With declining revenues and new competition from over-the-top players, NEPs should partner with Tier 1 consulting firms to approach CSPs with a complete set of solutions that help deliver next-generation services.
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Network Transformation: Opportunities and Challenges for NEPs
1. • Cognizant Reports
Network Transformation:
Opportunities and Challenges for NEPs
Executive Summary offers both promising opportunities and a set of
challenges. NEPs need to understand and identify
Communication service providers (CSPs) have
gaps that impede CSPs’ time-to-market aspira-
traditionally owned and operated networks, while
tions and develop new, customized solutions
network equipment providers (NEPs) provided
quickly and cost-effectively. Increasing network
network equipment and services such as instal-
complexity — demand for equipment that can
lation and maintenance. The convergence of IT,
handle multiple services around voice, data and
telecom and media has led to the development of
video and the pressure to offer differentiat-
new products (smartphones, tablets, etc.) that are
ing solutions — requires NEPs to augment their
driving the demand for both data and personal-
current offerings.
ized services. CSPs are also impacted by the rise
of over-the-top (OTT) players1 such as Google,
NEPs would do well to partner with Tier 1 consulting
Yahoo and Skype, which use CSP networks to
firms that can bring complementary capabilities
provide services directly to consumers. This
in enterprise systems integration and develop dif-
forces CSPs to offer more differentiated services
ferentiating software to address key business and
to retain customers.
operational challenges. This will enhance NEP
CSPs are transforming their networks, existing offerings and allow them to approach CSPs with
systems and processes to support next-genera- a complete set of solutions that help deliver next-
tion services and are rapidly entering the cloud generation services smoothly and quickly.
ecosystem. They are actively seeking partners
to help them quickly and cost-effectively serve
CSPs: Treading a Difficult Path
customer demands, create new revenue-gener- The business environment has never been so
ation opportunities and improve time-to-market challenging for CSPs. They are grappling with
for new service deployments. As CSPs spend declining average revenue per user (ARPU) in the
most of their budgets on procuring equipment wireless voice area (see Figure 1) and increasing
and related services from vendors, it is logical to competition from non-traditional players such
expect NEPs to offer CSPs end-to-end solutions as mobile virtual network operators (MVNO) and
— managed services ranging from consulting, to OTT providers, such as Skype, Yahoo and Google
operations support systems and business support (see Figure 2).
systems (OSS/BSS) integration.
Even while dealing with these challenges,
For NEPs that are challenged by the decline in the CSPs must keep pace with growing technology
traditional equipment business, this development complexity and a mounting mobile broadband
cognizant reports | june 2011
2. Data Grows as Voice Declines
$60.00
$50.00
$40.00
$30.00
$20.00 Q2 2013
$10.00
$0
Q1 4
Q1 5
Q1 6
Q1 8
Q1 9
Q4 4
Q3 5
Q4 5
Q3 6
Q4 6
Q3 8
Q4 8
Q1 7
Q3 9
Q4 9
Q3 7
Q4 7
Q2 5
Q1 0
Q2 6
Q2 8
09
Q2 7
Q3 0
Q4 0
Q2 0
11
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
Q3
Q2
Data ARPU* Voice ARPU Linear Data ARPU Linear Voice ARPU
* Average revenue per user
Source: “U.S. Wireless Data Market, Q1 2011 Update,” Chetan Sharma Consulting
Figure 1
customer base, which is expected to reach one transform their legacy systems that hinder new
billion by 2013 (see Figure 3). At the same time, product launches and enable rapid provisioning
they must fulfill demand for ubiquitous and of new services. They need to work closely with
customized services that go beyond wireless voice their partners and develop customized, scalable
telephony, to offset a decline in traditional fixed end-to-end solutions. This way, they can reduce
business revenues. As a result, CSPs are under costs, improve time-to-market and accommodate
pressure to roll out next-generation networks and new solutions with minimum integration issues as
services with aggressive deployment schedules they move toward an all-IP environment.
and reduced time-to-market.
For NEPs, the closest and biggest vendors to
With pressure looming to reduce capital expendi- CSPs, this provides an opportunity to strengthen
ture (Cap-Ex) and operating expenditure (Op-Ex), their strategic partnerships with CSPs.
CSPs are looking for partners that can help them
Key Challenges for CSPs
Dealing with regulatory issues 7%
Network congestion 13%
Sustaining profitable growth 20%
Keeping pace with new technology trends 20%
Reducing complexity of the company's structure 30%
Reduced time-to-market 30%
Growing customer expectations 37%
Efficiency improvement 40%
Intensifying competition 57%
0% 15% 30% 45% 60%
Source: Frost & Sullivan
Figure 2
cognizant reports 2
3. Worldwide Mobile Broadband Subscriptions Growing Unabated
1.000
1.000
Include HSPA, W-CDMA,
CDMA2000 and EV-DO technologies .800
.750 .694
Subscribers (in billions)
.505
.500
.306
.250 .204
.100
0
CY07 CY08 CY09 CY10 CY11 CY12 CY13
Source: Infonetics Research, March 2009
Figure 3
Imperatives for Change providers such as Huawei and ZTE have aggres-
sively expanded to European and North American
The last five years have been especially chal-
markets, taking away market share from the likes
lenging for NEPs. In the aftermath of the global
of Ericsson, Nokia-Siemens Networks (NSN) and
economic downturn, NEPs have seen a significant
Alcatel-Lucent. While Ericsson, Alcatel-Lucent and
reduction in margins from their core business
NSN incurred losses or remained flat, Huawei’s
and an overall decline in equipment sales. This
revenues grew at CAGR of 29% during 2006-2010
has forced many companies to diversify beyond
(see Figure 4).
equipment to offer a range of managed and pro-
fessional services to CSPs. NEPs are also impacted by the consolidation of
CSPs (including cross-border transactions), which
The emergence of low-cost players, for example,
has left in its wake fewer CSPs that are bigger
has made pricing in the highly competitive
in size and wield enormous bargaining power,
NEP market even more cut-throat. Leveraging
resulting in reduced profit margins.
their low-cost advantage, Chinese equipment
NEP Ups and Downs
40.00%
31.90%
29.24%
30.00%
20.00%
10.00% 6.83%
3.12%
0%
-9.06%
-10.00%
ALU Ericsson NSN Huawei ZTE
*Revenue growth rates, 2006-2010.
Source: Cognizant Research Center
Figure 4
cognizant reports 3
4. The rapidly evolving technological landscape has success. NEPs have a vested interest in CSPs
seen increased demand from CSPs to deliver new being able to shrink time-to-market for new ser-
products quickly and at lower costs. This means vices and accelerate their equipments’ return on
NEPs need to focus even more on ensuring investment. NEPs should leverage their trusted
that their products support growing network partner status with CSPs and bring them inte-
complexity and interoperability. Thus, working grated solutions consisting of not only equipment
closer with CSPs and being part of their success but also the enabling OSS/BSS infrastructure.
has never been so important for NEPs. NEPs that partner with CSPs in shrinking their
time-to-market set themselves apart. In cases
New Opportunity Beckons NEPs where the NEP already possesses OSS/BSS capa-
The emergence of new technologies (3G, LTE, bilities, they need to bring systems integration
etc.) requires CSPs to support wireless, VoIP, services to help the CSP with transformation.
video, high-speed data, a host of digital media
applications and other services across numerous NEPs can also help Tier 2 CSPs that do not
consumer and business devices. CSPs must con- possess cloud computing expertise to offer cloud
tinuously monitor service performance, add solutions to large and medium-size businesses
bandwidth on-demand, provision new services and government organizations.
and features quickly, and track customer usage
and charge them appropri- The Way Forward for NEPs
NEPs should leverage ately. This has increased To remain competitive, NEPs need to vertically
integrate their equipment by supporting next-level
their size and scale of the complexity of their OSS/BSS solutions and offer systems integration
operations and billing
operations to emerge procedures. and testing services to present a complete solu-
as a one-stop-shop for tion to CSPs. Getting there means they will have
Legacy OSS/BSS systems to battle it out with big IT services firms, which
network equipment hinder the quick roll-out of are usually preferred by CSPs for high-level OSS/
and support OSS/BSS new services, as they need BSS transformation because of their considerable
solutions by focusing to be configured and tested experience in building and delivering new and
rigorously. This involves more cost-effective IT and business capabilities.
on sub-segments that costs and delays the launch
are expected to grow of new services, challeng- The OSS/BSS market has evolved tremen-
more rapidly. ing the CSPs’ objective of dously, along with changing technologies. The
gaining quick market share global market is expected to reach $22 billion in
and profits. CSPs might revenues by 2013.3 North America will continue
choose instead to deploy new OSS/ BSS systems to be the largest market for OSS/BSS solutions
while retaining their existing legacy systems, but because of its substantial and growing demand
this approach creates a complex environment for data and video. However, the market remains
with several multi-vendor systems (hardware highly fragmented, with more than 400 vendors,4
and software) that operate in silos, each silo mostly specializing in niche services. NEPs should
supporting only a subset of services. leverage their size and scale of operations to
emerge as a one-stop-shop for network equipment
OSS/BSS systems can be an enabler of a CSP’s and support OSS/BSS solutions by focusing on
competitive advantage, but integrating legacy sub-segments that are expected to grow more
systems with new systems can prove to be a rapidly, such as performance management, pro-
big challenge. These challenges portend a huge visioning and service activation and inventory
opportunity for telecom software systems integra- management.
tion in the next five years, according to a report
by Analysys Mason.2 NEPs can achieve this by adopting any of the
following strategies:
OSS/BSS transformation is vital for CSPs to
improve customer experience, sustain competi- • Capability acquisition: One direct way to
tive edge, manage end-to-end service quality and enhance the product portfolio is to acquire
reduce Op-Ex by optimizing systems and stream- companies possessing capabilities such as
lining business processes. system integration and software development.
However, this can be an expensive proposition
From the NEP perspective, they see the CSPs’ and may not be the best choice for NEPs that
OSS/BSS transformation as critical to their own have already invested heavily in future tele-
cognizant reports 4
5. communications technologies. Further, this services and provide access to the latest technol-
strategy is delay-prone and is usually accom- ogies and other resources on-demand. This will
panied by post-merger integration challenges. help in anticipating the future needs of CSPs and
making sure that the new solutions require less
• Partnerships: The other alternative is to enter
intensive integration effort, support multi-vendor
into a strategic partnership with companies
and multi-domain management and meet CSPs’
that have complementary capabilities. This
regulatory/compliance standards.
approach involves less complexity and allows
NEPs and their partners to focus on their Partnerships should be sought with companies
core competencies, while still delivering an willing to make combined investments in the co-
end-to-end solution to CSPs. development of solution accelerators and differ-
entiating intellectual property.
Choosing the Right Partner NEPs should seek
Traditionally, NEPs have relied on in-house capa- Conclusion
bilities for core activities such as software devel-
capabilities in areas
The increase in the number
opment, hardware design, platform validation and of connected devices and such as consulting
other related services. It takes at least two to three CSPs’ focus on enhanced user services that extend
years to design and build a telecom system using
proprietary platforms and in-house R&D, followed
experience and improving beyond current
business efficiencies to fend
by integration. Such a set-up is no longer viable, off threat from non-tradi- products and
as it consumes huge amounts of time, money and tional players will drive the services and provide
human effort, along with the accompanying need
to continually upgrade internal skills to keep pace
demand for OSS/BSS systems. access to the latest
As core suppliers of network
with rapidly growing technology. equipment, NEPs are well technologies and
The ideal partner enables an NEP to react to
positioned to take advantage other resources
customer demands effectively and efficiently and
of this opportunity to offer on-demand.
end-to-end solutions that can
allow them to focus on developing highly differen-
solve CSPs’ complex communication challenges
tiating solutions. Hence, it is important to choose
in the converged communications era.
Tier 1 companies with a strong and proven record
in software development capabilities, expertise in Rapid technology explosion and increasing
the telecom domain and a global presence. demand for end-to-end solutions from CSPs
require NEPs to deliver new solutions at an
Preference should be given to partners that exhibit
improved rate. Partnering with firms that can
considerable experience in systems integration,
provide requisite resources to cope with the
a deep understanding of CSPs and the ability
technological and time-to-market pressures and
to provide pre-integrated and pre-configured
compete effectively in a marketplace should be
solutions that reduce time-to-deployment. NEPs
viewed as a long-term strategy.
should seek capabilities in areas such as consulting
services that extend beyond current products and
Footnotes
1
Definition from Wikipedia: “Content, services and applications in a video environment where the
delivery occurs over an alternative means than the main video delivery infrastructure, such as
accessing content or applications through the Internet.”
2
Glen Ragoonanan, “Systems Integration: Multi-Vendor and Legacy Complexities Sustain Spend,”
Analysys Mason, February 2011.
3
“Global Trends: Market Consolidation Continues,” Tele.net.in.com, December 15, 2010.
4
“Global OSS/BSS Software Market 2010-2014,” Infiniti Research Limited, February 2011.
cognizant reports 5