Many telcos have tried to move into the IT services space to compete against outsourcers and new players. Building any new business is difficult and, for traditional telcos, moving into this space presents a steep learning curve. As a result, with the exception of a few big moves, such as BT, most forays into the space have struggled to find success. Because telcos have proven effective at introducing new products and offerings, perhaps the key question is more basic: how can these companies adapt their existing operating model to the needs of IT services, not the other way around‾
IP technology has modified the telecom ecosystem, creating new businesses and new competition while eroding the traditional revenue from voice and data services. MNCs have driven the growth on managed services, seeking cost savings and operations simplification (Unilever signing a $400 million extension with BT, Nissan signing a complex managed network and infrastructure outsourcing deal), accelerating the convergence of IT and networks. The equation has become more complex with the emergence of software-as-a-service (SaaS) and the convergence of application, device and network attracting non-traditional entrants and providing growth opportunities.
Outsourcers have traditionally pushed the convergence of the two market spaces trying to grasp new revenue streams. New players have joined the marketplace with disruptive solutions and innovative strategies, benefiting from a vibrant partner ecosystem and a higher spend on R&D. Telcos have lagged behind, not adapting to the new ecosystem and often decoupled their IT services operations from their traditional telco business (e.g. SingTel and NCS). The market has become fragmented and telcos face competition across segments and products.
Today, telcos are striking back. They realize they need to (re)achieve profitable revenue growth, and need to be more innovative, adopt new business models and be more customers responsive. Acknowledging the change in the telecom ecosystem, they try to occupy the IT space and build a presence throughout the telecom value chain through the (re)development of services capabilities. The telecom sector can leverage its significant scale to reshape the market and dominate the ecosystem.
There are four types of services that telecom operators can offer: business consulting services; system integration and network consulting; outsourcing services; and support and training.
At the forefront of this strategy, BT has grown its services capabilities through organic growth (BT Global Services, BT Telconsult) and M&A (e.g. FrontLine in Singapore, Total Network Solutions in UK or Cara Group in Ireland) to strengthen its position, develop new revenue streams and seek cross-selling opportunities. BT now covers all four types of services through its various subsidiaries and the successful integration of these assets is expected to yield substantial benefits.
For telecom operators to be successful in the services business, they need to make some choices.