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Network Transformation: Opportunities and Challenges for NEPs

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With declining revenues and new competition from over-the-top players, NEPs should partner with Tier 1 consulting firms to approach CSPs with a complete set of solutions that help deliver …

With declining revenues and new competition from over-the-top players, NEPs should partner with Tier 1 consulting firms to approach CSPs with a complete set of solutions that help deliver next-generation services.

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  • 1. • Cognizant ReportsNetwork Transformation:Opportunities and Challenges for NEPs Executive Summary offers both promising opportunities and a set of challenges. NEPs need to understand and identify Communication service providers (CSPs) have gaps that impede CSPs’ time-to-market aspira- traditionally owned and operated networks, while tions and develop new, customized solutions network equipment providers (NEPs) provided quickly and cost-effectively. Increasing network network equipment and services such as instal- complexity — demand for equipment that can lation and maintenance. The convergence of IT, handle multiple services around voice, data and telecom and media has led to the development of video and the pressure to offer differentiat- new products (smartphones, tablets, etc.) that are ing solutions — requires NEPs to augment their driving the demand for both data and personal- current offerings. ized services. CSPs are also impacted by the rise of over-the-top (OTT) players1 such as Google, NEPs would do well to partner with Tier 1 consulting Yahoo and Skype, which use CSP networks to firms that can bring complementary capabilities provide services directly to consumers. This in enterprise systems integration and develop dif- forces CSPs to offer more differentiated services ferentiating software to address key business and to retain customers. operational challenges. This will enhance NEP CSPs are transforming their networks, existing offerings and allow them to approach CSPs with systems and processes to support next-genera- a complete set of solutions that help deliver next- tion services and are rapidly entering the cloud generation services smoothly and quickly. ecosystem. They are actively seeking partners to help them quickly and cost-effectively serve CSPs: Treading a Difficult Path customer demands, create new revenue-gener- The business environment has never been so ation opportunities and improve time-to-market challenging for CSPs. They are grappling with for new service deployments. As CSPs spend declining average revenue per user (ARPU) in the most of their budgets on procuring equipment wireless voice area (see Figure 1) and increasing and related services from vendors, it is logical to competition from non-traditional players such expect NEPs to offer CSPs end-to-end solutions as mobile virtual network operators (MVNO) and — managed services ranging from consulting, to OTT providers, such as Skype, Yahoo and Google operations support systems and business support (see Figure 2). systems (OSS/BSS) integration. Even while dealing with these challenges, For NEPs that are challenged by the decline in the CSPs must keep pace with growing technology traditional equipment business, this development complexity and a mounting mobile broadband cognizant reports | june 2011
  • 2. Data Grows as Voice Declines $60.00 $50.00 $40.00 $30.00 $20.00 Q2 2013 $10.00 $0 Q1 4 Q1 5 Q1 6 Q1 8 Q1 9 Q4 4 Q3 5 Q4 5 Q3 6 Q4 6 Q3 8 Q4 8 Q1 7 Q3 9 Q4 9 Q3 7 Q4 7 Q2 5 Q1 0 Q2 6 Q2 8 09 Q2 7 Q3 0 Q4 0 Q2 0 11 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 Q3 Q2 Data ARPU* Voice ARPU Linear Data ARPU Linear Voice ARPU* Average revenue per userSource: “U.S. Wireless Data Market, Q1 2011 Update,” Chetan Sharma ConsultingFigure 1customer base, which is expected to reach one transform their legacy systems that hinder newbillion by 2013 (see Figure 3). At the same time, product launches and enable rapid provisioningthey must fulfill demand for ubiquitous and of new services. They need to work closely withcustomized services that go beyond wireless voice their partners and develop customized, scalabletelephony, to offset a decline in traditional fixed end-to-end solutions. This way, they can reducebusiness revenues. As a result, CSPs are under costs, improve time-to-market and accommodatepressure to roll out next-generation networks and new solutions with minimum integration issues asservices with aggressive deployment schedules they move toward an all-IP environment.and reduced time-to-market. For NEPs, the closest and biggest vendors toWith pressure looming to reduce capital expendi- CSPs, this provides an opportunity to strengthenture (Cap-Ex) and operating expenditure (Op-Ex), their strategic partnerships with CSPs.CSPs are looking for partners that can help themKey Challenges for CSPs Dealing with regulatory issues 7% Network congestion 13% Sustaining profitable growth 20% Keeping pace with new technology trends 20% Reducing complexity of the companys structure 30% Reduced time-to-market 30% Growing customer expectations 37% Efficiency improvement 40% Intensifying competition 57% 0% 15% 30% 45% 60%Source: Frost & SullivanFigure 2 cognizant reports 2
  • 3. Worldwide Mobile Broadband Subscriptions Growing Unabated 1.000 1.000 Include HSPA, W-CDMA, CDMA2000 and EV-DO technologies .800 .750 .694 Subscribers (in billions) .505 .500 .306 .250 .204 .100 0 CY07 CY08 CY09 CY10 CY11 CY12 CY13Source: Infonetics Research, March 2009Figure 3Imperatives for Change providers such as Huawei and ZTE have aggres- sively expanded to European and North AmericanThe last five years have been especially chal- markets, taking away market share from the likeslenging for NEPs. In the aftermath of the global of Ericsson, Nokia-Siemens Networks (NSN) andeconomic downturn, NEPs have seen a significant Alcatel-Lucent. While Ericsson, Alcatel-Lucent andreduction in margins from their core business NSN incurred losses or remained flat, Huawei’sand an overall decline in equipment sales. This revenues grew at CAGR of 29% during 2006-2010has forced many companies to diversify beyond (see Figure 4).equipment to offer a range of managed and pro-fessional services to CSPs. NEPs are also impacted by the consolidation of CSPs (including cross-border transactions), whichThe emergence of low-cost players, for example, has left in its wake fewer CSPs that are biggerhas made pricing in the highly competitive in size and wield enormous bargaining power,NEP market even more cut-throat. Leveraging resulting in reduced profit margins.their low-cost advantage, Chinese equipmentNEP Ups and Downs 40.00% 31.90% 29.24% 30.00% 20.00% 10.00% 6.83% 3.12% 0% -9.06% -10.00% ALU Ericsson NSN Huawei ZTE*Revenue growth rates, 2006-2010.Source: Cognizant Research CenterFigure 4 cognizant reports 3
  • 4. The rapidly evolving technological landscape has success. NEPs have a vested interest in CSPs seen increased demand from CSPs to deliver new being able to shrink time-to-market for new ser- products quickly and at lower costs. This means vices and accelerate their equipments’ return on NEPs need to focus even more on ensuring investment. NEPs should leverage their trusted that their products support growing network partner status with CSPs and bring them inte- complexity and interoperability. Thus, working grated solutions consisting of not only equipment closer with CSPs and being part of their success but also the enabling OSS/BSS infrastructure. has never been so important for NEPs. NEPs that partner with CSPs in shrinking their time-to-market set themselves apart. In cases New Opportunity Beckons NEPs where the NEP already possesses OSS/BSS capa- The emergence of new technologies (3G, LTE, bilities, they need to bring systems integration etc.) requires CSPs to support wireless, VoIP, services to help the CSP with transformation. video, high-speed data, a host of digital media applications and other services across numerous NEPs can also help Tier 2 CSPs that do not consumer and business devices. CSPs must con- possess cloud computing expertise to offer cloud tinuously monitor service performance, add solutions to large and medium-size businesses bandwidth on-demand, provision new services and government organizations. and features quickly, and track customer usage and charge them appropri- The Way Forward for NEPsNEPs should leverage ately. This has increased To remain competitive, NEPs need to vertically integrate their equipment by supporting next-leveltheir size and scale of the complexity of their OSS/BSS solutions and offer systems integration operations and billingoperations to emerge procedures. and testing services to present a complete solu-as a one-stop-shop for tion to CSPs. Getting there means they will have Legacy OSS/BSS systems to battle it out with big IT services firms, which network equipment hinder the quick roll-out of are usually preferred by CSPs for high-level OSS/and support OSS/BSS new services, as they need BSS transformation because of their considerable solutions by focusing to be configured and tested experience in building and delivering new and rigorously. This involves more cost-effective IT and business capabilities. on sub-segments that costs and delays the launch are expected to grow of new services, challeng- The OSS/BSS market has evolved tremen- more rapidly. ing the CSPs’ objective of dously, along with changing technologies. The gaining quick market share global market is expected to reach $22 billion in and profits. CSPs might revenues by 2013.3 North America will continue choose instead to deploy new OSS/ BSS systems to be the largest market for OSS/BSS solutions while retaining their existing legacy systems, but because of its substantial and growing demand this approach creates a complex environment for data and video. However, the market remains with several multi-vendor systems (hardware highly fragmented, with more than 400 vendors,4 and software) that operate in silos, each silo mostly specializing in niche services. NEPs should supporting only a subset of services. leverage their size and scale of operations to emerge as a one-stop-shop for network equipment OSS/BSS systems can be an enabler of a CSP’s and support OSS/BSS solutions by focusing on competitive advantage, but integrating legacy sub-segments that are expected to grow more systems with new systems can prove to be a rapidly, such as performance management, pro- big challenge. These challenges portend a huge visioning and service activation and inventory opportunity for telecom software systems integra- management. tion in the next five years, according to a report by Analysys Mason.2 NEPs can achieve this by adopting any of the following strategies: OSS/BSS transformation is vital for CSPs to improve customer experience, sustain competi- • Capability acquisition: One direct way to tive edge, manage end-to-end service quality and enhance the product portfolio is to acquire reduce Op-Ex by optimizing systems and stream- companies possessing capabilities such as lining business processes. system integration and software development. However, this can be an expensive proposition From the NEP perspective, they see the CSPs’ and may not be the best choice for NEPs that OSS/BSS transformation as critical to their own have already invested heavily in future tele- cognizant reports 4
  • 5. communications technologies. Further, this services and provide access to the latest technol- strategy is delay-prone and is usually accom- ogies and other resources on-demand. This will panied by post-merger integration challenges. help in anticipating the future needs of CSPs and making sure that the new solutions require less• Partnerships: The other alternative is to enter intensive integration effort, support multi-vendor into a strategic partnership with companies and multi-domain management and meet CSPs’ that have complementary capabilities. This regulatory/compliance standards. approach involves less complexity and allows NEPs and their partners to focus on their Partnerships should be sought with companies core competencies, while still delivering an willing to make combined investments in the co- end-to-end solution to CSPs. development of solution accelerators and differ- entiating intellectual property.Choosing the Right Partner NEPs should seekTraditionally, NEPs have relied on in-house capa- Conclusionbilities for core activities such as software devel- capabilities in areas The increase in the numberopment, hardware design, platform validation and of connected devices and such as consultingother related services. It takes at least two to three CSPs’ focus on enhanced user services that extendyears to design and build a telecom system usingproprietary platforms and in-house R&D, followed experience and improving beyond current business efficiencies to fendby integration. Such a set-up is no longer viable, off threat from non-tradi- products andas it consumes huge amounts of time, money and tional players will drive the services and providehuman effort, along with the accompanying needto continually upgrade internal skills to keep pace demand for OSS/BSS systems. access to the latest As core suppliers of networkwith rapidly growing technology. equipment, NEPs are well technologies andThe ideal partner enables an NEP to react to positioned to take advantage other resourcescustomer demands effectively and efficiently and of this opportunity to offer on-demand. end-to-end solutions that canallow them to focus on developing highly differen- solve CSPs’ complex communication challengestiating solutions. Hence, it is important to choose in the converged communications era.Tier 1 companies with a strong and proven recordin software development capabilities, expertise in Rapid technology explosion and increasingthe telecom domain and a global presence. demand for end-to-end solutions from CSPs require NEPs to deliver new solutions at anPreference should be given to partners that exhibit improved rate. Partnering with firms that canconsiderable experience in systems integration, provide requisite resources to cope with thea deep understanding of CSPs and the ability technological and time-to-market pressures andto provide pre-integrated and pre-configured compete effectively in a marketplace should besolutions that reduce time-to-deployment. NEPs viewed as a long-term strategy.should seek capabilities in areas such as consultingservices that extend beyond current products andFootnotes1 Definition from Wikipedia: “Content, services and applications in a video environment where the delivery occurs over an alternative means than the main video delivery infrastructure, such as accessing content or applications through the Internet.”2 Glen Ragoonanan, “Systems Integration: Multi-Vendor and Legacy Complexities Sustain Spend,” Analysys Mason, February 2011.3 “Global Trends: Market Consolidation Continues,” Tele.net.in.com, December 15, 2010.4 “Global OSS/BSS Software Market 2010-2014,” Infiniti Research Limited, February 2011. cognizant reports 5
  • 6. Bibliography“U.S. Mobile Data Market Update Q1 2011,” Chetan Sharma Consulting, May 9, 2011.Jessica Scarpati, “Next-Generation OSS Platforms: Faster Time to Market for New Services,”SearchTelecom.com, April 20, 2011.“AT&T’s T-Mobile Purchase May Crimp Margins for Ericsson, NSN,” Bloomberg.com, March 22, 2011.“IDATE Forecasts 371 Million Superfast LTE Mobile Broadband Subscribers in 2015,” ISPreview.com,February 15, 2011.“OSS/BSS Integration: The Building Block of the Era of ‘Big Data,’” Frost & Sullivan, 2010.Stepan Breedveld, Ron Nicol and Maikel Wilms, “Integrated Multi-Vendor Management,” BostonConsulting Group, August 2010.“Interview: Erwan Ménard of Hewlett-Packard,” Global Telecoms Business, September 8, 2009.Glen Ragoonanan, “Next-Generation OSS/BSS Transformation is the Key to Staying Competitive,”Analysys Mason, October 21, 2008.Jeff Cotrupe, “OSS Service Delivery Platforms: New Services Launch Pads,” SearchTelecom.com,Sept. 15, 2008.Tom Nolle, “The Changing Requirements of Telecom Operations and Business Support Systems,”SearchTelecom.com, 2008.Michael Matthews, “Mind the Gap: Between BSS/OSS,” BillingOSS.com, 2006.“It’s Not About Telecom,” Voice&Data.com, June 5, 2006.AuthorVinaya Kumar Mylavarapu, Cognizant Research CenterResearch AnalystPranay Singh, Cognizant Research CenterCommunications Industry ExpertPrashant Yagnavajhala, Director, Cognizant Communications Business UnitAbout CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 111,000 employees as of March 31, 2011, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing andfastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. Haymarket House #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA 28-29 Haymarket Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London SW1Y 4SP UK Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7321 4888 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7321 4890 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.