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Software: The 'telecom' potential
Sep 23, 2008

The telecommunications-related IT services and software market offers significant opportunities for Indian IT services providers and software vendors. The mature global telecom sector and booming Indian telecom market has been witnessing certain technological and operational challenges, which have resulted into growing business opportunities for the software companies catering to them. Let us look at the broader opportunity emerging in the telecom software development and outsourcing space. Global telecom industry – An overview
The global telecom services industry has undergone a series of changes and has evolved over the past decade as state-owned Telecom Service Providers (TSPs) have been privatised and governments have enacted liberalisation. In addition to these developments in the area of fixed-line services, the development in mobile services has also transformed the global telecom services industry over the past few years.

As a result of the above factors, there has been a significant growth in the industry’s size. As per a global research agency – Datamonitor – the global wireless telecom services market is projected to grow at a compounded annual growth rate (CAGR) of 11.8% during the period 2005 to 2009 to reach a size of US$ 970 bn. The global fixed-line telecom services market is expected to grow at a CAGR of 4.6% to reach a size of US$ 696 bn this time.

So how does that benefit IT?
Growth of the telecom sector brings with itself tremendous potential for the growth of the telecom software market going forward. As per a report from another industry research agency – Ovum Research – the global spending on software and IT services by TSPs is expected to grow to US$ 38 bn in 2009, a CAGR of 5.8% since 2005. The following chart shows Ovum Research’s projections on spending by TSPs during the stated period.

Apart from TSPs, there is another market that is been targeted aggressively by Indian technology companies - the Telecom Equipment Manufacturers (TEMs). TEMs provide the network equipment required by TSPs, including the switches used by fixed-line operators and handsets used by the customers of mobile TSPs.

TEMs have played a major role in the migration of TSPs to next generation networks, and subsequently reduce the costs associated with deploying applications to run such a network. They have also designed increasingly advanced mobile handsets, which serve as the platform for advanced data and content services. According to a Datamonitor report, the TEM market is expected grow at a CAGR of 3% between the years 2004 and 2009 to reach a size of US$ 348 bn.

Specifics of the ‘telecom’ opportunity
Here are some specific areas where the IT industry is required to play its part in the growth and evolution of the telecom sector -

  • The migration to next generation networks (NGN) in the telecom industry represents a significant opportunity for IT services and software providers. NGN is a broad term used to describe changes to telecom core and access networks to provide for modern day voice, data and media services that will be deployed over the next 5 to 10 years. This migration to NGN would require successful handling of complex business functions of converged networks and provide solutions across multiple network elements.

    The focus on NGN technology has also resulted into TSPs rationalising and standardising their networks in order to reduce the maintenance burden and free up capital expenditure. For this, outsourcing is increasingly the preferred route. A case in point is Bharti Airtel outsourcing the deployment of its network to third part technology companies like IBM, Lucent and Ericcson. This is expected to aid Indian software firms which are catering to the telecom industry.

  • Another area in the telecom industry where a large amount of IT expenditure is happening is ‘billing’. This segment is expected to continue to bring higher revenues for IT service providers as the customer base of TSPs keep increasing.

  • The Customer Relationship Management (CRM) and business intelligence (BI) of TSPs’ are areas that are growing very fast. IT services spend in CRM is expected to grow at a CAGR of 10% over the period 2005 to 2009 (as per Ovum Research).

Conclusion
The growing competition in the telecom space has made IT services a critical element in determining cost efficiencies of TSPs. Due to competition, telecom players are witnessing pressure on margins which has forced them focus on reducing costs. This has led to these companies outsourcing their non-core (technology) functions while remaining concentrated on their core strengths of branding and marketing of telecom services.

Further, in order to reduce the rate of decline in average revenue per user (ARPU), mobile TSPs are focusing on providing their customers with high-end value-added data and content services. To attain this goal, IT services and software vendors are being used to provide mobile TSPs’ clients with attractive new data propositions and the solutions to support them. These initiatives, we believe, are expected to result into higher spend by telecom players towards technology going forward.

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