Feeds

Falling margins spell doom for carrier diversification

Telcos should stick to their knitting

Designing a Defense for Mobile Applications

Telecom carriers are spending billions investing in IP technology but more than half will fail to establish new lines of business over the next four years, according to analyst group Gartner.

Mobile broadband, Internet Protocol (IP) technology and the desire to become content providers are increasingly driving telecom carrier strategies. But in attempting to tap into new markets carriers run the risk of over-investing in immature technologies. Gartner reckons carriers need to adopt to a world with lower margins, rather than hoping that unproven business models and new technology promise a sure bet for future profits.

Historically, carriers have been able to depend on high revenue growth from broadband or mobile services, but this is changing. Gartner predicts that year-on-year growth of telecom services (80 per cent of total global telecoms market size) will shrink to just 1.7 per cent by 2010. By that reckoning, telecom services revenues will rise from $1.3tn in 2006 to $1.5tn in 2010.

Gartner reckons carriers need to be more realistic about future revenues, adapting to a world where they need to be profitable on lower margins and concentrate on making the most of their core businesses.

Many carriers are attempt to invest in new markets, such as content provision or IT services, to compensate for revenue losses in traditional telecom services like voice calls. For example, Telecom Italia recently reinvented itself as a media company after signing deals with Fox, MGM and Sony to distribute content over high-speed fixed-broadband connections. Meanwhile BT Global Services and HP have teamed up in IT service integration, particularly in the areas of hosting and application delivery. In Asia, SK Telecoms has acquired Korea’s largest music recording label, YBM Seoul Records.

But more than half of these initiatives are doomed to failure because many carriers have a limited knowledge of their existing subscriber base and weak understanding of new business models, Gartner warns. It cites a number of failed business ventures - sports channel ESPN's abandoned investment in mobile services, the failure of Germany telecoms firm E-Plus with content portal iMode - in support of its argument that carriers should concentrate on core areas such as connectivity or service aggregation.

"The synergies between the different business models and markets are very limited," said Martin Gutberlet, research vice president at Gartner. "This type of diversification carries a high risk of losing focus on today’s core business priorities such as customer retention and cost cutting, with no guarantee of increased revenue growth in the long-term."

"It will take more than just hiring a few media or IT executives for carriers to succeed in these new markets," Gutberlet concluded.

Those carriers who do decide to diversify are likely to do so by acquisition. Gartner predicts more partnerships between carriers and media or IT service firms, which will lead to heightened competition and greater pricing pressures, particularly for businesses targeting consumers. Due to the high risk of failure, Gartner is advising carriers to think through risk mitigation and potential exit strategies such as separate network access and new non-telecom service units into individual companies, which might be more easily disposed up if projections run aground. ®

HP ProLiant Gen8: Integrated lifecycle automation

More from The Register

next story
Scotland's BIG question: Will independence cost me my broadband?
They can take our lives, but they'll never take our SPECTRUM
Auntie remains MYSTIFIED by that weekend BBC iPlayer and website outage
Still doing 'forensics' on the caching layer – Beeb digi wonk
Bring back error correction, say Danish 'net boffins
We don't need no steenkin' TCP/IP retransmission and the congestion it causes
NBN Co adds apartments to FTTP rollout
Commercial trial locations to go live in September
GoTenna: How does this 'magic' work?
An ideal product if you believe the Earth is flat
Samsung Z Tizen OS mobe is post-phoned – this time for good?
Russian launch for Sammy's non-droid knocked back
Telstra to KILL 2G network by end of 2016
GSM now stands for Grave-Seeking-Mobile network
Seeking LTE expert to insert small cells into BT customers' places
Is this the first step to a FON-a-like 4G network?
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Application security programs and practises
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Securing Web Applications Made Simple and Scalable
Learn how automated security testing can provide a simple and scalable way to protect your web applications.