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CTO
CIOCMO
CFO
CPO
CEO
Legal
How CSPs Buy TechnologyGiving vendors the edge in selling solutions to digitally-transformed CSPs
The end of CTO-led vendor relations?
STRATEGIC INSIGHT
OvumOvumTMT intelligence |
2 TMT intelligence informa © 2016 Ovum. All rights reserved.
SUMMARY
Communications service providers (CSPs) are going digital. Some are moving into new markets and seeking a role in the digital transformation of our economies and societies. They want to be at the center of the Internet of Things. Others are sticking with traditional telco services but are using digital technologies and processes to become more efficient and improve the customer experience.
The shift from CSP to DSP will profoundly alter the relationship between service providers and their technology partners who have been an intrinsic part of this emerging operator model. When it comes to vendor-sourcing CSPs will focus on cost control, centralization and globalization, simplification, automation, restructuring around customer experience, and virtualization in their move to becoming DSPs.
Many vendors are still stuck in the traditional buyer-seller relationships. Are you changing the way you sell to DSPs…?
How does your organisation measure up?
Whatever the motivation, CSPs will invest in IT systems, platforms, and software that will allow them to operate in an increasingly digital ecosystem, while also using analytics to optimize the network to enhance the customer experience. No wonder, out of 1000 senior telco execs recently surveyed by Ovum, 1 in 3 expect a significant increase in spending on digital solutions in the next 18 months. The priorities for investment are cloud, big data analytics, and upgrading systems to facilitate strategic partnerships and enable customer centric services.
As part of the process of becoming digital, many service providers will enter into a greater range of vendor relationships. They will aim to grab back control of their networks and, where it makes sense, work with a smaller number of more innovative and flexible technology vendors. They are looking for partners rather than vendors, and for solutions as opposed to products.
Are you an enabler of or a barrier to digital transformation? Are your short-term objectives getting in the way of what DSPs need in the long term?
How strong are your CMO relations – as good as your CTO relationships? Have you met the new chief digital officer yet?
Is customer expenditure on your solutions aligned with their new digital strategy? Are your sales Capex, Opex or Cost of Sales intensive?
Which of your customers are Visionaries, and which are laggards? How are you treating them differently?
Are you providing customer-centric solutions or just service platforms? Has your account management strategy evolved accordingly?
Yes No Not sure
Bouke Hoving, CIO/Head of Transformation KPN
<<<<
It's no longer technology, but customer demand that is the driving force in our business. Our customers expect
us, even require us, to use technology to meet their ever-changing demands.
3TMT intelligence informa© 2016 Ovum. All rights reserved.
THE DIGITAL SERVICE PROVIDER IS HERE TO STAY
The telco business is going digitalThe golden age of the telecoms operator is well and truly over. While mobile and fixed broadband connections and revenues continue to grow, they are barely compensating for the decline in voice and SMS. Consumers are favoring so-called OTT services, not just because they are "free" but because they tend to be simple to use and offer new social features and functionalities.
Faced with a maturing market, stagnating revenues, changing investor perceptions, continuing regulatory pressures, and sustained traffic growth, CSPs are being forced to tightly manage costs, upgrade their networks, and move to all IP- and cloud-based network architectures. Some will continue to focus on providing core connectivity and communications services while others will seek to exploit agility and openness to build new revenue streams and move into adjacent markets.
Providing just communications services will be far from easy: while traffic levels are growing by up to 50% per year, consumers expect an experience on video that compares favorably with what they get from their TV broadcaster. Rationalization of the telco business is inevitable, but regulators want to ensure that telecoms markets remain competitive. The integration of fixed, mobile, and TV businesses is becoming a reality in most countries.
Maturity & competition
Changingecosystems
Investorperceptions
Trafficgrowth
Regulatorypressure
TechnologyCustomerbehavior
GROWTHPRESSURE
MARKET CONTEXT RESPONSES
Move to all-IP &
software-centric networks
Managecosts
Upgradenetwork
capabilities
Transform
CHANGE
Monetization
Agility &openness
FIGURE 1: DRIVERS AND RESPONSES: HOW AND WHY CSPS ARE CHANGING
4 TMT intelligence informa © 2016 Ovum. All rights reserved.
Embracing new digital strategies, technologies, processes, and cultures has emerged as the key to driving greater efficiencies, improving the customer experience, and developing new lines of business.
Digital strategy: Verizon, Telstra, and Telenor are among those operators expanding into digital media and advertising. Telcos more generally are looking to carve out a role for themselves as providers of ICT services either in partnership or in competition with existing IT service providers.
Digital technology: Many operators have already virtualized much of their IT infrastructure, and the next goal is to virtualize the network. Operators have thrown their weight behind SDN and NFV as technologies and architectures that will allow them to put network functions into the cloud and embrace innovative new enterprise IT applications and technologies. The speed and shape of the transition to cloud-based networks is still to be determined, but there is now no doubt that it will happen.
Digital processes: Both internal and customer-facing processes within telcos are going digital. Operators need to improve their customer self-service capabilities to both reduce costs and improve the customer experience. Internally, operators are using digital processes and services for a whole range of operational and business functions, including collaboration and product development. Big data analytics is an essential tool for both internal and customer-facing processes.
Digital people: Telcos are not, naturally, innovative. But they are bringing in new digital skills and cultures through internal training programs, recruitment, and investment in early stage digital businesses.
ATTRIBUTE
STRATEGY Technology-centric
Telecoms only
Partner network and walled gardens
Transaction-based revenues and partnerships
Customer-centric
Adjacent industries
Open ecosystem
Recurring services revenues and partnerships
TECHNOLOGY Stove-piped architecture and proprietary standards
Integration strategy defined by network engineers
Focus on network reach and speed
Product-driven customized developments
Flexible and adaptive architecture and open standards
Adjacent industries
Open ecosystem
Recurring services revenues and partnerships
Technical product development controlled by CSP App-driven product and service development throughcrowdsourcing
PROCESSESWaterfall (rigid and linear) processes and decision-making
Two-year development processes
Five-nines specification
Agile and nonlinear processes and decision-making
Two-hour and two-month development processes
Beta testing with live customers
PEOPLE Network performance metrics and MTTR
Accountability but no influence
Annual updates through structured internal feedback mechanism
Focus on business impact and CSAT
Closed-loop process to address VoC
Customer-focused behavior not incentivized Employees incentivized to improve customer engagement
Crowdsourced collaboration and improvements
TRADITIONAL TELECOMS APPROACH DIGITAL APPROACH
FIGURE 2: MOVING FROM A TRADITIONAL CSP TO A DSP OPERATING MODEL
5TMT intelligence informa© 2016 Ovum. All rights reserved.
OPERATOR–VENDOR RELATIONS ARE CHANGING FOREVER
Until now, telecom infrastructure vendors have developed technology (based on standards) that they have either sold directly to telcos or deployed in telecoms networks in partnership with systems integrators. But a new value chain is now emerging. This will see the emergence of new cloud platform providers and network software vendors. Some of these will be small vendors that were previously not servicing the telco market or not in business at all.
Buying boxes (capitalized network equipment) will not disappear, but it will no longer be the focus of attention. Software will take center stage (SDN/NFV, agile development, buy or build or both, innovation ecosystems), and CPEs will become increasingly complex (AR headsets, drones, IoT, wearables). Traditional vendor relations, framework agreements, accredited vendor lists, economies of scale, and five-year roadmaps will all become things of the past, while service provider partnerships and complex OTT deals will become business as usual.
Within the DSP there will be new budget stakeholders, influencers, spend and cost categories, procurement practices, and KPIs to measure return on investment for new business models. Existing procurement models will simply be unable to ensure that costs are managed, sourcing is fast enough, technology investments are monetized, and everything is customer-centric.
This new world will see more complex, more agile, more skilled, and more digital procurement managers. The organizational approach to procurement will see the procurement department no longer as a gatekeeper and commercial enforcer but as an enabler of innovative commercial models and a scavenger hunting for innovative new vendors and solutions. Next-generation procurement will keep an eye on the top line (revenue) as much as on the bottom line (cost and margin).
Chipsetvendors
Cloudplatformproviders
Systemsintegrators Telcos
End-to-endvendors
Networksoftwarevendors
FIGURE 3: TELCO CLOUD INFRASTRUCTURE VALUE CHAIN
?
CTO
CIOCMO
CFO
CPO
CEO
Legal
6 TMT intelligence informa © 2016 Ovum. All rights reserved.
Ovum Consulting has identified four trends that will force vendors to change the way they do business with operators:
1. Sector segmentation: Not everyone is created equal. There will be winners and losers.
2. Stakeholder management: The end of CTO-led vendor relations?
3. CSPs align spend priorities with digital strategies.
4. Next-gen procurement will be customer-centric.
7TMT intelligence informa© 2016 Ovum. All rights reserved.
Not everyone is created equal. There will be winners and losers. As digitalization comes to fruition and "cloudification" drives transformation, we will see increasing fragmentation and diversification across the CSP landscape. It might be too early yet to predict winners and losers, but differences are already emerging in terms of the relative ambitions of different categories of service providers and their willingness to take matters into their own hands by embracing innovation and seeking out new ways of doing business and new lines of business.
"Visionary" DSPs will be identifiable by a determined focus on digitalization with the capabilities and resources to match it. They will be highly demanding customers, intent on disrupting the "business-as-usual" approach to telecoms. But they will be customers worth fighting for. They will define future strategies and approaches for the broader telecoms market. Solutions developed for them will eventually be on everyone else's roadmap.
"Utility" DSPs will come to accept their fate as "pipe" businesses and will focus on regulated return-type investments in their core networks business. They will be good, solid customers, but increasingly their focus will be on the bottom line.
"Wannabe" DSPs will chase more visionary operators but will lack the skills and resources to deliver. They will demand new solutions and technologies but will ultimately prove to be difficult customers because of their limited success in embracing innovation. We recommend that vendors handle "wannabe" DSPs with care!
"Laggard" DSPs will struggle to survive in the new era. They tend to be challenger operators that have struggled to achieve profitability and lack the financial muscle to transform their businesses, or very small incumbents that are restrained within their historical home market.
Vendors will need to segment their client portfolios to ensure that they optimize their long-term value per client and exploit short-term opportunities.
1. THE CSP MODEL IS EVOLVING & VENDORS NEED TO RE-SEGMENT THEIR MARKET
Utility
High
CSP/DSP segmentation Recommended vendor sales strategy
Capa
bilit
ies
&re
sour
ces
Digitalisationagenda priority
Long
term
valu
e
Low HighDifficulty to
serve High
Visionary
Laggard Wannabe
Steady butdeclining margins
Protect don’t invest
Consistentlydisruptive needs
Worth fighting for!
Short termHigh margins
Milk
Urgent ‘me too’demands
Be opportunistic
High
Low
8 TMT intelligence informa © 2016 Ovum. All rights reserved.
Legacy approach – the reign of the CTOEver since copper cables were laid in the ground and connected to Marconi boxes, CTOs have been at the heart of telco operations, spending most of the budget and managing the largest vendor relations with support from Procurement and oversight and budget allocations from Finance.
Status quo – the emergence of the CTIOAs networks become virtualized and operators become increasingly hardware agnostic, it is software that is rapidly becoming the driver of network optimization, and at the same time the provider of potentially game-changing customer-centric solutions. The rising influence of the CIO or CTIO has mirrored this trend, with this figure now managing some of the largest vendor relations.
Next-gen procurement – the customer is kingOnce network synergies have been largely achieved and operators' destinies as Utilities or Visionaries have become clearer, those that have chosen the DSP path will put the customer at the center of everything and their champion, the CMO, will set the technology agenda, raise the bar for vendors even higher, and expect explicit use cases for everything procured.
CFOFinance
CTONetworks
CMOMarketing
CPOProcurement
CEO
CIO
Legal
CIOIT/Systems
CTONetworks
CFOFinance
CMOMarketing
CPOProcurement
CEO
Legal
CTONetworks
CMO CIOIT & Systems
Chief DigitalOfficer
CFOFinanceCEO
LegalCPO
Procurement
2. NEW STAKEHOLDERS WILL CHANGE THE LANDSCAPE OF VENDOR INFLUENCEThe end of CTO-led vendor relations? In the new software-centric and evolving customer-centric landscape, changes in CSP roles and responsibilities will require vendors to reach out beyond their existing CTO relationships. In some cases, responsibility is consolidating under CIOs or newly appointed CTIOs, while future CMOs will possess strong digital skills and take an active interest – and role – in the purchasing of software that defines products, services, functionalities, and customer experience. Vendors will need to re-map their stakeholder maps to realign their influence for the future rather than the past.
9TMT intelligence informa© 2016 Ovum. All rights reserved.
3. CSPS WILL REALIGN SPENDING PRIORITIES WITH DIGITAL STRATEGY
Digitalization and customer-centric procurement will change how CSPs view different spend categories, who in the business owns them, and how they impact the P&L. Hardware will be commoditized, maintenance and support expenditure minimized, and network software open-sourced where possible. By comparison, customer-focused applications will become business-critical, CPEs will be used to capture users and lock in enterprises, and content and brand will ensure relevance and market presence.
It does not mean that capex will disappear – anything but – however, the traditional stronghold of the procurement department delivering savings and the CFO maintaining rainy-day buffers will be de-prioritized in favor of satisfying the enduring need to introduce deflationary economics and provide a customer-driven growth story for investors. Vendors will need to adapt to this re-prioritization of spend segments and cost categories to ensure that their products and solutions stand up to scrutiny under this new alignment.
NETWORKS
5-10 years COST CATEGORY
BUSINESSOWNER
DRIVER
Hardware
Software/support
ITHardware
Capex Networks SDN, interoperability
SDN, interoperability
Mobile – handsetsetc. CoS Marketing
NetworksCoSTV & Internet
Licenses/services Opex
Opex Networks
Control
SalesCoSEnterprise IoT, B2B solutions
Customer ownership
Capex IT
IT
Virtualization, Cloud IO
CPE
Premium CoS Marketing
Apps/VAS
Content is king
CoS Marketing B2C penetration
Content
SaaS, open source,cloud
10+ years0-5 years
EVOLUTION OF IMPORTANCE OF MAJOR SPEND CATEGORIES
Krish Prabhu, CTO and President of AT&T Labs
<<<<
When [AT&T] has met its goal of virtualizing 75% of its network by 2020, it will see savings in operational expenses of up to
40% or 50%
10 TMT intelligence informa © 2016 Ovum. All rights reserved.
4. NEXT-GEN PROCUREMENT WILL BE CUSTOMER-CENTRIC
If a vendor can't draw the line between its solution and the end customer, CSPs will send it back to the drawing board. After decades of engineering-led, "build-it-and-they-will-come" network deployment, digital operators will have no choice but to put the customer at the heart of their strategy. In many situations, it will be the customer pulling a service from the operator rather than the operator pushing services to customers. Soft SIMs, on-demand or dynamic service delivery, and artificial intelligence (AI) will all drive customer-led service delivery.
Not only will every dollar spent have the customer in mind, but in many cases, the dollar won't get spent until the customer has demanded the service. This will have the same disruptive effect on the telco supply chain as Just-in-Time manufacturing did on the automotive sector 25 years ago.
With this in mind, operators are looking to develop a whole range of new services and solutions, in many cases partnering with third-party Internet and ICT vendors. In the consumer market, the focus (in developed countries) will be video and the connected home. Mobile payments and the broader mobile commerce and advertising ecosystem could present opportunities to service providers in emerging markets. But perhaps the biggest short-term opportunity for the CSP market as a whole is in the enterprise market and the public sector.
Vendors will be at the end of the value chain rather than at the front of it unless they can directly demonstrate their value-add to the end customer with use cases and returns on investment as supporting evidence. At the same time, rather than waiting for traditional vendors to approach them with new solutions and technologies, operators will try to find value in start-ups, niche players, and fashionable technology-driven vendors from other sectors. This will put at risk the deep relationships that vendors have strived to build over time. Unless vendors themselves create deep innovation networks and an ability to easily integrate such innovation into existing solutions, they could lose their seat at the top table.
Vendors need to reshape the way they market their solutions to operators, transform their account management strategies, and open their arms to third-party innovation through a flexible eco system.
Respondents (%)
Plan in 1 year
Please indicate which of the following digital service categories you plan to offer
Plan in 2 years Plan in 5 years
0 20 40 60
RetailCloud-based services
AdvertisingMobile payments, commerce, and financial services
Utilities (smart metering)Digital content and entertainment
M2M, IoT, and smart homeTransportation (fleet and asset management)
CommunicationsEducation (m-education, mobile library)
Privacy, trust, and securityPublic sector (smart cities)
Automobile (connected cars)Healthcare (m-health)
INDUSTRY-SPECIFIC OFFERINGS, IOT, M2M, AND MOBILE-BASED SERVICES TO DOMINATE TELCO DIGITAL SERVICE OFFERINGS IN THE NEXT FIVE YEARS
Note: N=100
11TMT intelligence informa© 2016 Ovum. All rights reserved.
An enabler of or a barrier to DSP transformation?The challenge has been set. Whether your customers are Visionaries or Utilities , they need to identify new digital strategies, learn new digital processes, embrace a new digital culture, and deliver high-quality digital services. They cannot do this alone. Now more than ever, your customers need partners rather than vendors, and they are looking for solutions rather than products.
So, are you an enabler of or a barrier to digital transformation? Do your capabilities match up with the long-term objectives of your DSP customers?
Do you know who your customers are?
What are they trying to become?
• Categorising your customers: are they Visionaries, Wannabes, or Utilities?
• Why does it matter and how should you interact with each of these?
How deep are your customer relationships?
Do you know who you need to influence anymore?
• Evolving budget responsibilities: where does it lie – CIO, CTIO, shadow IT?
• Understanding the future DSP power brokers
Do you understand your customers’ cost allocations?
What’s driving their investment decisions?
• Customer focused applications become business critical• Cost control: critical in the short term to launch new services
in the longer term
Are you still supplying DSPs with service platforms?
Or are you truly providing customer centric solutions?
• 5G vision: driving use cases will place you at the front of the value chain rather than the end
• Integrating innovation into existing solutions will keep you at the top table
An Introductory Half-day Concepts Session> Evolution of Digital Service Providers and implications for vendors> Introduction to Strategic toolkit for re-segmentation and stakeholder mapping > Perspectives and illustrations using a fact-based operator case study
A two-day Tailored Insights Workshop> Pre-workshop survey and high-level data-gathering exercise> Introduction to tools using client-specific material – stakeholder and partner mapping> Roadmap to continue aligning vendor sales approach with CSP digital strategies
Strategic Account Planning Review> Strategic review of Top 10 accounts per country/ region/ sector
ENSURE YOU STAY RELEVANT TO YOUR CUSTOMERS! OVUM CONSULTING DELIVERS WORKSHOPS AND A TOOLKIT OF STRATEGIC MODELS TO ENSURE ITS VENDOR CLIENTS ARE EVOLVING THEIR SALES STRATEGY IN PARALLEL TO THEIR CUSTOMERS’ DIGITAL TRANSFORMATION
About Ovum ConsultingOvum is a market-leading global research, analysis, consulting and advisory business focused on the converging telecoms, media and technology markets. Through its 180 analysts worldwide, Ovum provides clients with independent and objective analysis, consulting and advisory services that enables them to make better business and technology decisions.
With its footprint, Ovum advises its clients by:1) Identifying and evaluating new revenue opportunities and planning for challenges created by a rapidly
growing and changing connected digital economy.2) Supporting business planning, product development and tactical sales and go-to-market strategy using our
reliable market proprietary data, forecasts and analysis.3) Designing messaging, supported by evidence-based advice, that will make an impact in the marketplace.
OvumOvumTMT intelligence |
ABOUT THE AUTHORS
Nicholas JotischkyNick Jotischky is a Consulting Director within Ovum's Digital Service Provider Practice. Nick has worked on a wide range of consulting projects helping network and IT vendors understand the business, network and IT challenges facing DSPs as they transition by becoming more efficient, competitive and dynamic. Nick has worked with service providers and vendors globally, especially across EMEA.
Mark NewmanMark Newman is a telecoms-industry thought leader with 25 years of experience delivering insight to senior level executives and audiences. Mark’s recent research has focussed on telecoms operator business models, diversification and the intersection between Internet and telecoms. He delivers presentations, strategy sessions and workshops to global audiences, helping them to plan for the changes that technology and new business models that will fundamentally transform their businesses. Mark was Chief Research Officer at Informa Telecoms & Media and Ovum before leaving to set up his own research firm, ConnectivityX, in 2016.
Jason SimpsonJason Simpson is an Ovum Associate following a 20 year career specialising in Telecoms and Procurement initially as a Strategy Consultant for Accenture and then as Regional Head of Procurement for Cable & Wireless plc. Jason has worked across Europe, Middle East, Africa, Asia and North America. He is a regular speaker at events such as Mobile World Congress and GSMA360.
