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Foreword
According to a recent report, the telecommunications industry is in danger of creating a revenue gap, brought on by a conservative attitude to investment. Lynd Morley explains
There is a growing optimism in the telecoms market that has been – very gradually – gaining momentum since the dark days of the late 90s. Yet despite all the undoubted new opportunities – in terms of both technologies and markets – the industry’s inherent financial and business conservatism risks holding it back.
“Leading players are scared of making the wrong bets, but this means they are not making any bets at all, and this is a major worry,” explains Richard Ireland, UK Telecommunications Leader at Ernst & Young. “Without investment in platforms and content, operators won't be able to develop the services they need to plug the coming revenue gap.”
It is precisely this potential threat to revenue that Ernst & Young examines in its recent report, Next Generation Gap, noting that unless the European telecommunications industry commits to investments in infrastructure, branding and content, it faces the risk of a shortfall between growth expectations and future revenues.
Telcos' reluctance to make these investments has been a major factor in the slow growth of content and data services according to the report, and it is this sluggish growth and shrinking revenues from legacy services, that will create a 'revenue gap' – in as little as three years' time.
“Accelerating technological innovation and shifting regulation are causing real uncertainty across the European telecoms industry,” says Ireland. “Legacy revenues are declining faster than revenues from new services are growing. But there is still time to close the gap. Companies need to continue their cost-cutting efforts as well as invest heavily in infrastructure, branding and content to attract and harness demand. To succeed, telcos may need to work closely with a range of partners, notably content and technology providers.”
At the same time, technology vendors face challenges of their own, as low-cost competition from emerging markets drives down costs in IT hardware and services. However, the need to improve telecoms operators' OSS/BSS systems is presenting huge opportunities to technology players – to run telcos' processes and infrastructure more effectively, as well as to provide new technology to enable the effective delivery of next generation services.
“There is a crucial role and a great revenue-generating opportunity for technology players in the move to next generation technologies and services, but success will depend largely on how they adapt to and harness opportunities arising from the changing competitive landscape,” says Ernst & Young's Chris Harrison. “Telecoms operators' search for services is driving them into direct competition with the technology players – the same suppliers they look at to provide innovative technologies. As dividing lines between the industries continue to blur, circumstances will arise where two companies that are rivals in one area may well be partners in another. The question is whether technology companies have the maturity to collaborate with competitors to deliver those solutions.”
Clearly, it is well past time for telecoms to finally – and completely – shed the unadventurous habits acquired through years of being a monopoly industry. There are no absolute certainties in the current market, but as Richard Ireland notes: “Uncertainty may create many opportunities. Those companies that focus on building and accelerating next generation revenues, rather than shoring up declining legacy streams, and those that can collaborate flexibly with a range of content and technology providers, could emerge as winners.”
– For details of Next Generation Gap, go to: www.ey.com
• Lynd Morley is editor of European Communications
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