2010 and beyond – Truly interesting times

With due deference to Confucius, we are indeed living in interesting times! Over the 20 years since Tim Berners-Lee invented the World Wide Web, GSM started to roll out, market liberalization of communications took hold worldwide and Moore’s Law proved itself time and again, we have been living through a revolution with implications at least as profound as the invention of the wheel and the printing press.

As the world recovers from a deep recession, that revolution continues to gather pace. The merging of previously separate industry segments to form the Telecom, Media and Technology (TMT) market is simultaneously creating significant opportunities and threats to each component industry. The big issue now in the boardrooms of players in each segment is who will be the winners and losers of this revolution over the coming years.

The common denominator in any future scenario is the availability of ubiquitous, fast, reliable communications – the core enabler of all digital services from cloud to the iPad, from app stores to mobile banking. Yet despite seeing massive growth in communications bandwidth demand (for example AT&T estimates that they have had a 5000 percent growth in mobile data in the past 3 years), growing revenue will be tough, leading to some big concerns looming in the minds of CEOs.

Adapting to change

So data volumes are certain to spiral along with costs, but revenues are nearly flat. IDC and Gartner estimate worldwide revenue growth of the IT sector at 3.3 percent in 2010, while communications is expected to grow only a paltry 1.8 percent – and that positive growth masks some significant declines. Wireline services are expected to continue their decline by around 4 percent, with the only bright spot being mobile data growth expected to be around 12 percent.

Across the globe, significant variations in growth also mask the true picture – huge continuing growth in parts of Asia and revenue declines in many mature markets. The “crunch” issue is that as markets for voice and messaging services saturate and offer low or negative growth, the demand for fixed and mobile bandwidth is soaring, driving huge increases in network capacity (and therefore capital expenditure) yet generating little new revenue.

So my often quoted “eternal triangle” of simultaneously driving new revenues, improving customer loyalty and cutting costs comes into play as never before. It’s no longer theoretical or something to do in the future; the need to adapt to the new world very quickly is now very real. Most available investment capital will be increasingly diverted to expanding the capacity of the network, putting yet more of a squeeze on IT budgets and operating costs. And while all 3 factors of that triangle are all able to improve the corporate bottom line, CFOs of the world view the promise of new revenue with skepticism while regarding cost cutting as much more tangible.