It’s crunch time for telecommunication service providers in Canada.
IDC Canada just released its updated five-year forecast for the sector, and based on the numbers, communications service providers (CSPs) are feeling somewhat squeezed at the moment.
Looking only at business telecom services (IDC groups all non-consumer telecom services together under that category, including large enterprise and SMB), revenue in the sector is expected to see a compound annual growth rate (CAGR) of just 1.4 per cent between 2015 and 2020.
That number is certainly nothing to do cartwheels about. How does it compare with the same sector’s revenue growth during the previous five-year period? I asked Lawrence Surtees, a vice-president and principal analyst in IDC Canada’s communications practice.
“It’s slightly weaker, in part because of savings from all-IP services and the decline of more expensive legacy services,” he told me.
Therein lies the crux of the crunch facing CSPs. Canadians increasingly expect businesses to serve their needs in real time from almost anywhere. To meet those demands, businesses are turning toward newer technologies that promise more agility and cost efficiency than slower, pricier legacy offerings. That trend, my friends, is cutting into revenue growth at service providers.
Legacy systems in flat or declining growth mode include VOIP, cable telephony and network access server (NAS) lines for voice. Those segments will continue to weaken “as consumers and small businesses continue to substitute landlines – both TDM (time-division multiplexing) and VOIP – with wireless services,” Surtees said.
To see which telecom services Canadian businesses are investing in, take a look at IDC’s breakdown:
SIP trunking: IDC predicts revenue in this segment will see a whopping 42 per cent CAGR between 2015 and 2020, “because it’s new and promises significant savings” to business customers, said Surtees.
Wireless data services: Revenue in this segment is expected to see a CAGR of 6.4 per cent between 2015 and 2020, with Surtees noting that “wireless network data traffic and revenue has now surpassed wireless voice in Canada.”
Cloud: “The rise of cloud computing services has fuelled growth of higher bandwidth IP-based MPLS and Ethernet data services, including fibre optic-based wavelength services within the private line category,” said Surtees.
Those are the telecom services that Canadian businesses want to tap into today. To provide those and emerging services, however, CSPs will have to invest in some upgrades of their own, said Surtees, including software defined networking (SDN), network functions virtualization (NFV) and next-gen 5G wireless “for real-time service delivery of custom apps.”
According to IDC, CSPs are simultaneously grappling with “the unrelenting need for increased bandwidth (and) expansion of current infrastructures with new wireless and IP optical network technologies.”
To keep up with customer demands, traditional CSPs are embarking on a “competitive expansion … into new IP video and IT cloud computing and managed service businesses,” IDC states, adding that these activities “will continue to drive capital investments.”
That last bit is key to the crunch facing CSPs. It’s tough to pour capex into cutting-edge new stuff when you’re bringing in lower revenue from your older legacy catalogue. So things are a tad tight for Canadian telecom service providers these days.
The promising thing about all of this, however, is that they’re being pushed toward offering all those new technologies by Canadian businesses. It’s a sign that Canadian businesses see emerging telecom technologies as competitive tools – and they’re actively looking for CSPs to offer them.
This trend might not boost overall revenues at CSPs right away; some providers are still making the shift from legacy services to newer, IP-based ones. Hopefully, it will end up boosting the ability of Canadian businesses to improve customer service and be more competitive.
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