As the second-quarter reporting cycle gets underway, we are still seeing a mixed picture in operations support system (OSS) and business support system (BSS) vendor results.
Ericsson, which changes its reporting structure more often than some people change their undergarments, now reports OSS and BSS within its Digital Services division. Ericsson's June quarter Digital Services revenue fell 11% year-on-year (down 12% on a constant currency basis) due to a continued decline in legacy product sales. That is worse than the 3% organic decline in 1Q18. Digital generates around 18% of Ericsson's total sales. OSS and BSS each contribute around 20% to Digital; hence, each is around 3.5% of Ericsson's group sales.
Nokia has not changed its reporting structure since our last report but has renamed its Applications and Analytics unit as simply Software. This includes Digital Experience (BSS), Digital Operations (OSS), Digital Intelligence (Analytics), Digital Networks (SDP), security and its Internet of Things (IoT) platform and applications. Nokia Software revenue shrank 2% year-on-year in 2Q18, though on a constant-currency basis it grew 2%, marking a turnaround from three successive quarters of organic revenue decline.
Overall we think the OSS/BSS industry has turned a corner after a difficult period and should resume moderate growth. As we discuss in Heavy Reading's latest report, OSS/BSS Vendor Landscape: Industry Outlook & Company Analysis, 2018, this market grew around 1% in 2017 to circa $17.8 billion. This represents a recovery from an estimated 5% decline in 2016.
We forecast market growth of around 2% in 2018 as some small and midsized companies continue to grow, while the larger players see their revenues stabilize. Beyond 2018, growth in the market is likely to depend on communications service provider appetite to invest in digital transformation; new entrants, such as MVNOs and IoT service providers, looking to launch services on third-party infrastructure; and the financial health of the traditional cable and telecom industries.
OSS/BSS Vendor Landscape evaluates the size of the addressable market, based on a bottom-up analysis of the top 100 vendors, and assesses the distribution of market share. It examines the revenue progression in 2017 for the 19 companies for which we were able to gather reliable data and makes a forecast for 2018 based on the outlook statements from eight companies. The report assesses the profitability of the 12 companies for which we were able to gather data. It also looks at corporate activity in the sector over the last year, including acquisitions, restructurings, closures and take-private deals. Also, the report provides an extensive comparison of the product offerings of 48 vendors across three main categories: fulfillment, assurance, and BSS. Finally, the report contains brief profiles on 31 vendors.
The OSS/BSS market is likely to undergo significant change in the coming years, driven by the move to network virtualization and, more broadly, by the transformation of communications service providers into digital service providers. Whether these forces lead to consolidation around a handful of full-suite providers or proliferation of best-of-breed vendors remains to be seen. However, modernization of OSS/BSS will be key to the automation of network and customer operations, as well as the increase in openness and agility that service providers need to compete as we approach the 2020s.
— James Crawshaw, Senior Analyst, Heavy Reading