Manufacturers need to refocus their business
In a converging world of applications and technologies, there is an unlimited number of new business opportunities. Furthermore, increased competition from within and outside the industry are forcing the existing players to rethink their position, refocus their strategy and realign their businesses and business relationships.
How are the players faring?
By 2000 several companies had made significant changes and were well and truly on the way up again.
Nortel has been leading the pack. Ericsson tried but failed and is still struggling to find its future position. Lucent also made good changes and while there are still major international problems, the local arm, Down Under, is doing very well. Siemens still have to turn that corner, but I expect this to happen before the end of 2000. Alcatel recently has recorded some good wins and seems to be ahead of Siemens in this process. Outstanding performers are, of course, companies such as Nokia and Cisco. Coming from behind, they have proved to be the true leaders of the new world. Motorola and NEC both remain question marks – no real future vision has been displayed in Australia, but they are nevertheless strong forces in the market. Philips, who played a key role in the mid-1990s as the builders of the Telstra broadband network, has disappeared from the radar. However, international indications are that they will re-emerge. We expect this to be mainly on the consumer electronic side.
Siemens took an interesting initiative in mid-2000. They now offer a regulatory consultancy service for their customers. They make sure that they understand the regulatory regime and based on their knowledge they advise their customers on relevant technology solutions that can be implemented by taking the regulatory environment into account. The company also takes responsibility for interconnect negotiations, access arrangements, etc.
Two key problem areas
However, the industry will have to change even further. We predict that within the next 5 to 10 years several manufactures and network operators will have merged some of their operations. These new combined companies will become the major global network operators, to which smaller operators will either outsource or link their own network subset.
There are several problems facing the telecommunications manufacturers, the important one being that most of them are losing their decades-long relationships with carriers. This is a painful process as it prevents the manufacturers from making more dramatic changes to their own business, since these operators remain their major customers – in many cases a single national operator can account for well over 50% of the manufacturer’s business in a particular country.
The second most important problem facing the manufacturers is that in the past they have never been very much involved in the services side of the market. They may be excellent engineers, but most of them don’t have a clue about what is involved in delivering the services that end-users want. This has always been left to their customers – the carriers – who, as is becoming more and more clear, also don’t have a clue.
Manufacturers are going through a period of dramatic strategic change; with increased competition between manufacturers; and with the arrival of a new breed of carriers and service providers who are not impressed simply by engineering expertise.
Arrival of new business models
My vision for this part of the industry is based on a two-tiered development:
– manufacturers will have to become involved, in particular, in the developments and operation of new infrastructure;
– they will have to unbundle and re-engineer their products to facilitate the new trend towards niche market developments by service providers. SPs will tell the suppliers what they want, rather than suppliers dictating what SPs can get.
If the manufacturers are able to implement the cultural changes needed within their organisations they will open themselves up to tremendous opportunities. Under the pressure of competition carriers can no longer continue to throw their money at large-scale infrastructure projects. In the past there was no need to be effective or efficient, as the profit margins were so high that they covered the many fiascos in the market. However this period is drawing to a close and a far more targeted approach is needed – this at a time when demands for network capacity and intelligent management of the services on this network are increasing at astronomical rates.
It takes two to tango
To profit from this trend two important decisions will have to be taken:
– carriers will have to understand their critical role in the networking market and have to focus on their position in this market
– manufacturers will have to become active participants in the development and operation of this market.
So far we have seen mergers between telecommunications carriers, cable TV operators and entertainment companies. Most of them failed even before they were consummated. A far more natural partnership is between telecommunication network operators and telecommunications manufacturers. They will have to merge and form joint ventures and operational partnerships.
High on my shopping list for a combined manufacturers and carriers business would be:
– develop plans for the development and deployment of all fibre FSNs;
– work out a solution for the many problems with OSS. After all these years they are still not delivering the urgently needed and promised management goodies;
– work out solutions for the many problems that have arisen from lack of interoperability of systems and services from different manufacturers.
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