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William L. HahnPrincipal AnalystGartner Inc.

Seeking a Soft(ware) LAN-ding: The CSP Transformation Story

1 © 2018 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. and its affiliates.INTERNAL or RESTRICTED

The Need to Transform Can No Longer Be Denied … Or Even Delayed

CSPs Must Respond With:Synergy:Across legacy and adjacent offerings

Partnership:Under volatile conditions

Organization:That touches every employee

§ Competition from cloud-based and OTT SPs

§ New demands and expectations from customers

§ New market opportunities requiring new capabilities

§ Commoditization of traditional telecom services

… Will Force a Utility Status

Powerful Market Forces …

§ The CSP transformation is primarily driven by a desire to avoid utility status.


Traditional

PeersComplementary Threat

Network Operations

Service ProvisionMVNOs

OTTs

State-Owned

Networks

“Backbone”MVNEs

Tower

Companies

Virtual CSPs

Cloud-Based

Network-BasedAlternative Network-

Based

Impact of Non-Traditional Players

NetworksPrivate

3 © 2018 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. and its affiliates.

INTERNAL or RESTRICTED

Legacy Services Enter Decline

Legacy Services in total declined -0.7%

Adjacent Services grew 54%

§ Mobile Phone growth only increases business model volatility

§ Voice (fixed or mobile) in decline in most markets; Data under margin pressure and leveling off

2.9%

0.6%

-0.6%

-1.7%

11.6%

6.4%

6.2%

5.9%

3.9%

3.8%

2.5%

1.2%

-1.5%

-1.5%

-5.0% 0.0% 5.0% 10.0% 15.0%

Mobile Phones

Other Comms Services

Fixed Network Services

Mobile Services

Non IT/OT/Components

IT Services

Wearables

Internet Based IT Products and Services

Other IT

Digital Media Services

PCs/Ultramobiles/Tablets

Other Devices

Software

Other OT

Leading CSP Revenue Growth by Sector(AGR 2016-2017)

Legacy

Adjacent


Leading CSPs- Adjacent Markets Tip the Balance

31 Leading CSPs followed by Gartner have achieved 21.7% of total revenues in adjacent markets

§ Digital Media and IT Services the chief contributors

§ Nearly 70% of total revenue still tied to legacy access services



Digital Media Services: Expensive or Elusive

§ The largest nine players are able to make major investments and, thus, gain large revenue (88% of the group of 31 total)

§ Remaining leaders generally constrained (regulation, competition)

§ Only a few can make large acquisitions; most seek licensing deals to access video content

§ Non-video content a factor for some

42,881

34,755

7,492

5,750

5,556

12,629

AT&T

Comcast

China Mobile

Verizon

America Movil

Next Four

Leading CSP DMS ($ Million), 2017


Cost pressures

Skills/Knowledgegap

Timeliness

Findinggoodpartners

Pursue IT Services to Capture Digital Transformation Opportunities in the Enterprise Segment

Many enterprises are pursuing digital business transformation (e.g., bimodal IT, adaptive sourcing) but CIOs are confronted with issues:

Opportunities for CSPs, but theylag in market perception

CSPs Are Making Some Headway, but Revenues Are Still Small:

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2016 2017

Leading CSP IT Services Growth by Quartile, 2016-2017

($US M, % AGR)Next 8

AGR 5.1%

Median$US 630MAGR 0.2%

* NTT $US 20.9 B



Pursuing Diversity Causes Operational Strains

§ 31 Leading CSPs Trying to Diversify

– Gartner measured their proportion, size and growth of adjacent/total revenues

– Contrasted with opex/revenue, margin and more

– We used the average weighted scores as benchmark averages

-8

-6

-4

-2

0

2

4

6

8

-4 -2 0 2 4 6 8

Leading CSP Diversity and Health, 2017(Map Key)

Health

HIghLow

High

Low

(Global Averages)

(Rating Scales)

Utility Zone Promise of

Diversity

Transition and

Uncertainty

Potential

Consolidation

By 2022, eight or more leading CSPs representing 25% of total global legacy services revenues will trail their peers both in revenue growth and operational health, up from 14% in 2017.

Strategic Planning Assumption:



Pursuing Diversity Causes Operational Strains

§ More than 40% of leading CSP revenues in 2017 were earned by companies with above-average costs, debts or other strains on the business (Transition Zone).

§ Large size has been no guarantee of success in diversification, and smaller players conversely have scored well while maintaining operational sustainability.

§ Two-thirds of the group still managing Revenue/Employee growth, but acquisition redundancies won’t last

America Movil

AT&T

Bell Canada

Bharti Airtel

BT

CenturyLink

China Mobile

China Telecom

China …

Comcast

DT

K…

KT

Liberty Global

MTN

MTS

NTT Group

Oi

Orange

Singtel

SK Telecom

Softbank Group

Sprint

Telecom Italia

Telefónica

Telenor

TeliaSonera

Telstra

VerizonVEON

Vodafone

Leading CSP Diversity and Health, 2017(31 Leading Global CSPs)

By 2022, eight or more leading CSPs representing 25% of total global legacy services revenues will trail their global peers both in revenue growth and operational health, up from 14% in 2017.

Strategic Planning Assumption:


Network Virtualization: is it Any of Your Business?

Strategic Planning AssumptionBy 2022, 25 CSPs with more effective virtualization practices than their peers will operate predominantly virtual networks. At least 22 of them will be market leaders with upward of $10 billion in revenue.


Calling “AAA”: Not Just When There’s Trouble…

Focus on the Value:

§ Capex Reduction.

§ A Downstream Impact on Contact Center Call Reduction.

§ Attack Problems Through Use of Advanced Analytics.

§ Involving Large Groups of People in Repetitive Activity.

Analytics, Automation and Artificial Intelligence

Strategic Planning AssumptionBy the end of 2021, adoption of combined analytics, robotic process automation (RPA) and artificial intelligence will grow to 40% of all CSP processes.


The Mobile Edge Won’t Wait for 5GStrategic Planning AssumptionBy 2022, more than 50% of enterprise-generated data will be created and processed outside the data center or cloud.

Strategic Planning AssumptionFour percent of CSPs worldwide will have a commercially viable wireless 5G service by 2020.


UI Evolution in the Connected Homefrom Touch to Disappearing UIs and Sensors


Consumer Interest in AI Managing Connected Home Solutions



Conclusion- CSP Options for the Future

§ The Status Quo is Lethal

§ The Smart Utility Role is Fine- but not a consolation prize

§ Transformation Exacts a Toll

§ Seek Synergies, Pick Partnerships, Wow the Workforce

§ It’s not the Soft(ware) Fall- It’s the Hard LAN(ding)

Sales/Marketing

Transformation

Implementing a Lean Service

Factory

InnovationManagement

Embracing theReal-time Enterprise

IT, Software and Analytics

Capabilities

Critical Capabilities

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