Telco IT Investments Continue to Rise as Outsourcing Tops One-Quarter of Total IT Spending

BRUSSELS, BELGIUM--(Marketwired - Oct 16, 2014) - Traditional telecom services may be struggling, but new offerings are showing promise and telco IT units are taking the right steps to spur and support them, according to a new report by The Global IT Association for Telecommunications (ETIS) and The Boston Consulting Group (BCG). The report, titled TeBIT 2014 Executive Report: Paving the Paths to New Revenue, looks at telco IT costs and spending patterns.

Participants in the TeBIT 2014 survey -- a mix of integrated, fixed, and mobile operators from emerging and mature markets in Europe -- are continuing to shift from IT cost reduction to focused IT investments in areas that can drive competitive advantage. Overall, IT capital expenditures rose 3.4 percent for TeBIT 2014 participants (4.7 percent for those in mature markets). And, on average, participants steered nearly a third of their investment budgets to their top three initiatives -- projects heavily skewed toward improvements in the network and the customer experience.

Particularly striking, the report's authors conclude, is that even as participants' IT capital expenditures increased, they managed their IT operating expenses in line with their revenue decline -- something that telcos have historically been unable to do.

"The idea that telcos can boost their IT investments yet at the same time lower their IT operating expenses is a powerful -- and previously unobtainable -- notion," says Frank Felden, a BCG partner and coauthor of the report. "It means they would be able, in effect, to have their cake and eat it, too -- spending to foster novel new offerings yet controlling costs. But to do that on a sustainable basis, they will need to find a good mix of innovation-focused and efficiency-focused investments. That is the hard part, but this year's results indicate that it may indeed be possible."

Also noteworthy are the report's findings on outsourcing -- an increasingly popular lever for telco IT units and one that now accounts for 26 percent of participants' total IT spending (up from 23 percent in the 2013 survey). For the first time, a TeBIT study did not find a direct linear correlation between a high degree of outsourcing and high IT spending.

"One possible, and compelling, explanation for this finding is that telcos may be gaining a better understanding of how and where to best leverage outsourcing," says Terje Tøndel, ETIS managing director and a coauthor of the report. "The survey clearly shows participants turning to outsourcing more in some areas than in others. We saw a greater degree of outsourcing for application maintenance, for example, than we did for IT infrastructure. This makes sense. Application maintenance is an area in which vendors can bring capabilities a telco may not have in sufficient supply, whereas IT infrastructure services are something many telcos offer to their own customers and can easily, and efficiently, handle themselves."