The enterprise segment can be a growth engine for telecommunications providers across the globe. Digital disruption means that every enterprise will have to adjust business models, become more flexible and focus intensely on customer experience. Next generation networking technologies can help achieve these goals. Carriers have an opportunity to offset their own disruption by investing in the enterprise segment.
Telco disruption 2019
Threats to carrier business
The telecommunications industry is in a period of transition and disruption. Digital native companies in media, communications, retail and more are challenging business models across industries. Today, carriers are well aware of the threat posed to their voice and messaging services in the mass-market by over-the-top (OTT) players such as Whatsapp, Wechat, Facebook Messenger and more. Across the world core carrier businesses like voice and messaging are no longer achieving the same levels of revenue as in years past. However, there is little they can do as both fixed and mobile voice revenues continue to wither. According to GlobalData, worldwide mobile voice revenue declined 11% in 2018, mobile messaging revenue declined 10% and fixed voice revenue declined by 5%. These revenues are not returning either, with GlobalData estimating 2023 mobile voice, mobile messaging and fixed voice revenues to drop to 22%, 43% and 23% below 2018 levels respectively.
However a new round of disruption is poised to occur in the carrier industry, but this time focused on the high-value enterprise segment. Currently, webscale companies like Amazon, Google, Facebook and Alibaba are expanding their reach across a host of industries, including services like cloud compute and storage. Many enterprises today rely on cloud services provided by these internet behemoths. This has largely benefitted carriers up to this point, as data needs to be channelled from enterprise premises to cloud provider data centres, with limited exceptions. However, more recently many of these webscale players have begun investing in their own data carriage capabilities. Facebook, Google, Alibaba, Amazon and Microsoft have all invested in building out data centres and connecting them with their own fibre. Amazon and Facebook are currently backing the construction of a subsea cable connecting the US to Japan and the Philippines, while Google has invested in the INDIGO subsea cable connecting Indonesia and Singapore. In the future, these cloud and internet giants could offer enterprises data carriage alongside cloud services. While the last mile access will likely remain the carrier’s domain, webscale companies are competing for more value from the enterprise segment. Further with the advent of network function virtualisation (NFV) it is much less costly to deploy more advanced network services like bandwidth optimization or security features.
Carriers and 5G
Despite investments in data centres and undersea cables, telecoms carriers still dominate in the networking space. In both fixed and mobile domains enterprises (and consumers) will continue to rely on the networks owned and operated by traditional telecommunications companies. In fact, in this age of digital disruption, the network is becoming increasingly important. Today’s enterprise customers are hyper-focused on customer experience, while enterprise employees expect great experiences from their company’s technology. A dynamic and flexible network can enable businesses to scale the bandwidth at real-time to address ad-hoc requirements, provision new branches quickly to be where customers are, it can enable employees to work securely from anywhere, it can alleviate pressures on internal IT teams to ensure that everything runs smoothly on the back-end. The use of analytics in networking can also enable predictive monitoring and automate provisioning to minimise downtimes/network failures and enhance user experience. A telecommunications provider that can provide a next-generation network that helps achieve business outcomes will be in a good position to remain the enterprise segment’s trusted, technology partner.
There are new technologies that will enable these next-generation networks and telecoms providers to have an incredible opportunity to use a theme to grow their business, especially in the enterprise. The advent of 5G will be incredibly important for carriers, especially in the enterprise segment. The higher bandwidth paired with low latency and massive connectivity will enable carriers to offer new services to an enterprise that were not possible with pre-existing network technologies. 5G will be especially impactful when paired with IoT. An increasingly diverse range of devices and machinery are being connected to networks and the internet for the first time. Pairing this IoT revolution with enhanced latency, security
Opportunities in enterprise
Today there are bountiful opportunities for carriers to grow their revenue from the enterprise segment. These extend beyond just simple internet and voice plans for offices to more advanced networking solutions like MPLS, Ethernet, Wi-Fipaired with services like managed network, cloud services, security, data analytics and more. The most successful carriers going forward will be the ones who can expand beyond core telecommunications to become technology partners.
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According to GlobalData, total global enterprise spending on Ethernet services (LAN, WAN and private line) totalled $63bn in 2018, while IP/MPLS VPN services enterprise spend amounted to $36bn. There is also opportunity outside networking. The growth of cloud services has created a trend where organizations are increasingly using multiple public and private cloud providers creating a need for help managing their complex cloud connections. Security is also increasingly important as more data than ever is being stored and processed in the cloud and more devices are being onboarding into networks as IoT accelerates. In 2018 GlobalData reports that enterprises spent $35bn on managed cloud services with an additional spend of $84bn on managed security. There are a host of ICT solutions and services carriers are well positioned to provide to the enterprise market, many of which are expected to grow in revenue rapidly over the coming years.
Managed services are key
Managed network services go beyond the campus. Carriers can also offer a managed WAN service that offers a mix of technologies (Ethernet, MPLS, IPVN, private mobile, etc.) while offering features that optimize the performance of the network and flexibility based on enterprise customer needs. For example, offering dynamic bandwidth can allow enterprises to burst up network speeds of traffic load size in times of heavy activity but return to a lower base rate during normal operations. Offering SD-WAN can help enterprises spin up new branches more rapidly by enabling remote management and reducing the number of network elements required at a new site. Network flows can be optimized to improve customer application performance. Operators, with their experience in managing networks, can then offer all these services in a managed network package. Through managed network services carriers win more revenue and higher margins by offering a network that adapts to enterprises business needs without interrupting business operations. One area that carriers can compete well in is providing campus or headquarters LAN services. While operators are already familiar with deploying, Ethernet, Wi-Fi, internet or mobile access points at customer premises. However, there is an opportunity to grow beyond access provision to offers services like managed LAN, analytics and security, around a campus LAN. The LAN and WAN integration enables more efficient network management across internal and external domains, e.g., end-to-end QoS or integrating multiple IoT deployments between networks. Industry verticals like education, health and government want to create smart spaces for their end clients, and carriers can go beyond providing the connectivity to offer network analytics, footfall analysis, network security and more. Combining the LAN with data analytics services and security into a single managed service offers enterprises much more value than the access alone and can help elevate the carrier in the technology partner value chain.
Cloud growth is a telco’s friend
Cloud services are increasingly important to enterprises around the world. According to a GlobalData survey of over 3,200 enterprises IT buyers around the world, the total on average cloud services accounted for 11.1% of total ICT spend in 2018, up from 6.7% in 2017. Not only are enterprises spending more on the cloud, but they are also spending on different types of cloud. Over 50% of respondents in the same survey said they were poetizing hybrid cloud in 2019, while nearly 60% said they were prioritizing managed cloud. As enterprises cloud environments become more complicated, connecting to multiple public cloud providers, while also maintaining on-premise or private cloud environments for sensitive data and applications, they require a simple way to visualize and manage this. Carriers can provide simplicity to enterprises by taking away the complexity of trying to integrate multiple clouds into one working network architecture. Offering multiple cloud connection options, both public and private, through a single pane of glass management view will help win enterprise customers. Partnering with public cloud providers to offer direct cloud connect will also help win favour in the enterprise segment by offering superior data and application speed and limiting exposure to the open internet.
The security story
Today many enterprises are increasing spending on managed security services. Evolving security threats that make businesses more likely to face IT security vulnerabilities and increasingly engage with managed security services providers. Further business digitalisation and increasingly customer digital touch points make business-critical IT systems more susceptible to threats. As such GlobalData expects global enterprise spending on managed security services to reach $123bn by 2022. While there are pure-play security service providers, increasingly there is an opportunity for the carrier to offer these services. Products like firewall, which used to be a dedicated network appliance can now be virtualised and loaded up easily when needed. Network intrusion detection is a natural area for carriers to monitor. Operators can offer these kinds of services alongside networking to add more value to enterprise contracts. Further, the small and medium enterprise is often ignored by the larger pure-play security providers, giving carriers another opportunity to increase enterprise revenue in this segment.
From telco to technology partner
Despite pressures from digital disruption and changing consumer preferences, there is still a path forward for the telecommunications industry. Next generation networks will enable businesses to operate much more flexible, and IT will move from a cost centre to a business enabler. Carriers have an opportunity to guide their enterprise customers through this transition while simultaneously moving up the value chain from access provider to technology enabler. Operators who invest in the enterprise segment can see tremendous revenue growth over the coming years. Offering managed LAN, WAN, cloud and security are promising areas for operators across the globe. Ensuring that their products and services are capable of meeting enterprises’ next generation demand is the first step.