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TECHNOLOGY BUSINESS RESEARCH, INC.

Where Telecom and Service ProviderFirms Are HeadedHow IT vendors can capture opportunity

Technology Business Research Webinar SeriesJuly 25, 2013

TBR SourceIT℠ Reports

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2 TBR Webinar Series — SourceITSM | 7.25.13 | www.tbri.com ©2013 Technology Business Research Inc.

Where Telecom and Service Provider Firms Are Headed

Stuart Williams Director, TBR’s Software and Cloud [email protected]@s2_williams

mailto:[email protected]

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The pace and extent of change across customers, technology and business models challenge telecom and service providers to adapt

3

“Being a telecom company, we face challenges that stem from technology trends as well as customer demands. We are facing tremendous challenges improving profit margins, high customer demands, tough competition, customer experience, falling ARPUs and demand for new services and bundles.”

— IT Manager

Changing Customer Dynamics

Changing Technology

Changing Business Models


$12.6 billion new services in 2014 vendor addressable IT spend

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Cloud migration is driving a new category of spending among telecom vendors, even as service providers enter to capture market share

By necessity, telecom and service providers are investing to enter, scale and stay ahead of market evolution. Both groups see professional services as the key to rapid evolution of offerings and business process capability.

As businesses and consumers shift workloads and interactions to cloud, telecom providers shift their businesses and agile service providers look to gain scale.

Two competing communities require different IT vendor sales messages and tactics. Emphasize the ability to scale to service providers. For telecom providers, communicate adaptation.


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Telecom and service providers are challenged with adaptation and aggressive transformation to meet market demand


“There are lots of goals, but the bottom line is … making the business and the company as profitable as possible by bringing the services that customers need and in the way they want in a limited time. The main focus of the company is to meet customer demands as soon as possible with the best possible technology. We have to integrate, manage and optimize systems for more instrumented operations, collecting data from assets, devices, networks, servers and applications.”

— Business Process Director, Telecom Service Provider, Large Enterprise, N. America

TBR


TBR’s SourceIT research identifies a $17.2B non-network IT opportunity in North America among large telecom players and service providersSourceIT Large N. America Telecom and Service Provider Research Demographics and 2014 IT Spending

4%

96%Service provider and small telecom firms

with 500 to 9,999 employees

Telecom firms with 10,000+

employees

Primary focus of SourceIT Telecom and Service Providers report is non-network IT investment used to establish cloud businesses

$6.9B IT spend

$10.3BIT spend for new cloud business

Network

$40B* in 2014 Network Capex

*Additional Network Spend Analysis in TBR’s Telecom Infrastructure Spending Report

New Business IT Spending Opportunity

Emerging vendor opportunity as investments in

cloud and professional

services enable scalability


Business Distribution

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Shifting business models and increased network traffic drive telecom and service providers’ investments in IT

Business Summary What Respondents Reported


• Network shifts from primarily voice to voice and data

• Reduced ARPU as a result of declining voice usage

• Pressure from competition and customers to maintain network uptime

External forces:

• Telecom and service providers are increasing investments in network management and automation tools to enable scalability and improve internal operations.

• Telecom and service providers view investments in solutions such as testing, network management and SDN as a means of scaling operations to expand addressable markets and drive top-line growth.

• These investments enable operational improvements that increase margins as revenue growth is hindered by factors such as declining ARPU.

How telecom and service providers react:

What telecom and service providers see:• Increased complexity in

managing and maintaining network uptime

• Balancing maintenance of 2G/3G networks with deploying next-generation (4G) networks

• Increased pressure from customers for value-added services

“We are facing tremendous challenges improving profit margins, high customer demands, tough competition, customer experience, falling ARPUs and demand for new services and bundles. As a result, we have to do fast-paced innovation, improve and implement next-generation wireless technology (LTE/WiMAX) and improve our converged networks and other offerings.” — IT Manager, Telecom Service Provider, Large Enterprise, N. America

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Business Applications, 23%

Industry Applications, 19%

Productivity, 14%

BI/Analytics, 16%

Database and Middleware, 14%

Systems Management, 13%

Overall IT Project Prioritites, by Workload Category (Total Mentioned %)

SOURCE: TBR LARGE N. AMERICAN TSP SOURCEIT STUDY; N = 198

Applications budgets remain flat, but they are critically important to enable internal flexibility and external competitiveness


SOURCE: TBR N. AMERICA, LARGE ENTERPRISE TELECOM AND SERVICE PROVIDERS REPORT, SUMMER 2013

Respondents: Workload Priorities for Discretionary IT Spending

Though applications budgets remain flat, investments in industry, business and productivity applications are crucial for telecom and service providers to enable internal agility and remain competitive.

“We have a larger portion of the budget allocated to IT discretionary spending. Since there is a continuous evolution of the market space and the technology, what’s new and fresh today gets old in a couple of months; we can’t just set up specific long-term goals for the company and then wait. We will have to think spontaneously, continuously and immediately so that we stay competitive in the marketplace.”

— Project Manager, Telecom Service Provider, Large Enterprise, N. America

TBR


4% cc

96%

Though a few telecom providers compose the majority of IT spend, vendors should also target the growing budgets of service providers

Planned 2014 IT Budgets


$542M0.5%

$2.7M

$15.5M4.0%

$620K

Firms with 10,000+

employees

Firms with 500 to 9,999

employees

Average 2014 YTY Increase

Average 2014 Total IT budget

Average 2014 IT Budget:

$15.7M

Percentage of 465 firms in segment

Total IT budgets include:• Business Applications• Industry Applications• Productivity Applications

• BI and Analytics• Database and Middleware• Systems Management

• IT Infrastructure

• IT Professional Services• IT Overhead and Personnel

A few firms, large budgets, growing slowly

Many smaller firms, smaller budgets, growing quickly


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As businesses and consumers shift workloads and interactions to clouds, telecom providers shift their businesses and agile service providers look to gain scale.



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Internal business process improvements are key to helping telecom and service providers monetize cloud delivery investments


2014 TBR SourceIT Large N. American Telecom and Service Providers Model — IT Spending and Key Priorities

What vendors need to know:1. Telecom and service

providers are investing in response to pressure from competitors and shifting consumption by end users.

2. Key criteria for telecom and service providers’ IT purchases are scalability and internal business process improvement.

3. Maintaining networks while readying for next-generation networks are top concerns for telecom and service providers.

Optimize IT:• PC Operating Systems• Collaboration and

Conferencing • Business Process

Management • Email and Messaging

Key Priorities:• OSS/BSS• Testing• Network Function

Virtualization (SDN)• Load Balancing,

Network Management, Administration

Total IT Spend:$17.2billion

Vendor Addressable Spend: 73.3%,$12.6 billion

Personnel and Overhead:26.7%,$4.6 billion

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Business Applications, $1.5 billion

Industry Applications, $1.3 billion

Productivity Applications, $0.9 billion

BI/Analytics, $0.3 billion

Database and Middleware, $1.3 billionSystems

Management, $0.9 billion

Infrastructure, $2 billion

Professional Services,

$4.4 billion

TSP Organizations: IT Spending in 2014

SOURCE: TBR Large N. American TSP SourceIT Study; N = 198.

12%

11%

7%2%

10%7%16%

35%


Telecom and service providers are relying on professional services firms to help guide and implement necessary business changes2014 Vendor Addressable Opportunity Breakdown


Discretionary Spend in 2014 is$5.1 billion

Fixed Spend in 2014 is $7.5 billion Vendor Addressable Opportunity is $12.6 billion

WorkloadsFixed IT Spending in

2014Business Applications $0.9 billionIndustry Applications $0.7 billion

Productivity Applications $0.5 billionBI/Analytics $0.2 billion

Database and Middleware $0.8 billionSystems Management $0.5 billion

Infrastructure $1.1 billionProfessional Services $2.8 billion

WorkloadsDiscretionary IT

Spending in 2014Business Applications $0.6 billionIndustry Applications $0.6 billion

Productivity Applications $0.4 billionBI/Analytics $0.1 billion

Database and Middleware $0.5 billionSystems Management $0.3 billion

Infrastructure $0.9 billionProfessional Services $1.6 billion

-0.3% YTY

-0.8% YTY

2.6% YTY

2% YTY

2.8% YTY

5.6% YTY

2.7% YTY

3.4% YTY

“Since we are looking at big-scale projects, it will not be possible for only the company staff to manage and maintain the complete project. We would like to complete the entire life cycle of the project as early as possible, which can only be done with the support and professional services provided by the vendors.”

— Project Manager, Telecom Service Provider, N. America

TBR


Respondents: 2013–2014 Bridge: IT Spending Growth by Category

Investments in infrastructure upgrades and professional services will experience the largest increases in IT spending in 2014



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For new cloud businesses, mainstream vendors in the IT and networking spaces are best positioned to win telecom and service provider projectsRespondents: Hotspots and Top-of-mind Vendors

Top Targeted Workloads: Broadly Driven Largest Budgeted Workloads: Driven by IT

Area Average 2013 Project Budget

Top-of-mind Vendors

Area Average 2013 Project Budget

Top-of-mind Vendors

Operational Support Software /Business Support Software

$773,000 Cisco, IBM, Oracle

PC Operating Systems

$2,376,000 Microsoft, Apple, Oracle

Testing $441,000 Cisco, Oracle, EMC, Microsoft

Collaboration and Conferencing

$2,267,000 Microsoft, Apple, Citrix

Load Balancing, Network Management, Administration

$1,461,000 Cisco, Microsoft, Oracle

Business Process Management

$2,004,000 IBM, Oracle, Adobe

Network Function Virtualization /SDNs

$734,000 Alcatel-Lucent, Huawei, HP, Oracle

Email and Messaging

$1,848,000 Microsoft, Oracle, Xerox


Top Priority Workloads Largest Core IT Workloads

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TBR


IT vendor opportunity is tied to reducing complexity and increasing value-add services as telecom and service providers build cloud business

Respondents: IT Spending Transitions


Investment Drivers: Increasing Investments in:

Decline in traditional voice

and wireline businesses

Increased data usage and pressure

from customers and competition

• IT professional services and personnel

• Infrastructure and network management solutions

• Value-added services

• Shifting consumption from voice to data

• Declining wireline business• Pressure from competitors

and consumers for consistent network uptime

2.6% YTY vendor addressable market growth

-$

+$

“The fundamental problem faced by telecom organizations worldwide is that IT complexity is increasing faster than IT budgets.”

— IT Manager, Telecom Service Provider, Large Enterprise, N. America

TBR


Respondents: IT Budgets by Customer Character

Centralization of IT Spending


Vendors should target aggressive, Empowered purchasers that represent the largest share of the segment and have the largest average IT budgets

Average ’13 IT Spend: $13 million

The majority of large telecom and service providers are aggressive adopters of technology and are decentralized in IT purchasing and spending.

6% 73%

20% 1%

Aggr

essi

ve

Highly Centralized with IT

IT A

dopti

on A

ggre

ssiv

enes

s

Highly Distributed Across IT and LOBs

Late

Ado

pter

Structured Go-getters

Laissez-faireBureaucrats

Empowered

Average 2013 IT Spend: $16.6 million

Average 2013 IT Spend:$10.5 million

Average 2013 IT Spend: $17.2 million

Average 2013 IT Spend:$8.1 million

Distribution of Respondents by Character

Empowered Telecom and Service Providers include companies that are highly aggressive adopters and highly distributed in IT spending.Structured Go-getters include companies that are highly aggressive adopters and have a highly centralized approach for IT spending.Laissez-faire Telecom and Service Providers are late adopters of technology, and their IT spending is highly distributed.Bureaucrats include companies that are late adopters and have a highly centralized IT spending approach.

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EvolutionaryOpe

ratio

nal

Path to Purchasing: Key Decision Makers

While department-level employees influence IT decisions, evolutionary investments are generally handled from the top down


Purchasing Scenarios Buying Criteria Purchase PlansKey Decision Makers Top-of-mind Vendors

Key Decision Makers

CIO, CTO CEO, CFO (and finance department)

IT department headsand line IT employees

LOB managers and LOB employees

Final Decision

Operational IT decisions are generally made at the lower levels, while evolutionary decisions (e.g., SDN, network function virtualization) are generally made from the top down.

“The [decision-making] responsibilities depend on the type of projects that are being handled or carried out. If the project is very big, then all the directors are involved; their input is taken, and the CIO makes the decision. If the scale of the project is small, then IT department drafts the project and present it to the CIO; after his approval, it goes to the finance department, which is responsible for releasing the budget.”— IT Manager, Telecom Service Provider,

Large Enterprise, N. America

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Improve go-to-market returns by understanding a segment’s opportunity and the unique needs of buyersCY13

TBR SourceIT℠ Report Overview

SourceIT℠ Reports

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SourceITSM reports are opportunity playbooks on customer segments that help clients improve go-to-market returns

TBR SourceITSM Reports

SourceIT is a syndicated report program, offering clients the benefit of deep primary research at a fraction of the price of custom research.

SourceIT reports use a structured and repeatable research and report framework that enables client organizations to easily consume, compare and leverage the insights across multiple customer segments.

Enable faster and more efficient go to market by understanding a segment’s sourcing and investment decisions.

Compare segments across multiple industries

Understand opportunity by following the money

Leverage a syndicated program

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22 TBR Webinar Series — SourceITSM | 7.25.13 | www.tbri.com ©2013 Technology Business Research Inc. SOURCE: TBR N. AMERICA, LARGE ENTERPRISE TELECOM AND SERVICE PROVIDERS REPORT, SUMMER 2013

TBR’s SourceITSM reports enable clients to more effectively capture business across specific customer segments

1. Understand and capture opportunityby comprehending buyer behavior in specific segments.

2. Improve GTM effectivenessby improving sales and marketing investment effectiveness.

3. Improve positioningby effectively targeting customer needs and managing competition.

SourceIT℠ ReportValue

Identify opportunities

Understand key business and IT strategy opportunity

drivers.

Capture sourcing and budgeting opportunities

across the stack.

Target decision makers

Understand purchasing scenarios.

Target key decision makers.

Improve positioning

See your position in a competitive landscape.

Manage positioning; relationships versus

opportunity

SourceIT Reports help vendors better capture opportunity with their large enterprise buyers

Available Now: • Retail• Banking and Financial

Services• Public Sector• Telecom and Service

Providers• Healthcare Payers and

ProvidersPublishing 2H13:• Manufacturing• Energy and Utilities• Transport and Logistics


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TOC from TBR’s SourceIT℠ Telecom and Service Providers Report

3 SourceIT Methodology and Coverage

9 Executive Summary• Opportunity• Telecom Organizational Behavior• Vendor Selection

17 Market Opportunity• Total Market Opportunity• Average IT Budgets in 2013• Fixed Spending Priorities

25 Discretionary Spending Across Workloads• Workload Priorities• Opportunity by Workloads

51 Telecom IT Purchasing Behavior• Investment Drivers• Paths to Purchasing for Key Priorities

67 Key Workload Case Studies• Operational Support Software/Business

Support Software• Testing• Load Balancing, Network Management,

Administration• Network Function Virtualization• Opportunity Mapping

88 Competitive Landscape• Landscape for Fixed Spend

91 Appendix

100 About TBR


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The 198 organizations in this report are large telecom and service providers operating in the U.S. and CanadaSourceIT Large N. America Telecom and Service Provider Research Demographics and 2013 IT Spending

Business Size Definitions (Qualifications for Study)

Number of Full-time Employees Revenue Total Annual IT Budget>950 Employees (Telecom/Cable)

>500 Employees (all other segments) >$75 million >$1 million

Telecom and Cable (does not include network budget)

Number of Employees Average IT Budget

1,000–9,999 $12.8 million

10,000+ $19.5 million

Mobile Operators

Number of Employees Average IT Budget

1,000–9,999 $7.3 million

10,000+ $36.9 million

Telecom and Cable, 45%

Mobile Operators, 13%

Internet Service Provider, 11%

Hosting Service Provider, 2%

Cloud Service or Data Center Provider, 5%

Managed Service Provider,

10%

IT Hosting & Outsourcing, 7%

Computing Hardware and

Software Sales, 6% Other, 2%

Respondent by TSP Organization Type


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Stuart Williams Director, TBR’s Software and Cloud [email protected]@s2_williams

Where Public Sector Agencies Are Headed

Questions?


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Where Public Sector Agencies Are Headed

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Recorded and Upcoming SourceIT Webinars

7/24 Where Public Sector Agencies are headed: How IT Vendors can capture opportunity

7/31 Where large Healthcare Payers and Providers are headed:How IT Vendors can capture opportunity

8/1 Where large Banking and Financial Services Institutions are headed:How IT Vendors can capture opportunity

NMP Webinars

8/7 How Wireless North America operators are investing in LTE and small cells to remain relevant

8/15 Moving Beyond Connectivity: Insight into the enterprise business and strategiesof leading multinational operators

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TECHNOLOGY BUSINESS RESEARCH, INC.

About TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators.

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