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Enterprise revenue: future trends and opportunities for telecoms operators

Catherine Hammond Senior Analyst, Research
Tom Rebbeck Research Director, Enterprise and IoT

Video interview

Tom Rebbeck, Research Director of Enterprise and IoT at Analysys Mason and Catherine Hammond, Senior Enterprise Analyst discuss Analysys Mason's recently published worldwide enterprise forecast. They consider the outlook for operators addressing the enterprise market, and discuss how that varies by region and for different sizes of enterprise. They also talk about where they believe the most significant opportunities are for operators.


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Video and podcast transcript

Introduction: Hi, I'm Tom Rebbeck, Research Director of Enterprise and IoT at Analysys Mason. I'm here with Catherine Hammond, Senior Enterprise Analyst, and she's going to be discussing our recently published worldwide enterprise forecast.

We're going to consider the outlook for operators addressing the enterprise market, and discuss how that varies by region and for different sizes of enterprise. We'll talk about where we believe the most significant opportunities are for operators.

Slide 1:

Tom: Catherine, let's start by talking about the scope of the forecasts.

Catherine: Certainly. Our forecasts include traditional voice and data connectivity services, and also a range of ICT services, which we refer to here as 'other business services'. That includes things like unified communications, security, and a range of services which either support or are delivered through the cloud.

We divide the world up into 8 different regions according to geography and economic development, so we have some very high-income, mature markets such as North America and Western Europe, and some smaller but much faster growing markets including Emerging Asia-Pacific and parts of Africa.

Within each region, we segment enterprises according to their size. We have micro- small- and medium- enterprises, which together make up the SME segment. Then we have a category of large enterprises which encompasses organisations with at least 250 employees, and that includes both private and public sector organisations.

Tom: It looks from the chart on the right-hand side that microenterprises are by far the biggest segment, at least in terms of the number of enterprises and the number of employees. Is that right?

Catherine: Yes, very much so. We estimate that over 90% of businesses are micro-enterprises, and about 40% of employees work for that segment. Revenue share is much smaller though. Large enterprises account for only about a third of employment, but for more than half of the overall enterprise revenue for telecoms operators. So both micro- and large-enterprise segments are particularly important to consider.

Slide 2:

Tom: So this next slide is showing our overall enterprise revenue forecast and it is showing that it is going to be very flat in the next few years. How does that compare with the recent experience of operators?

Catherine: Flat or declining enterprise revenues have been very much the experience of many telecoms operators especially in high-income markets over the last few years. In markets where service penetration is still quite low, there is a lot of growth happening, but in mature markets we are seeing a lot of price declines, keeping revenues flat or declining.

However, behind this picture of flat revenue I do think there are some real opportunities for operators to either break into new markets or to consolidate their position in current markets.

Tom: And taking advantage of those new opportunities that is important even for operators who are still experiencing growth in traditional services; they need to be positioning themselves now for how the market will behave once penetration reaches saturation point.

Catherine: Absolutely.

Slide 3:

Catherine: So on this next chart you can see a little bit more clearly how the outlook varies for different regions. The pink bars here are showing the share of worldwide revenue by region and the blue circles are showing the growth rate within that region.

So at one extreme you have North America which currently accounts for a large proportion of global enterprise revenue, but that revenue is falling year on year. And then at the other extreme, you have regions in Africa where markets are currently very small but they are growing quite rapidly. In the middle you are operators in Emerging Asia-Pacific which have both sizeable markets and sizeable growth.

But as you say, operators in those growing markets are likely to face similar challenges in the future to those faced today by operators in North America and Western Europe. And they have a great opportunity to invest now in positioning themselves as broader service providers.

Slide 4:

Tom: You mentioned earlier that micro enterprises are important to consider. Now this chart shows the revenue trends for each enterprise size. What does this tell us about the micro segment?

Catherine: We saw earlier that micro-enterprises account for about 40% of employees, but generate less than 20% of operators' enterprise revenues, which means there is a big opportunity for growth there. This chart highlights that services to micro-enterprises are likely to out-perform the other segments in terms of their growth.

Tom: And why is that?

Catherine: There are different factors at work in different regions. In low- and middle-income markets, service penetration is usually lowest among the micro enterprises, and there is a huge opportunity there to deliver basic connectivity services. In high-income markets quite a lot of the growth is around other business services, often delivered through the cloud. There is already quite significant take-up of these services by small and medium-sized enterprises and although there are challenges in extending them to micro-enterprises there is certainly a lot of potential for growth here.

Let's look more carefully now at what is happening to the traditional voice and data connectivity services.

Slide 5:

Tom: So this chart is looking at the mobile picture, so some historic data, but also our forecast up to 2022. It looks like mobile service revenues are doing reasonably well. Why is that?

Catherine: The key service here is data connectivity. For mobile operators there is both a growth in overall mobile penetration among enterprises and also increasing use of smartphones. That's particularly important in Asia-Pacific where we see many enterprises tending to rely on mobile data more than on fixed data.

Mobile operators also benefit from revenue growth from providing connectivity for IoT deployments. The revenue per device is very small but the volume of devices is growing at such a tremendous rate that there is a notable impact on revenue.

Slide 6:

Tom: And then turning to fixed revenues. So this chart is showing fixed revenues again from 2013 up to 2022. Now this is a less positive picture.

Catherine: Yes, we forecast a continued decline in voice revenue as lower cost alternatives become more prevalent.

And as with mobile operators, data connection volumes are increasing but because there are lower-cost technologies emerging such as ethernet, which are tending to replace traditional leased lines then revenue growth from connectivity is very limited, and although IoT deployments are again increasing rapidly the revenue impact is much more limited for fixed operators than for mobile operators.

Tom: So what does all of this mean for operators?

Catherine: Well it confirms what we said earlier about the decline in revenue from traditional connectivity services. Operators should certainly seek to increase penetration where there's demand, but it will also be increasingly important to differentiate on measures other than price. And crucially, operators should be looking to deliver a range of other business services, which will also help to increase customer their loyalty and reduce churn. And that brings us to our next slide.

Slide 7:

Tom: What is this chart showing us?

Catherine: We're looking here at the overall size of the market for each of these business services by 2022. The circles there are showing our estimate of operator share in that market.

Tom: These are all services that can be provided by companies other than telecoms operators like systems integrators or IT resellers. So where do operators fit into this picture?

Catherine: It's true that none of these services are really part of the core proposition of telecoms operators, but many of them are services which operators are well-placed to sell to enterprises alongside their voice and data connectivity. For example, operators already have significant market share of the hosting market, although it's worth noting perhaps that we've seen a retreat from this market by operators such as AT&T.

Tom: What are the other services that operators are well-placed to deliver?

Catherine: Security is another key service, particularly among smaller enterprises which lack the in-house IT expertise to select themselves from a big range of security packages in the marketplace.

For larger enterprises, private cloud services will be very significant. There the contracts are quite wide-ranging so controlling the underlying connectivity is definitely an advantage for operators, particularly if there is also a need to bundle up more basic services for smaller business sites.

Tom: Looking at this chart, unified communication pops out. It's a service where the operators haven't got a high market share but it is very closely related to their existing services. What is happening there?

Catherine: Yes, unified communications is a market in which we might have expected operators to do well. However, many operators have struggled to gain traction in this market, with Microsoft and some of the other global IT players selling directly to enterprises. But I do think the established customer relationship that operators have with enterprises will remain important going forwards.

It's a similar picture for the Software-as-a-Service market too. There is huge growth in this area but for most operators, revenue is likely to be quite limited maybe delivering a few key applications, perhaps targeted at specific industry verticals. And then maybe reselling or partnering with IT players where they need to deliver a wider range of applications.

I think the other service worth mentioning is enterprise mobility, which is linked obviously to the provision of mobile devices, and one which mobile operators are well-placed to grow revenue.

Slide 8:

Catherine: So in summary, there are three overarching conclusions to draw from these forecasts

  1. Firstly, revenue from legacy services will eventually decline for operators in all regions and they will need to offer a broader range of services to sustain and consolidate enterprise revenue.
  2. Secondly micro enterprises will be significant contributors to sustaining and growing enterprise revenue for operators.
  3. And thirdly the main opportunities in the large enterprise market will arise from cloud and other business services.

Closing slide:

Catherine: This video presents the highlights from our global enterprise reports, and we are also publishing a series of reports examining the outlook for operators in different regions and for specific countries in more detail, and looking separately at SME and large enterprise markets.

Our research programme has published numerous reports on the telecoms market and on the enterprise market in particular. If you would like any further information about that or if you have any questions, please don't hesitate to contact me.