The NetCracker 2010 Global Service Provider Survey: An Independent Analysis

Recently, NetCracker Technology Corp. hired Technology Research Institute (TRI) to deliver an independent analysis and interpretation of its 2010 Global Service Provider Survey.

NetCracker gave TRI total access to the raw data and full rein to normalize and analyze it as we saw fit.

Frankly we didn’t know what to expect because so many surveys these days are put together hastily and circulated to anyone who will answer them.  We were pleasantly surprised to find that this one reached a high-level audience.  The responses came from CSP organizations, and most of the respondents were executives and industry thought leaders — in fact, many are the same people who make speeches or participate in panels at TM Forum and other, similar events.

The vast majority of respondents came from large- to mid-sized operators.  About half were from Tier 1 operators, those with over $10 billion in annual revenue.  About a third were from Tier 2 carriers.  Only 8 carriers were Tier 3s, with the smallest one in the $200 million annual revenue range.

Given the size of the companies responding, it’s not surprising that “Converged operator“ was the largest category. “Converged” and “Mobile“ operators combined made up roughly 85 percent of the audience.  Another 15 percent were “Fixed operators” only.

In terms of geographic regions, the largest segment was from Europe, making up half the audience, followed by North America with about 40 percent.  A scattering of surveys also came in from the Middle East, Latin America, and Asia.

The Survey Questions

One of the virtues of NetCracker’s survey was the fact that it didn’t try to accomplish too much.  It consisted of three questions only — but these questions definitely nailed the critical issues of the day.

Participants were sent three multiple choice questions that asked them to identify:

• Top 3 Priorities for their CSP business over the next 12 months
• Top 3 Growth Opportunities expected for their business
• Top 3 Competitive Threats to the business

Of these questions, “Priorities“ was the most immediately relevant to people with OSS/BSS responsibilities, so we expect that these responses reflect the greatest accuracy.  For the “Growth Opportunities” and “Threats to the Business“ questions, respondents essentially gave us their “interested observer” perspectives on larger business issues outside the OSS/BSS domain.

To better see the contrast of opinions in the survey, we chose to focus on what respondents reported to be their No. 1 Priority, Growth Opportunity or Threat.  So let’s see what the survey tells us.

Top Competitive Threats to the Business

The first question asked, “What do you consider to be the top 3 competitive threats to your business?“ This question was especially geared to the problems faced by Converged and Mobile carriers.  The chart below shows the answers as they cut across two segments: Tier 1 and Tier 2/3 Converged and Mobile operators.

The results show that Tier 1 and Tier 2/3 carriers have significantly different opinions on what they believe to be the biggest threat.  Fifty-five percent of Tier 1 operators felt that “New infrastructure providers“ were the most significant business threat.  Tier 2/3 operators felt that “Over the top content providers” were the biggest danger.

Tier 1 carriers are generally the share leaders in their markets.  They often acquire smaller operators to gradually expand their footprint and maintain a commanding position on the competitive battlefield.  What they are least prepared for are the new infrastructure players who basically use guerilla tactics — launch new business models that disrupt the status quo.  Clearwire and Google are certainly companies who are good at that.

Another thing that’s in the back of everyone’s mind in wireless is the hugely disruptive force that Wi-Fi and femtocells may someday bring to the market.  Femtocell (or picocell) is a micro-cellular, neighborhood-based technology that could one day divert traffic away from established carriers.

In the same vein, Nokia Siemens announced at the CTIA show in March 2011, a new architecture that it calls Liquid Radio.  Liquid Radio directs mobile broadband capacity to where it is needed most.  Well, if radio network access becomes more “liquid,“ then it might just flow away from the large incumbents and toward Wi-Fi operators and the like.

So Tier 1 operators are concerned about “new infrastructure“ players for good reason.

The Tier 2/3 operators, meanwhile, are anxious about the threat of “Over the top content providers.“ OTT players are a threat from two directions.  First, they compete directly with operators in the sale of content.  And just as problematic is the high bandwidth load that OTT players bring to mobile broadband.  YouTube videos are free to the user, but are very costly for an operator to deliver.  This is why Tier 2/3 operators will be eager to get their hands on advanced network policy enforcement software that will give them better control over where their bandwidth is going.

App stores, social network sites and handset manufacturers are highly visible in the wireless market, but according to survey respondents, they are of less concern as competitors.

Top Growth Opportunities for the Business

The second question asked, “What are the top 3 growth opportunities that you see in your business?“

Here we found that the most interesting segments to contrast were operators in Europe and the Middle East versus operators in North America.

Living in the United States where the cable industry is very well established and 80 or more TV channels are available even in rural markets, it’s tempting to believe that video doesn’t have much room to grow.  Well, the NetCracker survey certainly suggests that this is flawed thinking: Video markets actually seem ready to explode given that almost 40 percent of European/Middle Eastern respondents rated “Multi-play services to the home“ as their No. 1 priority.  Cable operators are relatively weak on the continent, so it’s an area where telecom operators are keen to add value.

Another big growth area in Europe and the Middle East is “Mobile money and commerce.“ Almost 30 percent of respondents considered mobile money to be their No. 1 priority.  Banking is more mature and cheaper in the U.S. and Canada, and most people have several plastic cards in their wallets.  In Europe, however, fees are higher and customer service is not as good, so operators sense an opportunity.  Another factor contributing to the excitement over mobile money is the fact that European MVNOs in the retail market are ramping up.  The largest grocery retailer in the U.K., Tesco, has more than 2 million customers, and Tesco actively promotes visits to its stores via the handset.  If wireless-delivery store coupons become more popular, it’s easy to see why mobile money and commerce will be a big winner.

A rather surprising finding in the survey is that “Mobile video“ is considered the No. 1 growth opportunity by 25 percent of North American respondents.  One would have thought that Americans and Canadians had plenty of outlets for watching movies and TV, but apparently, the more the merrier.

One company that’s spiking demand for video is Netflix.  Netflix’s original claim to fame was its popular movie rental service sending DVDs via the U.S. postal service.  But now Netflix is leveraging proprietary streaming technology to deliver videos via cable and wireless devices.  Fortune Magazine named Netflix CEO Reed Hastings as its 2010 Business Person of the Year, beating out Steve Jobs, who came in second place.  Netflix’s stock has also been climbing fast since early 2010.

Less than 10 percent of Converged and Mobile operator respondents felt there were as many growth opportunities in “Cloud-based offerings — virtualization“ and “Storage & hosted services to the enterprise.” However, a very respectable 40 percent of Fixed operators considered cloud offerings to be the No. 1 growth opportunity. (Note: That figure is not shown in the chart at the beginning of this section.)

Top Priorities in the Next 12 Months

The third question asked, “What are your top 3 priorities in the next 12 months?“

The answers should be of great interest to folks in the OSS/BSS camp, so we broke out the data into six segments comparing: North America vs.  Europe/Middle East; Fixed vs.  Converged/Mobile operators; and Higher vs.  Lower Gross National Product per Capita in the country where the telecom operates.

The “Priorities“ question raises several interesting points.  First, let’s go to the lowest priority: “Drive business agility through automation.” Normally you’d expect that choice to be rated high because it’s the heart of what an OSS/BSS is designed to deliver.

Yet that choice was the lowest overall: Hardly anyone called it a top priority.  This response suggests that operators are being very pragmatic in tough times.  Today, OSS/BSS investments are focused on solving big business problems — reducing costs or delivering a better customer experience — and not on achieving greater operating efficiency.

While not rated very high in any particular segment, “Evolve existing business models“ is an interesting choice to examine.  If your company is struggling to find new directions to turn to in future markets, then you rate this a high priority.

The relatively high number of responses by North American and Converged/Mobile operators in the “business model“ says that business is moving very quickly for those companies.

Turning now to the hot priority areas, we find that there are some striking contrasts in the data.  Among the highest ranking priorities is “Reduce costs through systems and supplier consolidations.“ That area is rated very high by European operators (26 percent), Fixed operators (27 percent), and operators in countries on the second tier of GNP per capita (30 percent).

But only 5 percent of North American operators rated consolidation high, which is one-fifth the rating in Europe.  For a software vendor, North America is one of the toughest markets in the world to compete in because Canada and the U.S. make up a vast market united by a common language and laws that promote competition.  The price that Europeans pay for their OSS/BSS software is generally much higher because it’s hard to standardize across dozens of countries with so many languages and diverse regulations.

Another factor here: Many of the largest North American operators have gone through massive consolidation programs in recent years, so consolidation no longer holds the urgency it once did.  In any case, it looks like there’s plenty of pent up demand for consolidation in Europe.

But interestingly, North America leads Europe in the priority placed on “Reducing cost through managed services/outsourcing,“ which suggests that the trend toward SaaS and cloud solutions may be further along in North America.

The priorities given to “Improving the customer experience“ are also wildly different across markets.  In the wealthy countries, operators seem eager to spend money on better network quality and customer care since 25 percent rated the customer experience their highest priority.  By contrast, only 4 percent of operators in the less wealthy countries made customer experience a top priority, and this difference probably reflects the lower ARPU and profit margins that operators in the less wealthy markets contend with.

The same argument can be made for spending on “Accelerating new infrastructure deployment.“ Eighteen percent of operators in the rich countries think that’s the highest priority, but only 10 percent of operators in the less wealthy countries seem to be putting money there.

On the whole, “Accelerating network/IT convergence“ falls somewhere in the middle.  It’s not considered a high priority, and at the same time, it’s not very low.  European operators seem highly interested in this area though, which in part may be due to bill-shock regulations that require better integration between BSS and the network.  As mobile broadband expands rapidly in Europe, network/IT convergence will also be required to implement network policies and quickly adjust service fees and thereby strike a balance between higher service quality and a desire to not throw money away buying too many routers and switches.

This article first appeared in Billing and OSS World.