Telco IT spend to decline as a percentage of revenues by 2016

By Shagun Bali, Analyst, Telecom IT, Ovum

Ovum publishes analysis of telco IT spending forecast

As market forces continue to drive substantial change in telecommunications, the industry’s IT spending will respond accordingly. Faced with limited prospects for revenue growth, telecoms service providers are keeping capital expenditure budgets in check. They are also reducing costs by outsourcing certain operations to leverage vendors’ economies of scale and expertise.

The market is witnessing rapid change in the traditional telco operating model as customer experience management becomes a key battleground. Emerging technologies and models such as cloud computing, mobile broadband, and Big Data analytics are altering telcos’ investment priorities.

Understanding these spending trends will help telcos better formulate strategic decision making and help vendors define their go-to-market offerings and value propositions. Ovum’s Global Telecom IT Spending Forecast Through 2016 and the accompanying Global Telecom IT Spending Forecast Through 2016: Analysis provide insight into the projected levels of technology spending within various geographic, sub-sector, and solution-type markets. They provide short- and medium-term spending forecasts for IT investment.

Ovum expects telecoms IT spending to grow modestly to $56bn by 2016

The recession has shaken the global economic system to its foundation. Flattening economic growth worldwide, Eurozone sovereign debt problems, and rising oil prices have created instability and dampened hopes for significant growth in most sectors.

One of the factors favoring telecoms is that communications and the Internet are now vital platforms that support entire industries and everyday life worldwide. Demand for telecoms services is secure and rising, and it is a critical enabler for the financial and government sectors. 

Growth in telco IT spending will be driven primarily by investments in mobile broadband, packaged software, and professional IT services. However, although telco IT spending will grow in absolute terms, Ovum expects it will decline as a percentage of revenues by 2016 as operators look to simplify their systems and consolidate infrastructure, implement cloud solutions, and outsource more of their operations. Ovum estimates that telcos’ total IT spending will reach $56bn by 2016.

Four big trends will alter the mix of telcos’ IT spending

Telcos’ IT spending priorities are evolving continuously, driven by the need to reduce churn, support business agility, and control costs. Emerging technologies and models such as cloud computing, mobile broadband, social media, and Big Data analytics are having a significant effect on global telecoms markets. There is increasing demand for these technologies and the market will witness a significant uptake in the next five years. However, adoption rates will differ greatly from one market to another.

In enterprise-wide applications, telcos will continue to invest in enterprise resource planning (ERP) through 2016, as well as Big Data solutions and those that increase efficiency and productivity. Ovum expects telcos to spend substantially on customer experience management and related technologies to secure operations. They also will invest in cloud-based services and make better use of network assets they already own to unlock new revenue streams.  

Vendors are required to bring greater flexibility in their IT solutions and partnerships

In these challenging times, vendors must provide greater flexibility in their IT solutions and partnerships, as the operating environment for telcos is undergoing considerable change. Vendors that can provide such flexibility will be rewarded. While this creates more challenges for vendors, telcos’ increasing reliance on outsourcing to control costs will also create more vendor opportunities. Suppliers must concentrate on embedding themselves within their telco customers and becoming part of their operating model. Vendors’ professional services capabilities are key to accomplishing this goal.

Vendors need to build strong relationships with various departments in the telco and not just IT. Telcos are increasingly changing how they make IT decisions. Moreover, decisions are being made by strategy-focused executives rather than IT departments. This reflects greater interdependence among telco processes, where investments in software and IT affect the entire company.

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