Paying for improved profitability

04 Dec 2006

The tide is going out on incumbent carriers' PSTN traffic as their fixed-line voice revenues continue to recede. IP as the underlying common transport denominator for all types of traffic has opened the telecoms market up to an unprecedented multitude of new competitors that are boldly claiming unbundled access to all the incumbent infrastructures with the full backing of national and super-national telecom regulators.

These new kids on the block have no legacy baggage to carry around and offer faster and cheaper services, choosing to leave all the heavy lifting and complex infrastructure issues to the incumbent dinosaurs. And the strain is showing up on the incumbent balance sheets.
However, this unique heavy lifting capability is being harnessed to generate a new solid revenue stream to turn the tide. Any long-term solution must be resistant to competitive cream-skimming and address essential communication concerns of business customers all the way from the SOHO to the multinational corporation.

And what better way to go about that than to ask the customers themselves‾ The simplest answer is that they will pay for services that improve their own profitability. This profitability hinges on the performance of their staff and their business processes, which are underpinned by corporate applications. So can incumbents provide service guarantees for the end-to-end performance of corporate applications‾

The short answer is that in the present market situation, incumbents do not have much of a choice. It's either business-as-usual leading to continued erosion of market share and revenues or a bold move to transform service concepts, organization and infrastructure to deliver complete service packages.

Feeling the squeeze
Pressure from commoditized IP service providers 'below' and from outsourcers and system integrators from 'above' is forcing incumbents to invest in and improve their own end-to-end abilities to support corporate applications all the way from utility services like messaging, hosting and storage up to much more complex IP network outsourcing. It is also forcing incumbents to look beyond pure ICT services to supporting their corporate customers' business processes.

Today this is a two-step process: carriers first need to improve their professional capabilities and then convince their corporate customers to trust them with business critical tasks.
We are seeing the meeting point of these competitive pressures in the roll out of a wide range of managed IP services where incumbents undertake ICT functions hitherto residing in the corporate IT organization. Providing managed services requires carriers to take on more corporate responsibility for the overall performance of corporate applications as seen in the growing importance of business continuity in a global networked environment.

Managed applications reduce corporate staffing levels, ensure a better upgrade process and optimize communication process because service providers are rewarded on their service performance, not on man-hours or equipment costs. And once the managed IP services concept takes hold, the array of possible services seem endless - from the basic MPLS, VoIP, VPN and remote access services over Ethernet, hosting, storage, call centers, desktop management and security, to top-line global mobility solutions, application and data center integration and business process services. The list is ever expanding - but is also reaching the point where corporate customers are asking carriers to reformulate the core content of their service level agreements (SLA) to reflect their corporate applications' performance rather then the carriers' network performance.

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