Communications Industry Still Mulls Transformation Despite Big Economic Headache

Whether communications providers prioritize their response to the current economic downturn or their own internal transformations ranked as one of the key themes at Management World 2009, which took place last month in Nice.

Up for debate was whether providers are more worried about economic uncertainty or how to remake their own business model, which faces sustained competitive and technical threats.

Some providers' thinking in this area became apparent in the results of a new survey jointly conducted by TM Forum and NetCracker and released during Management World. Providers' immediate anxiety is the wider economy, but when the macroeconomic cycle improves, they intend to revert to their normal headaches, said survey respondents interviewed in the four weeks prior to the Nice show.

Not surprisingly, most providers think the economy is the biggest obstacle for the industry to immediately overcome. Nearly 60 percent of survey respondents saw it as one of their three biggest challenges over the next 18 months. The next most popular concern attracted between 40 percent and 50 percent of respondents.

But asked to look three years into the future, and the picture changes for most providers. They point to the re-emergence of traditional fears such as new competition, technology change and a lack of business agility. The state of the economy does not even rate a place in the top five worries, pointing to the industry's expectations of how the economic cycle will turn.

"One would have to be blind not to be concerned what is happening in the wider economy, but in a longer perspective the communications industry is very confident" says Sanjay Mewada, NetCracker's vice president of strategy.

Some of the other responses in the survey are more complex to decode. When asked in another question about their top three priorities over the next 18 months, respondents opted for technology evolution ahead of cost reduction. A strong preference for cost reduction might have been expected given providers' preoccupation with the economy. Instead cost reduction ranked only second alongside operational agility and customer focus.

"There is a fairly straightforward explanation. One of the largest costs today is managing legacy systems, and one of the key ways to reduce that is to begin migrating to next-generation systems," says Mewada.

Considering the same question over a three-year cycle, respondents changed their views again and pushed network evolution down the agenda. It ranked of equal importance with customer focus, operational agility and new services & revenues.

The industry will still feel some pain from budget cuts, according to the survey. While cost reduction may not top the priority list, budgets are definitely under pressure in the view of respondents. They forecast a reduction of between 8 and 15 percent in 2010 budgets from 2009 levels. This figure refers predominantly to OSS/BSS investment. Some outliers are projecting even more gloomy figures with isolated talk from some operators of 25 percent cuts in spending.

The survey consisted of interviews with 25 leading figures in the communications industry. They included leading fixed, mobile and cable operators from the largest markets around the world, alongside top industry analysts and other thought-leaders.

But possibly the survey overstates the bad news, according to Keith Willetts, chairman and CEO of TM Forum. He has heard of CFOs who cut savagely last autumn when setting budgets for 2009. Subsequently, this was seen as an over-reaction. "Most people I talk to are very aware of the upside opportunity and are going back to ask for a renegotiation of the budget," he says. If rerun in a few months then the survey might produce more positive budget projections, he adds.

There is a wide acknowledgement in the industry that internal transformation such as migration to a single IP network must be undertaken whatever the economic situation. "I get asked far more 'how do I do right?' rather than 'should I do it?'" says Willetts. The Forum will be following this survey with an in-depth analysis on the same subject in June.

Another question from the survey asked providers to pick out their best three opportunities for gaining new revenue. Overwhelmingly, respondents pointed to new services. About three-quarters picked out examples such as SaaS, mobile data services, personalized services and broadband delivery as one of their three choices.

In second place came innovation and convergence, both gaining support from about 30 percent of respondents. Key among the innovation suggestions was SOA, SDF and cloud computing.

Next, respondents were asked what were the top three innovations they would like to see in the BSS/OSS market. Most voted for network and IT integration. The option was chosen by 30 per cent of respondents, ahead of SOA/modularity which attracted between 25 percent and 30 percent support. Standardization came in third with between 10 percent and 15 per cent support.

Finally, respondents were asked what they saw as their biggest three challenges in the BSS/OSS market. Lack of standardisation led the way with 20 percent. Not surprisingly, financial concerns finished highly. Gaining a higher return on investment (ROI) came second ahead of lower total cost of ownership (TCO), the network/IT divide and shortening cycle time all of which were chosen by 10 percent of respondents.

The purpose of the survey is twofold: give a sense of perspective to those in the communications industry about how the downturn will impact their businesses and project the long-term benefits of the industry to an audience in the wider economy. Judging from the survey, the industry is telling the world it will soon look beyond macroeconomic concerns. There it will find a whole new set of challenges.