Telcos to focus on cost control: Ovum

Forecasts two per cent annual growth in service provider revenues between 2012 and 2018

Telecommunications service providers must continue to focus on cost control to offset relatively flat revenue growth over the next five years, according to independent research firm, Ovum.

It claims telcos have the potential to gain greater economies through their global vendors in terms of network rollout, network operations, network optimisation, customer experience, and service quality management.

In its latest research, A Growth Opportunity for Vendors: Telco Opex (Nov 2012), Ovum predicted a two per cent annual growth in telco service provider revenues between 2012 and 2018.

It attributed this to the carrier struggle with increased over-the-top (OTT) competition, increased end users interest in buying devices and apps than services, and limited customer appetite for usage-sensitive billing.

Ovum principal network infrastructure analyst, Matt Walker, said service providers will keep a tight rein on their capex budgets, but they do need to spend heavily on technology as their customers and the competition demand this.

“What’s changing is that operators are more smartly attacking their operating expense (opex) budgets, which opens new opportunities for vendors,” he said.

“However, to take full advantage of this growth opportunity, it’s crucial that vendors have a true understanding of telco opex – something, which until now has been complicated by the lack of granularity and consistency in carrier financial reporting, amongst other barriers.”

Ovum’s Global Service Provider Revenue and CAPEX Forecast: 4Q12 update (Dec 2012) showed network/IT operations account, on average, for 18 per cent of telco operating costs, of which 60 per cent ($US126 billion) is for spending internally, mostly using salaried staff.

“If you’re an operator, this is a huge cost that needs to be managed. As operators look to lower operating risks and their cost bases, one option is additional services projects that involve the transfer of employees,” Walker claimed.

However, he added that to meet operators’ needs, vendors will have to develop far more complex solutions for carriers than in the past as carriers need help monetising their networks and retaining customers.

“While services projects don’t come with guarantees of profitability, there is clearly some upside for vendors as carriers look to outsource more of their operations. As telcos explore this, vendors need to be creative and aggressive about winning the business – but should not forget to protect themselves,” Walker said.

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