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Why telco-only vendors are falling on hard times

Why telco-only vendors are falling on hard times

"The telecoms business is not what it used to be and many telco-only vendors are falling on hard times."

When telecoms was booming, technology and network vendors were more than happy to position themselves exclusively as suppliers to telecoms operators rather than to enterprises in other vertical sectors.

But the telecoms business is not what it used to be and many telco-only vendors are falling on hard times.

Vendors that focused on markets such as roaming or SMS, where operator revenues have collapsed dramatically, have been particularly badly hit.

Last week, SMS platform vendor Acision - which at its peak was turning over $US500m per year - was acquired for $US135m by digital services enabler Comverse and Comverse itself sold its BSS/OSS division to Amdocs in April.

Even the largest providers of network technology and IT systems are seeking to diversify away from their core network business. They can either increase the range of products and services they sell to telecoms operators or expand into adjacent markets.

Chinese technology giant Huawei is looking to do both. It is seeking to reduce the reliance on its core mobile networks business by becoming a leading mobile handset vendor and is aggressively building up an enterprise services division.

Nokia went in the opposite direction by simplifying its portfolio and becoming a dedicated mobile broadband network vendor but it has now moved to capture Alcatel Lucent, which will give it a broader portfolio of products and services to offer telecoms operators.

Ericsson is the network equipment provider (NEP) which has consistently - for the last five years - positioned itself as a technology enabler for different industries.

Its “Network Society” vision has become its key brand positioning. But this is for the benefit of Ericsson’s customers - telecoms operators - rather than for enterprises or other end-user organisations. Ericsson’s route to market remains the telecoms operator.

Read more: Opengear growth soars in A/NZ

The convergence of telecoms technology and IT is a trend that is causing telecoms-centric vendors to question their narrow market focus. IT vendors such as Oracle, HP, and IBM sell the same products and services into various vertical markets.

They are pitching their SDN and NFV capabilities to enterprises across a number of verticals (although it is the telecoms operators that seem to be ahead of the curve in terms of their willingness to embrace these new technologies).

The NEPs’ key priority is to defend their telecoms operator business from IT vendors but part of their thinking also is that the new technologies and capabilities they develop may give them the opportunity to address the enterprise opportunity.

As enterprises across a broad range of industries undertake digital transformation programs, they will themselves become digital service providers, acquiring some of the same technologies, products, and services as telecoms operators.

Expansion into ICT services has become an obsession for many operators and vendors.

Some parts of the telecoms technology industry are already benefitting from the growth of digital service providers - in this case, Internet content providers.

Although sales of optical network technology to telecoms operators have been stagnating recently, this sector has been bolstered by the emergence of a new market for interconnecting the Internet content providers’ data centres that criss-cross the globe.

Telecoms operators’ lack of success in entering new consumer and enterprise service markets has been a major frustration for their technology suppliers.

The telcos’ focus is now shifting to a partnership model in consumer services and investments in the ICT services market - specifically cloud and M2M.

Telecoms-only vendors will continue to focus their efforts in these areas on enabling the telecoms operator.

But vendors want to become more proactive in their approach and become partners rather than merely suppliers.

This week, Huawei and Vodafone announced a strategic alliance that will involve using Huawei’s technology to develop new products, including indoor network coverage, M2M module design, smart cities, and data centres.

Even for Huawei, which is building out its own enterprise business, partnering with existing customers is preferable to going it alone (and potentially in competition with operators).

The alternative would almost certainly mean having to join the race to partner with other companies such as systems integrators.

By Mark Newman - Research Analyst, Ovum

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