Pressured telcos seek more outsourcer value

John Madden and Adaora Okeleke/Ovum
03 Jan 2014

Telcos are under pressure to find new customers and bring new products and services to market. Unable to address these pressures with their own internal IT in a cost-effective and efficient manner, they are increasingly turning to IT services providers.

In 2013, we saw an increase in the number of outsourcing deals awarded by telcos to IT service providers, compared to 2011 and 2012. Current market conditions and the need to transform operating and business models are driving the trend. We expect even more outsourcing activity in 2014.

IT services providers looking to capture the opportunity should realize that cost reduction is not the main proposition that assures contract wins. The attainment of business goals is quickly emerging as the higher priority for telco clients.

Extending revenue opportunities, cost efficiency, and business transformation drive demand for more outsourcing

Our IT Services Contracts Analytics database shows an increased demand for IT services from telcos in 2013. The number of IT services contracts awarded by telcos grew by almost 16% compared to 2012. This compares to a 10% year-on-year decline in 2012 and a 24% decline in 2011. The pick-up has been driven by telcos’ need to drive top-line revenue growth, improve cost efficiency, and transform business models to pursue new revenue opportunities.

Revenue growth remains the number one challenge for telcos. Examining the revenue performance of the top 20 telcos’ first nine months of 2013, revenues declined by almost 0.5%. To improve growth, telcos need to reduce their opex costs and translate these savings to capex that drives new services and improves customer experience. Indeed, improved customer experience and greater

customer intimacy are at the heart of many telcos’ planned capital investments.

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