Telecom services save vendors from capacity glut

26 Mar 2008

Telecoms equipment vendors are deriving more money from services than from hardware sales, new research from Ovum reveals, with telecoms services accounting for €65bn of worldwide spending in 2007.

Telco services, including product, network and IT-related service spending, reached €65bn last year and network equipment vendors accounted for 60pc of the total.

“The importance of services to telecom equipment vendors is hard to overstate,” said John Lively, vice-president, network infrastructure at Ovum.

“The telco services market is larger, and growing faster than optical networking, switching and routing, and broadband access equipment combined, and it’s generating profits. Simply put, services are key to infrastructure vendors’ financial success.”

Worldwide telco services revenues were US$65bn in 2007, up 17% versus 2006.

Services revenues were more than 20pc of total company revenues for top-tier network infrastructure vendors as a group.

Average operating margin on services was 13pc, versus 5pc for hardware.

Lively says the capacity glut of the past several years, combined with the rise of Chinese vendors with their lower labour costs and relationships with well-funded development banks, have made it difficult for large incumbent network equipment providers to make money on products.

“Meanwhile, service providers are increasingly pulling network equipment providers into network-related services,” Lively added.

By John Kennedy