Telcos’ capex budgets have been tight lately, due mainly to the weak revenue climate. Network infrastructure spending has been especially weak in India and parts of Southeast Asia; China also threatens to moderate and there are signs across Asia and the globe that LTE upgrades are not bringing much of a capex bump. This weak capex climate is hurting vendors.
Service providers’ opex budgets are on average triple their capex budgets. In recent years network infrastructure vendors have developed services better able to tap telco opex budgets. As a result, an increasing proportion of opex items are now addressable by vendors. The biggest target for vendors is the network & IT operations segment of telcos’ opex, which Ovum estimates was worth roughly $212 billion in 2011, dominated by the network piece. Despite increased outsourcing over the last decade, most network operations spending are still internal.
While telco revenues should recover from the current economic downturn, Ovum expects growth rates to stay low. Capex budgets will remain constrained. Operators will continue looking carefully at their operational budgets in search of efficiencies. Some operators, such as Telenor and Vodafone, are also looking at their global procurement process, across capital and operating budgets, in search of improvements.
Here’s where vendors come in. Operators have the potential to gain greater economies of scale through their global vendors in terms of network rollout, network operations, network optimization, customer experience and service quality management, and other areas. Relying on vendors for such operational tasks also transfers risk, lowering headcount and limiting the cost of mistakes.
Operators may also capitalize some of their services spending, rather than expensing it, bringing an added benefit for some. This is not a new phenomenon. In 2011 the global market for telco infrastructure services accounted for over $65 billion in vendor revenues. Cisco, Ericsson, Nokia Siemens, T-Systems, Alcatel-Lucent and Huawei take the top six spots.
Telcos spend on average 60-65% of revenues on operating expenses. Network/IT operations accounts for 18% of the opex pie, a significant expense. New technologies, network evolution and smart partnerships can help improve the efficiency of operating network and IT facilities. This has been happening already, but the pace seems likely to accelerate. The carrier industry hasn’t really consolidated that much across country lines – we still have hundreds of small carriers struggling to survive – which may limit some scale economies. Global technology vendors can help here, especially for smaller carriers.