Telecom equipment vendors looking at last year's profits may well find that their services businesses accounted for 20% of their revenues and are growing faster than equipment sales, according to a new report by telecom consultancy Ovum.
The telco services market represents at least $50 billion in revenue and is growing.
In the report, Ovum Principal Analyst John Lively projects that the telco services market represents at least $50 billion in revenue and is growing, with the potential vendor services market in the $130-$160 billion range.
The telco services addressed by Ovum include services provided to telecom service providers by equipment vendors and other professional services firms.
"For some vendors, the hardware business isn't so good any more. That's reason enough to look at getting into services, but they're also being kind of pulled into it by the service providers," Lively said.
From the service providers' point of view, outsourcing some telco services will enable them to decrease their operating costs, and in some cases, employees are actually transferred to vendor payrolls. For vendors, it's almost like services are the new channel to market, Lively maintained. Unlike telecom services, which are communications services provided by telecom service providers to their customers, telco services fall into the following three categories:
- Product-related services: Include training, technical support, maintenance and inventory management. Some of the leading companies include Alcatel-Lucent, Amdocs, Ciena, Cisco, Ericsson, Juniper, Nortel and Tellabs.
- Network-related services: Often called managed or professional services, these include network design, procurement, installation, operation, monitoring, optimization and management, service provisioning and assurance. Leading systems integrators include Accenture, BT Global Services, CSC, EDS, IBM Global Services, Infosys, HP, T-systems and Wipro.
- IT–related services: Include design, implementation and management of a company's information technology. Systems integrators dominate this space.
Ten-to-15 years ago, the typical RFQ was about buying a box, Lively said. "Today it's more like 'I need a network and I need someone to go out and find the best-of-breed equipment from whomever, then put it together, test it and guarantee that it will work for me. And not only that, I need someone to build it and when it's done, manage it for me.' That's an enormous change."
The leading players in the global telco services market, according to Ovum, include Ericsson, NEC, Cisco, Alcatel-Lucent, Amdocs, Nortel. Other network equipment providers offering telco services include Ciena, Juniper and Tellabs, as well as non-vendors like Accenture, BT Global Services and Convergys.
Ovum's Lively notes that services are increasingly important to many vendors due to increasing hardware competition from Chinese vendors like Hauwei, which positions itself as a service provider partner rather than a pure hardware vendor.
A lot of smaller companies are now surviving by partnering with larger vendors for these telco service deals, Lively said. "It's a whole ecosystem, and vendors are moving toward the traditional ground of systems integrators."
If that makes the systems integrators nervous, Lively said the smart ones are partnering with equipment vendors, handling the IT and application-level portions themselves and their partners handle the network-related portion of big transformation projects.
Network-related managed telco services may well be the fastest-growing segment, but vendors aren't splitting out revenue sources enough for Ovum to be able to support its hypothesis.
While the move to vendor telco services hasn't happened overnight, telco services have gone from being a sideline to a main business for some companies like Alcatel-Lucent, Lively said. Often, larger companies are managing best-of-breed network solutions, which means they have to acknowledge if there's a hole in their own product line and then partner with another company to fill it.