The telecoms sector was not as hard hit by recession in 2009 as it was in
2002–2003, despite large declines in GDP in many developed countries. Thanks to growth in IP traffic, the transition to convergent IP-based networks and increasing opportunities in growth markets, the impact of the economic downturn on the telecoms software market was minimised. Evidence of this is noted in three telecoms software segments:
- service fulfilment, which achieved 2.8% year-on-year revenue growth versus our forecasted 2.3%
- network management systems (NMS), which experienced a larger than anticipated 8% decline
- service assurance, which delivered a modest 1% revenue growth, despite the recession.
So, the market for service fulfilment was better than expected, NMS was worse than anticipated and service assurance was more or less neutral during 2009. It should be noted, however, that NMS generates almost as much revenue as the other two market segments combined (see Figure 1) – largely because the need for network management capabilities forms an essential part of equipment sales, technology upgrades and new roll-outs.
Figure 1: Worldwide revenue in selected telecoms software segments, 2009 [Source: Analysys Mason, 2010]
The differences between the performance of these segments can be attributed to variations in their market dynamics.
Service fulfilment – good
Revenue increased more in the service fulfilment segment than in some other areas of BSS/OSS, largely because it is considered to be related to revenue generation. Growth in the market was driven by the transition to optical/packet technology, the push towards instant availability of complex service bundles, the need to operate in uncertain and changing business environments, and the increasing desire to meet the needs of small or medium-sized enterprises (SMEs).
Communications service providers (CSPs) were understandably wary of large transformation projects, given the economic environment. However, they still undertook department-sized transformation projects – particularly those that provided integrated inventory solutions. Service fulfilment projects continue to be attractive during a recession because they increase revenue opportunities.
Leading vendors maintained or gained market share by taking on more services work and by expanding existing projects, supplementing this with very targeted, department-sized new projects in growth markets. Some vendors reaped the rewards of acquisitions they made earlier in order to fill gaps in their product lines.
Network management systems (NMS) – bad
The NMS market was not so fortunate. Revenue in this segment continues to be influenced primarily by spending on equipment, which declined at a much faster rate than anticipated in 2009, as CSPs cut capex to safeguard their businesses.
The recession had the greatest impact on North America and Western Europe – the larger NMS markets in terms of revenue generation. China’s Tier 1 CSPs were the driving force behind NMS revenue in the Asia–Pacific region. Growth markets enjoyed greater sales activity, but this had little impact on NMS market revenue overall because of the lower GDP in those markets.
The recession’s greatest impact on the vendor landscape was the dismantling and sale of Nortel Networks’ CDMA/LTE, GSM and metro Ethernet businesses. Huawei and ZTE were the only two network equipment manufacturers (NEMs) that showed year-on-year growth in 2009.
Dramatic growth in mobile data traffic drove an increase in spending on mobile backhaul, transport capacity and associated NMS. Spending on legacy systems continues to shift towards IP, supporting convergence in both backbone and access networks. Accordingly, the business services market was the only segment to register a marginal year-on-year growth.
Service assurance – neutral
Larger suppliers won more business in 2009 at the expense of smaller niche vendors, which resulted in little net change in service assurance revenue. This reflects CSPs’ aversion to purchasing solutions from smaller suppliers in a weak economic environment.
Growth in the mobile broadband market led to investments in mobile backhaul monitoring solutions, to guarantee service-level agreements (SLAs) between wholesale and mobile CSPs. In addition, operators’ increasing focus on the customer experience is leading to more integrated solutions in session trace analysis for mobile broadband and fixed IP services, unified radio and core network fault and performance management, and application-aware network performance monitoring and root cause analysis.