January 18, 2011 ¬ The global economy is rebounding; enterprise tech spending should increase more than five percent this year, and consumers’ love affair with smartphones will continue to create opportunities.
That’s some of the good news from the TM Forum’s Jan. 13 Webinar, “Top Ten Predictions for 2011.”
But that optimism was tempered by plenty of reality checks, to the point that the Webinar might have been subtitled, “Not Out of the Woods Yet.” Case in point: Service providers must be in the right place to capitalize on these opportunities. Sometimes that place is geographic.
“The emerging economies will be the stars,” Rob Rich, managing director of the TM Forum’s Transformation Research Center and TM Forum Insights Group, told Webinar attendees. “We’re looking at around 6.5 percent GDP growth there, with China and India really leading the way at nine percent and eight percent, respectively.”
In other cases, the right place is a market. Take cloud services, which is one of the TM Forum’s predictions for growth markets this year. Although the forum believes service providers have the right attributes to be successful ¬ including an existing base of enterprise customers to upsell and brands that CIOs and IT managers trust ¬ that doesn’t mean other types of companies can’t swoop in and dominate the cloud market.
“For reasons that we could spend another hour on, they’re reasonably slow, and this market isn’t going to wait for them,” said Keith Willets, TM Forum Chairman and CEO. “They must move quickly.”
“No Cavalry Coming”
The Webinar ¬ the first in what the forum hopes will be an annual series ¬ identified a wide range of emerging opportunities, many of which require service providers to invest heavily to beef up their infrastructure. For example, enterprise cloud services require über-reliable robust networks, while increased smartphone adoption and usage requires upgrades to 3G networks and the rollout of 4G, which ¬ at least in theory ¬ should lower the carrier’s cost of delivering service.
But those upgrades don’t come cheap. Hence prediction No. 1: The margin crunch will intensify.
“Expenses are increasing rapidly because of capital required to handle the data crunch,” Rich said. “We think this is going to get even more difficult with the capital investment that is going to have to happen, whether we’re talking about 3G upgrades, 4G trials [or] upgrades to the copper loop and backhaul.”
In wireless, the end of all-you-can-eat data pricing is just one example of how carriers are trying to preserve their margins. The forum ¬ along with plenty of vendors ¬ are betting that carriers also will invest heavily in B/OSS platforms that enable policy-based pricing, such as tiers of service or rates based on traffic type.
“That will emerge to stem some of the pain,” Rich said.
Service providers will need it because revenue from emerging opportunities such as mobile advertising aren’t forecast to add up to more than 10 percent of existing services.
“There is no cavalry coming over the hill,” Willets said. “This is a situation that we’re going to have to work our way through, where traditional services continue to decline in margin and growth, and the new services are up for grabs. They’re very high growth but not guaranteed that they’ll grow for communications players. They could well grow for other people.”
The forum’s remaining predictions included:
- Cyber terrorism and smartphone malware are just two examples of how the amount and type of security issues continues to grow. The Webinar cited a Panda Lab study that found one-third of all malware in history was created in 2010. “This is just a hacker’s delight in many ways,” Rich said. “I think we’ll see a lot more offerings, especially in the mobile space, around end point protection, messaging protection and backup and recovery.”
- The machine-to-machine (M2M) market will continue to grow largely because the applications are so wide-ranging, from in-vehicle infotainment to telemedicine to homeland security. “We think there’s great opportunity for M2M to benefit from wireless services,” Rich said. “I think there’s going to be a lot of growth from a Wi-Fi perspective and also from a small cell site perspective. M2M will be a beneficiary of the femtocell rollout.” Added Willets: “Just as we said about cloud, this is not a market that’s going to sit and wait for the telcos to wake up. This is a market where somebody’s going to do it, and the telcos can play if they get moving.”
- Like the larger M2M market, smart grids and other utility-centric applications will grow, but service providers aren’t guaranteed a piece of the action. “One of the fundamental issues is, whose network is it going to be?” Rich said. “If we can use a public network that’s already there and doesn’t require much investment, it seems to me that would lower the cost. So there’s a bunch of work that needs to be done by service providers if they’re going to have a play in this opportunity.”
- Mobile advertising will continue to grow because it’s effective. “The thing that differentiates mobile is the click-through rates: somewhere between six and 10 times that of e-mail or Web ads,” Rich said. “That’s music to an advertiser’s ear, and that’s going to make this a very attractive proposition, especially combined with location.”
- Social networking will become even more prevalent as more companies ¬ including service providers ¬ realize that it’s an effective way to interact with existing and potential customers. For example, during a video outage, an MSO could use social networking to explain what’s going on, thus lightening the load on its call centers. There’s also an opportunity for service providers to mine social networks for insights into how their brands and services are perceived.
- The bandwidth crunch continues, as video and smartphones outpace infrastructure upgrades, which could be stymied somewhat due to uncertainty of Net Neutrality. “I think it’s going to be a long time before the Net Neutrality problem gets solved,” Rich said. “But I think we will see some interim [regulatory] measures because we’re going to need these infrastructure investments.”