There’s a semi “new” trend emerging in the telecommunications industry, and it’s the adaptation of IT-like offerings for current and new customers. These offerings can range in scope from basic services like storage to a full-fledged services model, or “managed services.”
On the surface this concept might seem a little strange or perhaps downright unconventional, but upon closer examination it makes a lot of sense. After all, aren’t we tuned to think in terms of our core capabilities….what it is that we do best…and how we can do it better? Telcos are no different. They have strong motivation to extend their offerings in support of their basic strategies, and moving to an IT-type business model makes good business sense.
Consider some of the services that the telcos are currently providing; they are variations of IT services. One example is IP Centrex, or voice over packet service. Isn’t IP Centrex just another way of saying, ”Let me have your PBX. I’ll manage it, and you’ll just buy the voice service from me.” In the IT world, this is known as “ASP,” or application service provider. Other examples are storage on demand and cloud computing services. These are simply adaptations of the IT distributed systems model that was popular in the 80s.
So what’s fueling this adoption of IT strategy/offerings by the telcos?
First and foremost, it’s the infrastructure. What a telco has, and other types of organizations lack, is the infrastructure to reach the customers. One might argue that in the Internet age this infrastructure is available to everyone, but this is simply not the case. Why? The telcos have the ability to prioritize traffic, and the SaaS (software as a service) companies do not. Tools and mechanisms such as deep packet inspection and quality of service make it possible for the telcos to offer priority-based services that include IT-type offerings.
Another factor is the decreased rate of ARPU (average revenue per user) from traditional voice services. Yes, ARPU has been declining for several years, and yes it’s not news that telcos are seeking new revenue-generating business. So why not address this market? After all, enterprises are the telco’s main customers. And guess what? The competition is at a disadvantage. The IT service companies of the world cannot provide connectivity between the branches (WAN); it has to be bought from the telcos.
Organizational structure also plays an important role. As part of their core business, the telcos have service bureaus in place that can provide full lifecycle capabilities including service definition, service creation and management, installation, troubleshooting, maintenance, support and more. These capabilities are normally not found within IT companies.
And then there’s strategy. If a service requires the use of core capabilities – for example, connectivity – then it’s not far removed from the core and can be offered by the telco. Many new services offerings were born in this same way – IPTV, to name one.
Also energizing adoption is technology. Until recently, the idea of IT-based services was present within only a small number of “innovators.” But the reduction in storage costs and the decline in bandwidth prices have allowed this trend to materialize and move over to the “early adopters.”
Finally, perhaps what’s most attractive about the IT-type business model is that it presents little to no cannibalization of the telco’s existing services – because rarely do these IT-related services run over onto other parts of the portfolio. A win-win for the telco.
Going forward, it appears that the telcos will have a growing stake in the IT services market.
What do you say? Is this a short-lived trend or a strategy for the long haul? How will this all play out?
Oren Barkai (B.Sc. EE, MBA)
Senior Product Manager & Solutions Team Leader
ECI Telecom