The future of the telecom consulting industry and
what will be the next killer telecom consulting
solution is the question on many people’s
lips.
The demand for consulting services increased drastically
in the 1990’s, specifically for telecom and
e-business consultants. Stimulated by the explosion
of dot-com enterprises, increasing market liberalisation
and the growth of mobile and Internet services,
the 1990’s were synonymous with exploding
capital investments and double digit-growth in all
telecom sectors, including consulting.
During the latter half of the 1990's and through
2000, telecom consultancy grew at more than 20%
per annum. Telecom and IT practices expanded year
on year during this period, representing one of
the fastest growing sectors for management and IT
firms.
However, as the dot-com wave collapsed and world
economy slowed, many telecom operators went out
of business. The survivors turned their focus from
expansion to survival and return to profitability,
at the same time reducing consulting budgets and
shifting their telecom consulting requirements.
By mid-2000, following disappointing financial performances
of fixed and mobile operators, the effects of over-priced
3G licenses and over spending on capital expenditure
were being felt. The industry experienced further
destabilisation during 2002, when governments’
investigations into the accounting practices of
several large telecom companies revealed improprieties
and drove many of the key operators into bankruptcy.
Negative telecom industry forces coupled with increasing
economic and political uncertainties have impacted
the telecom consulting industry for the past 3 years.
While demand was strong in a number of service areas,
the global climate caused many clients to defer
consulting spending. Telecom consulting requirements
moved from network development, investment, acquisition
and new service introduction to cost reduction and
revenue generation services.
As detailed in HOT TELECOM’s new “Global
Telecom Consulting market” report, the effect
of the continuing telecom market slump had an estimated
reduction of 6% in telecom consulting revenues in
2002 and 0% growth in 2003, making 2002-2003 the
most difficult for telecom consultants in the last
decade. As a result, consultants relied heavily
on generating revenue from existing clients, with
an approximate 60/40 split between existing and
new clients.
Even with generalised revenue decrease in 2003,
apart for the growth from major players like Accenture,
IBM, Booz Allen and Tata consulting, revenue per
employee improved for the majority of the firms.
Most consulting companies have now published first
half 2004 revenues significantly higher than those
from 2003, therefore all regions should see an improvement
by the end of 2004, with a forecasted world growth
of 4.0%. The market should continue to improve again
in 2005, 2006 and 2007 with forecasted growth rates
of 5.5%, 7.0% and 7.5%.
The economic downturn, the overcapacity of consultants
and the trend toward offshore outsourcing has also
created a major pressure on prices. This price erosion
is however forecasted to slowly subside in 2005.
Leading the next wave
Today’s global telecom industry is in the
midst of revolutionary changes and further consolidation
is likely in the next 2-3 years. Operators are now
returning to profitability and will once again implement
growth strategies. The majority of this growth will
be fuelled by continued telecom market liberalization,
increased proliferation of Internet and broadband
services and rising mobile penetration in developing
countries. Additional trends, impacting the telecom
industry, include:
Customers are also increasingly showing a strong
desire to reduce the number of vendors with whom
they contract, favouring consultants that have a
full set of services, including consulting, systems
integration and network and services management.
Cost reduction has been, and still is, one of the
key priorities within telecom consulting customers.
Telecom companies are working to offset tumbling
revenues with improved operational efficiency. This
objective translates into opportunities for consultants
able to optimise service delivery and customer care
processes, consolidate systems and procedures, or
reduce expenditure through outsourcing of IT, billing,
network management or other non-core activities.
The best opportunities involve operational improvements
and cost savings in terms of people, network, or
service delivery.
Fixed and mobile operators were and still are seeking
to reduce their debt, generate additional revenue
and ride out the end of the telecom storm. As subscriber
growth slowed, their focus has shifted from network
and service expansion to reducing operating and
capital expenditures. Some operators have therefore
chosen to outsource many of their non-core operations,
while others have focused on process re-engineering
and optimising service delivery. These cost reduction
opportunities remained through 2004, while outsourcing
projects will be one of the main growth sectors
for years to come.
Another key concern of telecom customers is revenue
generation. Billions of dollars have been spent
on national and International network and service
expansion, mobile licenses and intelligent technologies.
Operators are now looking to increase return on
investment through the development of new services
and business models. Consultants who can help achieve
these objectives are in the best position to win
over customers trying to return to profitability.
Now that many operators are starting to focus again
on growth and expansion, key opportunities for consulting
firms to focus on in the next few years should therefore
include:
The need for each of the above opportunities will
however vary depending on customers’ location
and their market liberalization and competition
status.
For example, operators in Middle East and Africa,
a region still in the initial stages of market liberalization
with basic technological needs, will require consulting
solutions focused on privatization, management contracts,
network expansion as well as mobile and Internet
service introduction. Key drivers for this region
will include continued liberalisation and privatisation,
mobile growth, launch of broadband services, entry
of many new operators and the expansion of VoIP
services.
At the other end of the spectrum, operators in
Western Europe and North America, will require higher
level consulting solutions focusing on cost and
revenue optimization, through outsourcing and offshoring
(among others), broadband, VoIP and triple play
services as well as customer churn reduction and
revenue protection. Continuing market consolidation,
the return of IPOs, mobile data and 3G applications
should engender a large portion of telecom consulting
requests.
Customers in Asia, Latin America, and Eastern Europe
will lie between these two poles and will require
a mixture of solutions.
The new face of telecom consulting
The worldwide consulting market has undergone tremendous
changes in the last decade, and more is to come
as competition heats up in the current sellers’
market. Initially, telecom consulting customers’
needs were focused on straightforward technical
and strategic telecom solutions and the line between
telecom and IT consulting was obvious. However,
as networks become more intelligent and require
integrated messaging, entertainment, and content,
the line between network and IT infrastructure starts
to fade. IT and systems is becoming an integral
part of the Telco’s day-to-day operation and
services and the boundaries between telecom and
IT solution are blurring.
This trend benefits consultants able to provide
software integration, outsourcing, managed services,
and network integration capabilities. Consequently,
as operators increasingly rely on intelligent applications
to generate value for their clients, the importance
of systems in the provision of telecom services
will continue to climb.
Major IT consultants are entering the telecom consulting
segment, as more customers request telecom consulting
offerings packaged with IT solutions. The two offerings
cannot be segregated anymore and consultants are
stepping up to the mark by forming alliances with
IT firms and vice-versa. Currently, the top 6 telecom
consulting firms, in terms of revenue (Accenture,
CGE&Y, Deloitte and BearingPoint, IBM and Getronics)
are all firms offering a complete suite of telecom
and IT solutions.
Consultants are now offering the whole spectrum
of services. This is evident in the latest market
restructuring activities, where system integrators
such as IBM and EDS are buying strategy and management
consulting firms, enabling them to cover all of
their customers' needs, and placing themselves in
pole position in the converging telecom environment.
Also, all are investing in managed services and
outsourcing capabilities to take advantage of carrier
demands for improved operational efficiencies and
reduced cost structures.
What will be the next trend you may ask? Well as
customers want consultants able to advise not only
on solution deployment but also on implementation
and integration issues, outsourcing and implementation
capabilities will become more important in the winning
of strategic contracts. This means that alliances
with outsourcing and implementation partners such
as IBM and Microsoft, amongst others, will be critical
in ensuring key projects are not lost to competitors.
The recent years’ corporate downsizing and
return to profitability has increased demand on
consulting firms to carry out activities that companies
no longer have the in-house staff to perform. Outsourcing
of information systems, market research, human resource
planning, sales force and even strategic planning
has been a source of growth for consultants.
Until recently, most outsourcing occurred in IT
functions, but is now increasing in network design,
build and manage functions. There is also a growing
trend toward the outsourcing of back-office and
support functions such as HR, accounting/finance,
procurement and customer service. Some operators
are also starting to outsource some of their services
and applications. For example mobile operators,
which are outsourcing the provision of their multi-media
content and value-added services. Outsourcing of
non-core business activities is now becoming one
of the most dynamic sectors of the industry, enabling
customers to focus on revenue generating activities.
Global consulting firms will also continue to grow
their offshore capabilities. Accenture and EDS plan
to move 30,000 and 20,000 jobs respectively by 2005
and BearingPoint established a centre in Chennai,
India. This trend will continue throughout 2005
and offshore firms may even begin to search for
lower-cost alternatives to India.
Initially, offshore outsourcing was mainly used
to reduce cost to compete, as much domestically
as internationally. However, firms are increasingly
using outsourcing not only as an operational-efficiency
driver but also as a key globalisation facilitator.
Consultants are responding by establishing service
centres in multiple countries, creating a global
outsourcing trend and leveraging an array of nearshore
and offshore capabilities. By the end of 2003, most
of the large IT service providers and consulting
firms such as IBM, Accenture and EDS had started
to implement a global outsourcing structure via
offshore or nearshore acquisitions and alliances.
The full-blown impact of this trend will not however
be felt before 2007.
Flexibility is the key
What will be the winning factor for a successful
telecom consulting practice in years to come? As
in any relationship the key to success will be flexibility.
Telecom consultants have had to adjust rapidly to
the chaotic telecom environment of the last decade
and this will certainly become more and more important
in years to come. The telecom industry will face
relentless pressure on price and technological complexity
will continue to intensify.
Consultants must strive to offer customers leading
edge solutions and support at the price, location
and format requested. The ever-changing complex
telecom environment will drive companies to become
partners, competitors and some time providers and
customers. The winning telecom consulting firm will
have to be all of these when necessary and adapt
itself to all situations to ensure maximum benefit.
Offering flexible payment structures and contract
terms also becomes more and more critical, based
on customers’ specific requirements, be it
shared risk and reward, deliverable oriented, day
rates or a mixture of those options. Embracing new
forms of tendering and contract negotiations will
also challenge consulting companies, as their clients
move towards more streamlined bidding processes
including the use of e-auctions, a trend that should
see increased popularity with consulting customers.
An outline of how this new innovative bidding process
may work is as follows: all bidding finalists are
placed in different rooms with computers connected
to the customer’s system. The lowest price
offered by the finalists is shown to each party
and each consultant has one hour to bid down from
that ceiling price, based on other bidder’s
reactions. If a price modification is proposed in
the last 10 minutes of bidding, the customer extends
the bidding process by another hour. This can be
repeated twice. The customer then determines who
wins the bid by combining the consultants’
technical and pricing scores. This new method of
tender negotiation enables customers to drive the
price to its lowest limit, reduce negotiation time
and hopefully reduces price negotiation corruption.
Surviving and building sustainable businesses based
on long term client relationships will be ever more
dependent on consulting companies developing or
acquiring the leading edge knowledge and expertise
that clients are demanding on an ever decreasing
technology and business cycle.
Transferring knowledge to clients, whilst acquiring
new waive skills themselves, in shorter and shorter
time frames will stretch even the most competent
of consultants. Those that are able to do this,
along with combining the new mix of service offerings,
will \undoubtedly thrive, those that cannot may
find themselves returning to the ashes.
Find out more about this fascinating
industry in HOT TELECOM’s Global
Telecom Consulting market report
About HOT TELECOM:
HOT TELECOM is one of the leading telecom expertise
companies, which offers the highest quality telecommunication
reports, tools and services to the international
telecommunication community. With its head office
in Montreal - Canada, HOT TELECOM’s team is
also composed of international telecom experts based
in America, Europe and Asia with experience working
in all telecom markets around the world. HOT TELECOM's
services can be accessed through the company's web
site at http://www.hottelecom.com
Phone: +1 514
270 1636
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514 270 0006
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