Network infrastructure is the basis for all funding of telco activities; as such, telcos must not only keep the cash cow alive, but also strengthen it. Management of network infrastructure is easily belittled as a subject for engineering nerds — but it must be treated as a key strategic matter.
Outsourcing the management of or sharing network infrastructure delivers many benefits, and we expect telcos to do this more and more in the years ahead. Telcos need to balance the simultaneous requirements of cost control, enhanced business flexibility, and innovation to incorporate the right approach to external network infrastructure management into their future strategies. Equipment vendors, meanwhile, must adjust their business to keep up and partner with traditional IT services providers.
Many more telcos are moving toward sharing or outsourcing some or all of their network assets and operations to partners or suppliers, becoming “telcos without networks.” This provides an opportunity for some telcos to shift their focus and resources to:
Cost control and transparency. The decision to share or outsource network assets and their operation is primarily driven by financial needs, in particular to bring the total cost of ownership down, spread expenditures over time, and allocate costs in a more transparent manner.
A better customer experience. Increases in data traffic require telcos to enhance their network and service delivery infrastructures and improve network coverage in order to maintain the quality of the customer experience. Moreover, telcos face regulatory requirements for improved rural network coverage, which can be more readily satisfied by network outsourcing.
In their Asia Pacific Tech Market Outlook For 2012 report, Andrew Bartels and Frederic Giron show that government and business IT spending in the emerging markets of Asia (including China, India, and the ASEAN countries) will reach US$180 billion in 2012, growing by roughly 13% over 2011. While emerging Asia’s IT spending is surging this year, economic obligations in the developed markets of North America, Europe, and Japan will ensure continued austerity — and limited IT spending growth. In other words, emerging Asia is clearly a lucrative region of opportunities for US, European, Japanese, and South Korean vendors looking for new sources of growth to offset lower business prospects in their home markets.
Asia is a region of highly disparate countries, with regulatory complexity, cultural differences, and a limited pool of skilled resources. These barriers to entry and expansion will compel vendors to look beyond organic growth, which is simply too time-intensive. Instead, mergers and acquisitions (M&A) of local/regional incumbents with local know-how, skills, and client relationships will increasingly be a strategic imperative for vendors targeting emerging Asia. I’ve highlighted some examples from the Indian market below, but I foresee similar trends in the overall ICT sector throughout emerging Asia: