Gartner Says Three Major Shifts to Transform Fixed Telecommunication Operator Businesses in Europe
Cannes, France 3 November 2004 — Speaking at its Symposium/ITxpo in Cannes today, analysts at Gartner Inc. said stable revenues in the fixed telecom operator market in Western Europe mask significant shifts in the market. Traditional fixed voice service revenues continue to decline and operators are under increasing pressure to find new revenue streams. Gartner highlighted what it considers the three key industry shifts that will transform telecommunication operator businesses.
Convergence of fixed and mobile voice services
Collision of telecommunication services and IT services
Voice becoming an IT application
Gartner said traditional legacy services such as fixed voice accounts for around 60 percent of the total fixed operators' revenue and forecasts a stable revenue growth rate of 1.6 percent in 2005 (growth expressed in Euro). However, fixed voice is facing a declining trend with growing competition from next generation services such as voice over IP (VoIP), mobile, broadband, e-mail and data. Operators urgently need to secure additional revenue streams to counter the fall in traditional voice services. Broadband, managed services and mobile represent the three fastest growing areas. Gartner predicts these services will grow at 25 percent, 13 percent and 8 percent respectively in 2005.
"While the telecoms sector has recovered from the financial debt crisis in the last three years, it is now facing significant new challenges to secure sustained profitability," said Jean-Claude Delcroix, research vice president for telecoms at Gartner. "On the surface, the fixed telecom market is stable, but competition is intense. Revenues will dry up unless operators find new sources of revenue that meet business demand for low cost and fast end to end solutions."
Fixed mobile convergence
Fixed mobile convergence will deliver a consistent set of features and services from any fixed or mobile device. It is made possible by new technologies such as 3G, wireless LAN (WLAN) and IP protocol.
Demand for mobile fixed convergence will come from enterprises that need to control costs and users looking for convenience, more user friendly and higher quality services. Instead of dealing with different fixed and mobile service providers, users could look forward to a one-stop-shop for both purchase and support.
"Fixed mobile convergence means each of us will for example only require one handset, have one number, one voice mail and that we can receive one bill for all our telecoms services," said Katja Ruud, principal analyst at Gartner. "Both fixed and mobile networks will be used for making and receiving calls depending on what is available, where and at what cost. This can provide continuity and quality of service even when people are on the move."
For the operators, the move towards fixed mobile convergence will be fuelled by the need to protect and increase customer wallet share in the face of declining usage of traditional fixed lines. Enhancing the service portfolio to include mobility will be key to this. "Until now there has been more talk than action," Ms Ruud said. "Leading operators have begun to consider how to address the issue of fixed mobile convergence, however, we are still waiting for the majority to move."
Telecommunication and IT services collide
Telecom operators are entering the IT services market offering shared IT services and management of large public projects to generate new revenue streams. The two industries are beginning to consolidate around core capabilities such as infrastructure, applications and business processes.
"Utility computing and shared services are seen as the future of several IT services companies. However, telecom operators have long experience in offering IT utility services such as mobile and wireless applications, messaging and hosting of web applications. This puts them in a good position to compete with IT service providers," said Mr Delcroix.
Three major features will be critical for telecom operators to position themselves for success in this market.
A more formalised and strategic approach to selecting the right ecosystem of partnerships and alliances.
The ability to market scale. Particularly in the infrastructure layers of the service value chain, from network services and IT infrastructure at the bottom up to applications and business processes at the top.
The capability to define and compose integrated solutions and take these to market.
"Looking ahead, all European telecom operators have significant challenges regarding IT services. However, this is something they must now include in their strategy, even though it will sometimes mean they will not own IT service capabilities. Focus, partnerships and the right set of skills will be key to success," said Mr Delcroix.
Voice becomes an IT application
The shift of voice communications towards VoIP has primarily been driven by its potential to reduce costs associated with voice services. However, according to Neil Rickard, vice president enterprise communications at Gartner, to focus purely on cost is to miss a major dimension of the potential impact. "Voice is becoming an IT application and is in the early stages of being integrated into a range of other IT applications.
This will completely transform the way we think about voice communications with significant impact on both telecoms service providers and technology vendors," he said.
Telephony will come together with e-mail, IM and other communications centric applications. Vendors in the conferencing, collaboration and contact centre space already have products spanning voice video and data communications. As communications unifies, each vendor will expand its offer into adjacent parts of the market.
Telephony and messaging software vendors will compete for the same market and the resulting market overlap will be chaotic for several years. This means technology vendors from different areas, such as Microsoft and Cisco, start competing against each other.
"By year end 2007, unified communications platforms will be competing with stand-alone solutions for voice," said Mr Rickard. "We predict that 85 percent of the vendors that have entered the market by 2005 will have merged, been acquired or will have failed by 2010."
For the telecom operators, impact will first be felt in areas such as instant messaging, where presence information will be a key component of many new services. Operators will therefore need to form partnerships with companies such as Yahoo, AOL and Microsoft to provide complete integrated data and voice messaging services. "Operators that fail to recognise this need to play a much larger role in all types of enterprise messaging will struggle to stay relevant in the market," concluded Mr Rickard.
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