It’s easy to bash incumbent telcos, to count them as being among the losers in the digital revolution. Cloud services players are taking business from telcos in the storage and server capacity space. Over-the-top providers are free-riding on the telco infrastructure. Software firms are eating into the communication business. Regulators are pressing for further price reductions. And to top this scenario, telcos are continuing to undercut each other in price wars.
During a round of executive discussions with Forrester, Orange Business Services (OBS) has shown that against these odds, it keeps a pretty even keel regarding the most hyped topics in ICT, most notably cloud and mobility. OBS is selective in its cloud offerings, focusing on UCaaS and IaaS. UCaaS is a natural extension of its communication business and thus falls into OBS’ home turf. All telcos should see communication services from the cloud as a natural extension of what they have always done.
OBS’ drive into IaaS, meanwhile, looks like a less convincing pitch. Its IaaS offering essentially comprises a virtual data centre offering with virtual firewalls and load balancing. The question is: How OBS can compete against the dominant cloud players in the storage and server space? In the short term, such an approach is conceivable. However, OBS will need to provide a much broader range of virtual infrastructure choices to avoid slipping into a low-margin market segment.
As a former investment analyst, I remember the feeling when stock market screens turn deep red. Such days turn one’s stomach upside down on a dealing floor. But even from the outside, such days are unnerving. The big question in the telecoms markets making the rounds at present is how the current market turmoil will affect the telcos. The 2008 financial crisis might provide some clues to what we could expect in 2011 and 2012, albeit in a less-pronounced fashion:
Consumer spending on communications will remain pretty stable. During the last financial crisis, spending on communications remained largely untouched by the consumer. We do expect a slight migration towards flat rates for customers with the desire for greater cost certainties and towards prepaid by customers with the desire to lower their communication expenditure. One obvious danger in times of turmoil are price wars between service providers. They can offer only short-term growth relief, but at a high cost. Resulting poor margins will be felt for a long time.
Businesses will put nonessential IT projects on hold or water them down. We have not yet seen evidence that COOs and IT departments have tapped the brakes on their tech buying, but they certainly have become more cautious. If the economies of the US or Europe go into recession — a possibility, but not our baseline forecast — that will hit IT budgets, as happened in 2008 and 2009. I am hearing from telecoms providers that their enterprise sales pipelines are already under pressure as customers slow their IT investments and look for ways to reduce their telecom services spending. Projects that support end-users with their sales efforts, e.g., sales force automation projects, are likely to be less affected than others.
The Canadian market for purchases of information and communications technologies (ICT) by businesses and governments is about 10% the size of the US ICT market, and only about 3% of the global ICT market. Still, it is an important market because of the sophisticated level of its tech adoption (i.e., its readiness to adopt advanced technologies) and its proximity to the US market.
Canada's ICT market growth rates of 6.2% in 2011 and 2012 growth of 8.1% in Canadian dollars will be very similar to the US ICT market growth in US dollars in the same periods. With the Canadian dollar having gained strength against the US dollar, that means that US vendors will see even stronger Canadian revenue growth when they convert their Canadian sales back into US dollars.
Communications equipment and software will have the strongest growth in 2011, at 10.5% and 8.4%, respectively. Computer equipment growth of 4.4% and telecommunications services growth of 2.2% will be the weakest product categories.
My colleague, Mike Cansfield, just posted a blog on the new “scramble for Africa” among telecommunications companies. Bharti Airtel, an Indian company, just finalized a deal to take over most of the African assets of Zain, a Kuwaiti company. As Mike mentions, Bharti has been dogged in its efforts to enter the African market with two previous attempts to forge a deal with South Africa’s MTN Group.
Bharti sees significant opportunity on the continent where just 36% of the population owns a mobile phone – yet many more use mobile phone services through resellers who offer use of a phone by the minute in the local markets. Originally part of the informal sector, MTN has actually launched a program to legitimize the sale of on-demand phone services through its Y’ello Zone Payphone initiative. MTN originally pledged to install 7,500 community pay phones across the countries in underserved areas. To date, over 11,000 have been installed. As part of the program, MTN offers entrepreneurs an opportunity to operate these Payphone kiosks, and provides the skills training to run a successful phone shop. The program contributes to job creation, especially among women and youth, with more than 3,800 retailers already benefitting. But, I digress . . .
We have all heard a lot about the growing segment of information workers including senior executives, managers, legal professionals, and financial service executives who use their smartphones for work. About 45% of all employees in the US are information workers, and Forrester survey results show that nearly 15% of these workers use smartphones for work. In addition, nearly 33% of information workers are issued smartphones by their company, and about 25% select and purchase a smartphone that may, or may not be supported by the company. We expect the info worker segment to grow significantly as more employees work away from their desk or telecommute.
Vendor marketing and strategy professionals across the mobile value chain must understand how information workers use smartphones and applications, so they can successfully develop products to address the needs of these workers. Information workers are going beyond plain vanilla email, calendar and PIM applications. Many are trying out instant messaging, productivity apps to access Word, Excel, and PowerPoint documents, and location-based services. To tap the fast-growing slice of information workers relying on their smartphones, business application categories must be clearly identified on mobile operator portals and mobile app store sites. Device manufacturers and mobile operators must also ensure smartphone features and functionality address both personal and professional user needs. Are there other strategies vendors are using to address the needs of the mobile information worker segment?
During the past couple of years, mobile device manufacturers including Apple, Microsoft, Nokia, and RIM have deployed mobile application stores. Applications available in these stores are primarily consumer focused including games, music, news, and entertainment - but many applications are emerging that help business users. Work related application examples include PDF document readers, expense report viewers, and productivity enhancing applications for LOB workers such as medical decision-support tools and ECG-reading applications for doctors and nurses in healthcare.