Telecoms carriers can make huge savings by converging their networks, and create a platform for substantial new growth, according to research by Bain, the US-based consultancy. Companies could save between 20 and 50 per cent of their total operating costs, it says.
“Carriers today support a myriad of networks, each with separate billing systems, unique provisioning systems, distinct product development groups, different physical equipment and locations, and so on,” said Ron Kermisch, a partner in Bain’s global technology and telecommunications practice. “Convergence will eliminate disparate networks by bringing them all on to one common, packet-based network, which will produce dramatic cost savings.”
Bain’s conclusions follow more than three years of work with telecoms clients, and independent research, from which the company has built a detailed economic model. The research covers what Mr Kermisch called a “representative sampling” of telcos, primarily in North America and Europe.
With telcos “hitting bone” in their attempts to cut costs, they needed something that would dramatically change their cost structure, he said. Network convergence provided this. “The savings were larger than we thought they would be,” said Mr Kermisch. “It is striking how much redundancy there is in organisations to support all these networks.”
While the savings are substantial, the benefits of convergence for carriers go beyond reduced costs. Convergence will enable carriers to compete effectively in the managed services market – worth an estimated $70bn in the US alone – a critical emerging opportunity for telecommunications companies. For carriers that are battling for enterprise customers, selling such services could be their only organic growth opportunity, said Mr Kermisch.
Bain uses US terms to identify three types of carrier with different competitive positions to address this market. The newest competitors – companies such as Global Crossing and Level 3 – are converged by definition, and offer a full suite of services on an integrated IP network. Then come the RBOCs (regional Bell operating companies), which have most to lose, says Mr Kermisch. They need to carefully manage the consumer voice-based revenues they have won over the past few years and defend themselves against local access line substitution.
Finally the IXCs (interexchange carriers, or largely long-distance carriers such as AT&T and MCI) will, out of necessity, be the most aggressive in going after this opportunity. They have the customer base where convergence is most relevant – enterprises – and they are in the most difficult financial condition. Convergence also provides them with the foundation to go after the local market if they so choose.
To read more details on the Bain study in an opinion article by Mr Kermisch and colleague Paul Smith, click here for the Soapbox section.
Other research news
Outsourcing: Europe has overtaken the US as the leading market for outsourcing contracts, according to TPI, a UK consultancy specialised in outsourcing. In 2004, Europe took 49 per cent of the market for large deals worth more than €40m, while the US had 44 per cent. The value of the contracts awarded hit a record high of €58bn worldwide.
IT workers in the US and Europe are right to be concerned about the growth of offshore outsourcing as TPI’s figures show that 40 per cent of the contracts awarded in 2004 on which it advised contained an offshore element. In these deals, around 38 per cent of the contract value moved offshore.
In similar vein, Frost & Sullivan calculates more than 820,000 IT jobs were lost to lower-cost countries in 2004 from the US, Japan, the UK, France, Germany and Hong Kong.
“Losing customers is becoming a painful experience that operators can ill afford,” says a report out later this month from UK-based research consultancy Analysys. It estimates that excess customer churn hit European mobile operators with €4.5bn in unnecessary costs and €5.6bn in lost revenues in 2003. This represented 8.6 per cent of total mobile revenues, according to the consultancy. It defines excess churn as “all churn in excess of 12 per cent, which is the best churn rate achieved in a European market.”
Eddie Murphy, author of the report, Retaining Customers and Minimising Churn: Strategies for Mobile Markets, says: “Losing fewer customers than competitors over a prolonged period is an effective way to continue growing revenues in a saturating market. “There is a strong correlation between lower churn than competitors and better performance in customer numbers, revenue and earnings.” he addsThe report shows that an operator which improves churn by nine percentage points compared to the average of 21 per cent could increase revenues by 25 per cent to €4bn from €3bn. But when churn rises to 35 per cent its revenues halve.More on: www.analysys.com.
Brazilian mobile market: Global System for Mobile (GSM), the mobile standard used in Europe, looks set to overtake the two other mobile standards in Brazil, despite being introduced years later.
Brazilian regulator ANATEL says GSM has already overtaken Code Division Multiple Access (CDMA) to become the second most widely used mobile technology in Brazil. At current growth rates, it could overtake Time Division Multiple Access (TDMA) by the end of the first quarter. Introduced in 2002, five years after CDMA and seven years after TDMA, GSM had 18.75m users in Brazil, a 30.65 per cent market share, by November 2004. This compares with CDMA’s 18.16m (29.67 per cent) and TDMA’s 23.91m (39.07 per cent).
Brazil’s mobile growth has accelerated since the launch of GSM, and the country is now the world’s fourth largest mobile market, according to the organisers of the 3GSM World Congress 2005, to be held in Cannes from February 14-17. More on www.3GSMWorldCongress.com.
CIO’s spending plans: Chief information officers expect IT budgets to increase by 2.5 per cent in 2005, and believe their focus will be on supporting business growth and results, according to a survey by Gartner Executive Programs (EXP), a unit of Gartner. In the past few years, CIOs have had to focus on internal efficiency and cost control, while preparing their organisation for an economic upswing. CIOs also voiced concerns about their relationship with the CEO and whether they have the right people to meet current and future business needs.
Gartner EXP surveyed more than 1,300 CIOs representing $57bn in IT spending, covering more than 30 countries. It has presented the findings from the survey in the report “Delivering IT’s Contribution: The 2005 CIO Agenda”.
“Business expectations are now forcing CIOs to transform the IS organisation and2005 is the year where CIOs must deliver more value and become a contributor rather than a commodity,” said Marcus Blosch, group vice-president and research director for Gartner EXP. “They must do this without large up-front investments and CIOs are turning to business processes and business intelligence to meet this challenge.”Gartner said contributing to business growth starts by providing secure, high quality and cost effective IT services. This is mandatory and a baseline for IT’s credibility. It is reflected in the top technology priorities for 2005, where security features at the head.
New base stations for old: Ericsson, the Swedish mobile equipment company, has won a supply and systems integration contract to replace 10,000 of T-Mobile Germany’s base stations.
“Ericsson will modernise and increase efficiency in T-Mobile’s GSM network to pave the way for future business growth,” said Bert Nordberg, executive vice president, group function sales and marketing at Ericsson.
The company said the challenge in replacing existing base stations with the latest GSM/GPRS technology was to do so “without causing disturbance in the service quality for the customers of T-Mobile”.
The replacement operation begins this month and is to be completed in three years. T-Mobile Germany is the German arm of Deutsche Telekom’s mobile business.
Siebel’s SME push: If at first you do not succeed... Siebel Systems is once again trying to boost sales of its customer relationship management (CRM) software with smaller and medium-sized enterprises.
The CRM giant has unveiled a new SME strategy designed to overturn the perception that its CRM software is overkill for SMEs and its salespeople are only interested in big deals. “Penetrating this market is a key component of the next phase of growth for Siebel Systems,” says Mike Lawrie, CEO of Siebel Systems. The US vendor estimates that only 2 per cent of US small businesses have implemented CRM.
For this, its third attempt to crack the elusive SME market, Siebel is employing a three-pronged sales strategy: its own salesforce, a network of regional value-added resellers, and IBM, its long-standing partner and a respected name in the SME market. Siebel hopes to get SMEs interested both in its hosted solution, Siebel OnDemand, and its traditional on-site software.
Analysts see the move as a belated response to the success that start-ups such as Salesforce.com and RightNow have had in the SME market by remotely hosting CRM software. Microsoft is also a growing threat with its a well-received CRM product aimed at SMEs.“To convince SMEs that it is serious about this market on its third attempt, Siebel must deliver on its promises,” says the Gartner Group.
US banking deal: JPMorgan Chase, the US financial giant, is acquiring Vastera, a US company that specialises in global trade management (GTM) technology and services.
The deal, worth $129m, seems an unusual departure for a bank but it reflects the growing importance of technology in managing global trade and complex supply chains. Lucent Technologies, for example, uses Vastera to manage the import and export of telecoms equipment into and out of China. Along with other banking institutions, JPMorgan Chase has long been involved in the financial aspects of global trade with letters of credit and trade financing. Now, it can offer customers a more comprehensive service and software to manage the global trade process.
AMR Research says the GTM technology market has seen much consolidation in the past few years and the trend will continue. In the past six months, US enterprise software vendor SSA Global has bought Arzoon, GTM specialist TradeBeam has acquired Open Harbor, and Kewill Systems, a UK suppler of supply chain software, has snapped up TradePoint Systems.
Products and services
Push-to-talk mobiles: Motorola, the US mobile equipment company, has launched two new push-to-talk mobiles offering walkie-talkie style communication over mobile phone networks. Push-to-talk (see article in our Mobile Working section) is useful for communicating instantly with a group of business people, such as truck drivers or engineers. and is also an ideal way of keeping in touch with a group of skiers on the slopes.
The C698p is a tri-band phone with two high-audio speakers to provide improved sound for business calls, or for listening to music on its built-in MP3 music player. The C381p is a mass-market phone with extra features like being able to pull in contacts from a PC contacts database.
Snowboarders have not been left out by the company either.
It says that next winter, they will be able to switch between their Apple iPod music playlist and ordinary mobile calls in mid-air, through an association with Burton Snowboards, a snowboarding equipment and clothing maker.
Together the two companies have developed special jackets, helmets and beanies (hats) which provide wireless connectivity using the Bluetooth short-range radio standard. The garments will include removable control modules, which can be operated easily to receive a call, without the snowboarder having to get his or her hands cold. The control modules will communicate wirelessly with a mobile or mobile-based device via Bluetooth.
“For snowboarders, using a mobile or an iPod in cold temperatures can be a significant challenge,” says Motorola. But perhaps not as big a challenge as answering a call safely while airborne. More on: www.motorola.com and www.burton.com.
Desktop search tool: Google may be able to do little wrong as far as investors are concerned but IT managers should exercise caution with its desktop search tool, the latest product to come out of the prolific search engine company, says the Gartner Group.
Google’s free search tool, designed to replace Windows’ primitive search function, is still in beta test but that presumably has not stopped employees downloading it to run on their PCs.
Gartner says that two security flaws have been discovered in the software since it was released in October. The flaws were quickly fixed but the consultancy warns that users need to be aware of the security risks. “Enterprise security managers should discourage its use altogether,” Gartner advises. Similar desktop search tools from Yahoo! and Microsoft are also seen as potential security risks.
Groupware initiative: Japanese software companies rarely make an impression outside Japan but Tokyo-based Cybozu hopes to change that with a new version of its groupware product, Share360.
The software is available not just in Japanese, but English, Simplified Chinese, Spanish and half a dozen other languages, It is is aimed at SMEs or branch offices of large enterprises that need a multi-lingual capability and runs on Windows, Linux or FreeBSD operating systems. Cybozu is hardly a household name in the West but it claims more than 1.5m users in Japan.
Digital divide conference: The International Telecommunication Union (ITU) is to hold the fourth World Telecommunication Development Conference (WTDC) in Doha, Qatar in March 2006. It will bring together the ITU’s 189 member states and nearly 290 development sector members to establish information and communication technology (ICT) projects to reduce the digital divide between rich and poor countries.
The conference will also set the agenda for the activities of the ITU Telecommunication Development Bureau for the following four years. “The WTDC provides an important opportunity for the ITU to further its commitment to bringing the benefits of information and communication technologies to all of the world,” said Yoshio Utsumi, Secretary-General of ITU. The conference will be held from 7 to 15 March 2006 and will be hosted by Qtel, the largest public telecommunication provider in Qatar. Regional meetings will be held in 2005. More on: http://www.itu.int/ITU-D/.
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