Cloud Investments in Telecom Set to Grow More than 20 Percent - GEP Category Outlook Report
The telecommunications industry will see the fastest growth in cloud investments till 2019, with a worldwide CAGR of 22.2 percent, as per a recent IDC report on public cloud services. Technological improvements at the supply side coupled with higher operating efficiencies will result in a drop in prices for telecom enterprises making the overall outlook for this sector favorable. In 2016, 4G wireless, unified communications and cloud services will continue to mature and offer capabilities that will stimulate the demand for voice, data and video services.
The Telecom Market Churn
The entry of new players such as Amazon, Google, and cable companies will challenge the market share of traditional telecom companies. AT&T commenced wireless operations in Mexico and finalized the DIRECTV deal that significantly diversifies the company’s revenue mix, products, geographies and customer bases. Verizon continues to focus its growth on U.S. Wireless, entertainment and now, internet advertising. Its acquisition of AOL moves Verizon into the number three spot for internet advertising, just behind Google and Facebook. The company also appears to be positioning itself to exit the network business. Competitors, such as Orange, BT and Vodafone could potentially acquire the business from Verizon to enhance their global footprint, especially in the U.S. where Sprint and T-Mobile will continue to fight it out for the number three spot.
The European market for wireless services is set to change in 2016 and 2017 as regulators have set a June 2017 deadline to eliminate roaming charges across Europe. Vodafone and the consortia, FreeMove, led by Orange, are aggressively pursuing the pan-European business to secure market share early in the consolidation process.
Continued double-digit rate increases for “local” services across all geographies are expected in the coming years. Aggregators, such as Granite and MetTel have developed mature businesses that not only offset rate increases but can actually reduce costs by 25 to 35 percent.
Software-Defined Networking Gaining Traction
Telecom equipment sales will remain flat or decline as more services will be offered through software. The number of cloud and communication service providers deploying Software-Defined Networking (SDN) for the first time — or expanding its use — in the data center will increase from 20 percent this year to 60 percent in 2016, according to a recent survey by research firm IHS. The increase in deployment of SDN will further enable and drive the shift to cloud, with the enterprise adoption rate expected to grow from six percent to 23 percent. Enterprises must leverage the opportunities presented by these new technological developments and develop a clear, holistic strategy to shift to the cloud.
The Way Ahead
Procurement must look at consolidating communications suppliers to optimize spend wherever possible. Wireless commitments should be restricted to two years with a possible year three as an option. International carriers should be included in any global network RFPs. Enterprises must focus on consolidating the local services, utilizing aggregators in combination with one significant local exchange carrier (LEC). Procurement professionals should evaluate software defined services before future telecom hardware purchases and consider third-party hardware maintenance partners to extend network equipment life.
For more trends and outlook on key categories and commodities, download your complimentary copy of the GEP Procurement Outlook Report 2016.