With 2015 just about wrapped up, Asia’s telecoms players are already looking ahead to 2016 with vigor and enthusiasm. We know this because Telecom Asia has conducted its fifth annual Business Outlook Survey, in which we ask the region’s telecoms players to tell us their hopes, dreams and expectations for the next 12 months. And the results reflect more enthusiasm and optimism than fear and uncertainty.
According to this year’s survey - conducted online in October and November - most respondents are expecting healthy market growth and financial returns in 2016, driven primarily by sexy new services including cloud, video, digital content, and the Internet of Things.
They also told us that LTE is still the technology that matters the most, but that technologies related to cloud, big data, and OTT will also have a significant impact on their business.
On the business side, it’s onwards and upwards for revenues, profits, and capex/opex, and steady-as-she-goes for headcounts and wages. Network upgrades will also figure heavily in business plans for 2016.
Meanwhile, most telcos will direct their strategic focus on new markets and cost reduction as they continue to hunt for new revenue streams and deal with pressures from non-traditional competition while meeting customer expectations. And there’s also a noticeable and growing awareness that “digital transformation” is no longer a futuristic buzzword - it’s a strategic necessity that telcos should start planning for now.
An optimism supreme
Almost everyone’s excited about the future - at least for the next 12 months. We asked respondents how optimistic they were about the growth prospects of their specific telecom sector compared to this time last year: almost 40% said they were more optimistic than last year, with another 18% saying they were “very optimistic.”
Less than 20% expressed less optimism compared to their expectations for 2015 (including just 4% of respondents who said they weren’t optimistic in the slightest). Around 23% said their level of optimism isn’t appreciatively different to a year ago.
Meanwhile, optimism for financial growth if their own companies was slightly subdued, but followed the same basic pattern. Close to 39% of respondents are more optimistic about their financial prospects than they were a year ago, with an additional 17% feeling even more optimistic. Interestingly, the level of pessimism over financial growth is less than responses about sector growth - less than 13% are less optimistic compared to last year, and only 2% are expecting a rough 2016 in this category. Over 29% don’t expect their financial prospects in 2016 to be any better or worse than in 2015.
Cloud-driven growth
We asked which three business sectors will serve as key growth drivers for 2016. Our respondents told us 2016 is going to be all about cloud, mobile commerce and video.
Cloud services (including hosting, storage, and apps) received the most votes, with 57% of respondents selecting it as a prime growth area next year (see Figure 1).
Close behind - and tied for second place - were video services (which includes mobile TV, OTT streaming, multiscreen services, etc) and mobile commerce, both of which were selected by 53% of respondents.
We also had a tie for third place - 37% of respondents selected digital content services (excluding video) and IoT/M2M as heavy growth prospects for the business. Not far behind was good old value added services (VAS, 33%).
To no one’s surprise, voice and SMS remain the least cited growth prospects - even when factoring in HD voice - with less than 13% of respondents expecting enough growth from the traditional cash cow to include it in their Top 3. That said, the result is slightly higher than last year, which could be for two reasons:
- We combined traditional voice/SMS and HD voice into one category this year (as opposed to separate categories in the previous survey).
- Some operators are finding ways to make additional money from voice outside of the usual per-minute model. Some wholesale carriers, for instance, are making money from voice-focused VAS services like fraud management and revenue assurance. VoLTE-related services for termination and roaming are also starting to pick up as VoLTE becomes more widespread, although an argument could be made that VoLTE counts as a data app instead of voice.
I want my LTE
We also asked respondents to name the top three technology trends that will have the greatest impact on their business in 2016 (see Figure 2).
As with previous surveys, LTE and LTE-Advanced are far and away the biggest technology trends (74%), as operators either move to LTE, continue deployments of LTE, or move on to LTE-Advanced. And that’s to be expected as LTE/LTE-A is a foundational technology that enables many of the new services operators want to launch.
Cloud computing ranked second overall (selected by almost 50% of respondents), followed closely by big data (48%) and OTT/social media (44%).
Security (which covers mobile security and the general security/privacy landscape) was selected by just under 30% of respondents, indicating they’re either unconcerned with cyberthreats or feel they have it covered.
We included video as a tech trend for the first time this year, and only 17% of respondents put it in their Top 3. Given that over half of respondents expect video services to be a key growth driver, we’ll assume the impact of video as a tech trend is because their networks are already engineered to deal with video traffic.
But network engineering plans don’t yet include network virtualization. Less than 20% of respondents cited SDN/NFV as likely to have a big impact on their business next year, which likely reflects that many Asia-Pacific operators - especially in emerging markets - are still working out just what they’re going to with SDN/NFV, and where.
A recent report from Technology Business Research says that over 50 operators are engaged in trials and controlled implementations of NFV and SDN, but a relatively small group of early-adopter operators will lead the charge on NFV and SDN adoption over the next couple of years - with the rest of the industry to follow suit in 2018, once NFV and SDN prove to reduce the cost of delivering network services in high-volume operator networks.
According to TBR, they’ll also be implementing SDN and NFV in stages, focusing initially on domains that are relatively easy to convert, such as routing and switching, optical transport, EPC, and IMS. Some of the more challenging domains, such as service delivery platform and the radio access layer, will be among the last domains to be virtualized. Thus, SDN/NFV’s low score in this category is likely a reflection of telco strategies involving early trials and phased adoption.
More money
We asked respondents what changes they’re expecting in 2016 in terms of their business operations (sales, profits, capex/opex, headcount, wages, upgrades, etc).
Expected changes are mostly positive. Over 64% of respondents are expecting an increase in sales/turnover in 2016. Almost as many are expecting an increase in earnings. Around half plan to increase capex/opex next year.
What’s less likely to change is the number of employees - almost 63% said they expect no change in 2016. Only 19% expect to take on more employees. Luckily for the rank and file, less than 18% of respondents expect to cut jobs next year.
More good news: less than 7% of respondents said they would be decreasing wages and salaries in 2016. Mind you, around 49% said wages and salaries would stay the same. On the other hand, over 44% expect an increase in this category.
Network upgrades will also be in vogue next year. Close to 69% of respondents said they would increase network upgrades, while 54% will conduct IT upgrades.
However, R&D spend will remain largely static for 62% of respondents, while 30% intend to increase their R&D budgets.
The customer remains king
We also asked companies to tell us about the top three external and internal issues they’ll face in 2016.
For the most part, telecoms operators face external pressure from two main sources: non-traditional players and their own customers (see Figure 3).
“Rising customer expectations” was the category that most often made the top three rankings, though it typically ranked second or third. Considering that consumer expectations ranked comparatively lower last year, this year’s results seem like a clear sign that customer-centricity and customer experience will be serious pain points for telcos in the coming year.
That’s even more true with respect to competition from non-traditional players, a category that raised relatively less concern in past surveys. Not anymore - this category topped the “external pressures” list more than any other, and outranked concerns of competition from other telcos, which usually ranked third in the rankings.
On the bright side, there’s comparatively less concern over slowdowns in consumer demand. People want communications services - but the more choices they have for buying them, the more telcos must hustle to keep their existing customers and attract new ones.
Interestingly, government regulations made a relatively stronger showing this year compared to previous surveys - they were frequently cited as a number 2 issue. That may be a reflection of growing moves by regulators and governments to address issues such as data privacy, spectrum allocations, and possibly net neutrality.
Transformation time?
As for internal issues, by far the biggest one remains finding new revenue streams to compensate for falling voice and SMS revenues (see Figure 4). More respondents selected this category - and put it at the top of their list - than any other.
There’s also growing recognition that telcos are going to have to take the term “transformation” seriously, both in terms of infrastructure and organization. Almost half of respondents said they need to “restructure their back-office infrastructure to add flexibility to deliver a better customer experience,” with half of that group ranking it second in their Top 3. Almost a third put it at the top of the list.
A similar number put “corporate restructuring for the Digital Economy” on their Top 3 list, though usually in third place. So while organizational transformation may not be a top priority for operators in 2016, there’s awareness that it has to happen sooner or later. And as we’ll see in a moment, corporate restructuring will be a strategic focus for many telcos next year.
Increasing network capex to keep up with demand was also a frequent response, usually in the top two slots. Of lesser concern was streamlining IT costs, attracting and retaining qualified employees, and increasing investments in big data, which doesn’t reflect a lack of interest so much as a sense that they have these aspects under control to their satisfaction.
New horizons
Looking at where telcos will be strategically focused in the next 12 months, the strongest focus will be on expanding to new market segments and/or geographical markets. The vast majority of respondents put this in their Top 3, and most of them ranked it No. 1 (see Figure 5, below).
The next closest response: reducing costs, which was a strong number 2 for many respondents, followed by flexible service creation and strengthened brand campaigns. As mentioned above, corporate restructuring will also be a key strategic focus, at least for a third of respondents, although most of them ranked it second or third. Clearly, the priority in 2016 is finding new markets to crack.
This article was first published on Telecom Asia Vision 2016 Supplement
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