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Enterprise Services Market Is the Telcos' to Lose

James Crawshaw
9/8/2017
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According to Huawei's article on enterprise opportunities for telecom operators, telecom and IT B2B services can be divided into four categories: connection (private lines, Internet traffic), new digital services (cloud and big data), IoT, and other (enterprise communications, IT hosting and outsourcing).

Telcos' traditional domain of connection services is under increasing pressure, at least in developed markets, as evidenced by the financial results of large carriers such as AT&T and Verizon. New digital services present a large and fast-growing market but one that is dominated by web-scale companies such as Amazon and Microsoft. Similar threats present themselves in IoT and the "other" category.

Huawei posits that because enterprise services are a low proportion (15-25%) of telecom operator revenue today there is a "huge untapped potential within the enterprise market." After all, the market is worth $4 trillion, according to Gartner. Unfortunately, such top-down analysis is overly simplistic, in our view. Telecom operators are competing tooth and nail against cloud giants, IT services specialists, IoT platforms and UCaaS players. And traditional telcos face a number of challenges:

    1. Enterprises want one-stop shops but operators specialize in connection services. When they do offer other services, they are often bundled clumsily with poor integration.

    2. Telcos are often bypassed on digital service requirements because their pace of innovation and service improvement are too slow.

    3. SME markets are fragmented and operator channels are not as strong here as in large enterprise. SMEs are often early adopters of cloud services as they lack the financial capital and personnel skills to manage applications in house. Losing out on the SME market could undermine the telcos' large enterprise business longer term.

    4. Personnel skills: Telco professional integration service capabilities are weak; the telco salesforce is struggling to sell the new, non-connection type services.

To succeed in the enterprise market telcos need to play to their strengths: ownership of wide-area networks and multiple points of presence close to enterprise customers. For example, BT has entered the cloud field with its Cloud of Clouds. According to BT's CIO 2016 report, cloud is cited as the most disruptive technology trend to drive change. BT's survey found that 65% of organizations now have more than half their infrastructure and applications in the cloud, with 19% of those listed as completely cloud centric. However, 65% of organizations reported that their current infrastructure is struggling to support the rapid adoption of digital technologies and nearly half of the respondents said they were looking for a single cloud solution that offers them centralized management.

Telcos can also rely on entrenched relationships with governments and large enterprises. According to the J.D. Power 2016 U.S. Business Wireline Satisfaction Study, customer satisfaction in 2016 averaged 741 out of 1,000, an improvement of 22 points from 2015 (which was itself up 19 points from 2014). In the large enterprise business segment, Verizon ranked highest with an overall score of 827 out of 1,000, ahead of AT&T (806), CenturyLink (797), Time Warner Cable (787) and Comcast (769). It should be noted that these rankings tend to jump around from year to year though telcos tend to consistently rank higher than cable operators among large enterprises. In the small/medium business segment AT&T came top followed by Cox, Verizon, Time Warner Cable, Charter, CenturyLink and Comcast. In the very small business segment Cox scored highest ahead of AT&T, Verizon, Charter, Comcast, Time Warner Cable and CenturyLink.

The J.D. Power report notes that offering services such as video conferencing, security and cloud computing is correlated with higher customer satisfaction. These services also generate additional revenue. Subscribing to these advanced services increases the industry average monthly company bill from $322 to $582 when adding cloud computing services, to $766 when adding security, and to $792 when adding videoconferencing. J.D. Power does not quantify the impact on profitability of adding these services, many of which are simply resold by the telco.

Telcos need to develop cloud and IoT services that leverage their existing connectivity and communication capabilities. OTT providers lack their own pipes and struggle to provide the one-stop shop for ICT products and services. The enterprise services market is the telcos' to lose.

This blog is sponsored by Huawei.

— James Crawshaw, Senior Analyst, Heavy Reading

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