Gartner urges caution for telcos looking to diversify

12 Jan 2007

Trying to keep up with the Joneses by investing billions in non-core fields like mobile broadband, internet protocol (IP) and the desire to become triple- or quad-play providers will be a risky strategy for traditional telecom firms, Gartner has said.

New research from the analyst firm suggests that telecom carriers face a future where they will have to strive to be profitable on much lower margins than today.

Gartner said that historically carriers have been able to depend on high-revenue growth from broadband or mobile services but they now face the prospect of rapidly declining revenue growth.

It predicted that year-on-year growth of total revenue from telecom services (80pc of total global telecom market size) will shrink to just 1.7pc by 2010.

Gartner expects total telecom service revenues to rise only modestly over the next four years from US$1.3trn in 2006 to US$1.5trn in 2010.

As a result, over the next few years more carriers will invest in new markets such as media or IT to compensate for revenue losses in traditional telecom areas like public switched telephone netork (PSTN) voice services.

Telecom Italia, for example, has transformed already into a media company, signing deals with Fox, MGM and Sony for fixed-broadband customers.

BT Global Services and HP have established a partnership to provide integrated IT services

SK Telecoms has acquired Korea’s largest music recording label YBM Seoul Records.

However, Gartner warned that more than half of these new approaches will fail due to carriers’ poor knowledge of their existing subscriber base. Nor do they fully understand the new business models they have embraced, it claimed.

“The synergies between the different business models and markets are very limited,” said Martin Gutberlet, research vice-president at Gartner. “This type of diversification carries a high risk of losing focus on today’s core business priorities such as customer retention and cost cutting, with no guarantee of increased revenue growth in the long-term.”

Gutberlet said that due to the high risk of failure, Gartner is advising carriers to carefully define risk mitigation and potential exit strategies. “It will take more than just hiring a few media or IT executives for carriers to succeed in these new markets,” he concluded.

By John Kennedy