Sector focus – Telecoms. SWOT Analysis

Mike Hardy provides a SWOT analysis of the Telecoms industry, originally published in Supply Business Magazine of CIPS. Mike is a consultant at Turnstone (www.turnstoneservices.com), with 20 years’ experience as an IT sourcing manager.

The telecoms sector has undergone major challenges and changes in recent years in order to meet exploding demands for IT solutions in commercial and public sectors  – a trend that will grow in the foreseeable future.

Historically, IT and telecoms have been treated separately as commodity solutions. Now they are an amalgamated requirement, with the telecoms element being the main delivery method of what is essentially data, including voice, as a digital package. The rate of advancement in technology and demand has brought challenges in how to commercially package these solutions.

Strengths
The major global telecoms companies have grown in recent years, through alliances, acquisitions and expanding markets. Brand name strengths within geographical boundaries are now global and part of this success has been via the formation of partnerships and takeovers, such as the acquisition by Vodafone of Telsim in Turkey, as well as AT&T, which bought Cincinnati SMSA.

With the boom in consumer usage of technology on a personal front, there is increased general awareness from individuals of telecoms providers. This influences the commercial client arena.

It is expected that the number of large players within the global market will decrease as a result of acquisitions, while demand for usage will rise.

Weaknesses
The current economic downturn is driving consumers to demand reduced costs for better quality services. This is occurring in both the public and business sectors and eroding their revenue generation. It is also putting additional pressure on telecoms providers as they continue to incur the same (or increased) general research and development costs to maintain parity with rivals and try to protect their market share.

The mobile market is an indication of the pace of progress that telecom firms need to maintain to be competitive. An example of this is the downturn in Nokia’s fortunes and market share in the past decade – reflected in the decrease of its share price from $40 in 2007 to a current $3.72 – and the importance on hardware and software providers making those right decisions and alliances.

With such a demand to produce a market leader, the opportunity to back the wrong product will increase and will probably result in large changes in fortune for the global providers.

Opportunities
Corporate users are demanding higher usage volumes and at faster speeds. Part of this trend is dictated by the current ‘cloud computing’ solutions that are being embraced at a fast pace. Cisco predicts that such services traffic will increase 12-fold by 2015, compared with the rates in 2010 – whereas data centre traffic will increase at a lesser rate of four times over the same period.

Such solutions are becoming increasingly attractive to businesses as they reduce the overall costs of the customers’ platforms total cost of ownership – allowing in many cases for a ‘pay as you go’ service. There is also customers’ need to access the data/services, which are held off site within a virtual environment and therefore, the demand for telecoms services is increasing.

Mobile solutions are a large growth factor, with increased demand from existing users and proliferation of technology. Whereas a person may have had a mobile phone for voice and text, they can now download many different forms of service via the internet. Such people may now own several devices – smartphone, tablet, laptop/notebook and so on – increasing the telecoms demand.

Another consumer-led aspect relates to on-demand services, such as internet-connected TVs that require higher quality telecoms provision.

A further increase in mobile telecoms-related services is that driven by geographical areas, where there is a fast-growing demand in communications services, but a poor landline- style infrastructure. An example of this is in sub-Saharan Africa, where mobile connections are increasing by approximately 20 per cent year on year, with a forecast of 93 million mobile subscriptions by the end of 2013. Unique subscriber penetration is only 30 per cent, meaning there is a potential growth area of over two thirds of the 875 million population.

Currently, there is massive investment by global telecoms organisations to increase the mobile infrastructure capacity to help drive this expansion.

Threats
Technical solutions that drive revenue streams down are a current threat to the telecoms industry. Voice over IP (VOIP) technology such as Skype has severely reduced revenues. Telecoms providers are trying to buy into this technology to turn it back to their advantage.

With technical breakthroughs eroding revenue streams, they must be constantly vigilant and prepared to ally themselves with other businesses, including the innovators of such solutions. In such cases, telecoms firms will have to consider radical new ways to generate commercial gain. Some operators including KDDI and Verizon are working closely with Skype to offer integrated services. For example, Verizon allowed its customers to make free Skype-to-Skype calls globally, provided that they had a data plan for their mobiles.

Given the increasing reliance of telecoms to link the entire global economy, we must consider the fragility of this global connectivity network.

On a landline cable/fibre basis this is vulnerable between continents where the increased demand has not been matched by investment.

There are also numerous potential single points of failure globally that present a frightening scenario, for example, from a satellite aspect, there is a threat of disruption to services at any time – primarily from high solar flare activity, which can cause interruption of service.