMMENDED ACTIONS
Vendor Actions
The financial crisis is an excellent opportunity to launch new
'green' services led by collaboration services that can lower
physical travel
requirements, maintain international connectivity to ensure business
continuity, and improve performance both in the home and in business
processes.
Global carriers need to maintain core multi-year strategic
investments, focus on international "opportunity builds" (with
confirmed, rapid ROI), on
marketing/packaging existing service sets (also customer portal
enhancements, fixed/mobile integration), innovation and adding new
features and
options to existing networks and services.
Carriers must look to the equipment vendors to get creative with
their financial arrangements rather than expecting carriers to make
significant
capital investments on services that have yet to be sold to customers.
There could be a move towards more OpEx financial arrangements for
carriers (e.g., paying on a monthly basis for kit or paying vendors
back on a percentage of the customer deal).
Incumbent carriers need to reevaluate their infrastructure
strategies and model the consequences of a separate, commoditized
infrastructure.
Here deals may be struck with regulators that would provide incumbents
with access to other mostly fiber infrastructures.
Telcos must complete their internal organisational shift to
customer-centric business units to ensure any service to any device
capability. This will
also provide the best position vis-`-vis a commoditized infrastructure.
Managed service providers need to focus on scenarios where
outsourcing has shown reductions in cost and improvements in service
availability
for customers. Also the ability to provide flexible contracts and "pay
per seat or by usage" will be important to show enterprises that their
service
provider partner can help them add/subtract their workplace capacity.
User Actions
Enterprise customers will need to consider their IT and
communications budgets for 2009. Hiring freezes are likely to come
into place and
non-essential projects put on hold. Outsourcing non- core network and
IT services to managed service providers can make sense in this
situation
as it moves the financial pain point from CapEx to OpEx and improving
productivity and the bottom line.
For enterprise customers facing an unpredictable 2009, it is
important to get a flexible contract with "pay per seat" application,
IP telephony and
bandwidth usage and to check customer references and the service
provider's reputation for service excellence (e.g., customer portal
for managed
services monitoring and application performance management).
There are no recommended actions for consumers as they can sit tight
and expect to be offered very good deals on mobile and fixed
communications services as competition intensifies to win their spending power.
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On Thu, Oct 9, 2008 at 5:12 AM, Adam Elghafri <ccie.adam@gmail.com> wrote:
> guys.. i am worried abt the current economical deficit and its effects on
> the internetworking market...
>
>
> any expert can explain the predicted effects?
>
>
> Blogs and organic groups at http://www.ccie.net
>
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