As featured in Telecom Ramblings
Framing the situation
Competition amongst communications solutions providers (CSPs) continues to heat up as enterprises and individuals become increasingly dependent upon their connectivity. With an increasingly complex set of services, CSPs continue to spend billions on OSS/BSS solutions and platforms as these systems are the key to operational excellence, which drives sustainable and profitable revenue growth. Revenue and margin growth remains a key challenge for CSPs due to price compression, the convergence of disruptive players, and business models within the sector. This climate has created questions around the future spend of OSS (service fulfillment and service assurance) and BSS (billing and operational management), where CSPs are looking to extract more value from their traditional vendors.
The origins of OSS/BSS
To understand where OSS/BSS is headed, we first need to understand where they have come from. Between 2007 and 2013, mainstream investments in OSS/BSS were principally made to enhance a CSP’s operational efficiency and reduce operational costs. Large scale OSS/BSS implementation projects in the past emphasized structuring and organizing OSS/BSS investments to support automation in specific areas and their integration among defined processes. Since 2013, CSPs’ attention has shifted away from operational efficiency/cost-reduction due to network infrastructure converging on IP technologies and mobile data driving a significant bandwidth crunch. CSPs are now squarely focused on improving network monetization, including augmenting the operator’s network infrastructure utilization, and supporting service innovation, policy management, and billing flexibility.
Current state of OSS/BSS
Most global CSPs now quantify and measure employee and management performance on improved customer experiences, where internal efficiencies drive strategic and operational priorities. Mature market CSPs experience little to no subscriber growth YoY, which only increases the pressure to retain customers and substantially increase average revenue per user (ARPU). Within the emerging markets, CSPs are looking to invest in systems which provide greater degrees of efficiency and effectiveness, helping differentiate their products and services.
Therefore an ongoing objective of OSS/BSS investments is to enhance business processes to be flexible, receptive, adaptable, and innovative. OSS/BSS vendors are defined today by their ability to enable CSPs to attain and retain customers for long-term success.
Based on ATLANTIC-ACM internal market intelligence on Telecom ROIC, investing in OSS/BSS systems and platforms is equally essential and strategic to upgrading a CSP’s operational network footprint and capacity. However, many CSPs are disproportionately prudent when considering OSS/BSS investments. Established practices of most network equipment sales teams place great value on network gear, but little or no value on the systems that support key functional operations. We believe this mistake hampers the efficiency and nimbleness of CSPs, and unfortunately, encourages OSS/BSS providers to tailor to specific network technologies and business systems, limiting real scalability and adaptability. More importantly, the operational efficiency advances of OSS/BSS solutions can directly affect the profitability of each service.
OSS/BSS vendor landscape
The OSS/BSS market landscape mainly consists of large incumbent vendors with a focus on the telecom sector. The option for CSPs to work with start-up vendors has thus far been broadly limited to strategic areas centered on analytics and cloud activity. CSPs continue to explore general-purpose vendor options for applications software, middleware, and information management. However, the absence of industry expertise and specialization limits these newly developed systems to projects with a lower risk profile.
Optimization across the buying and operations life cycle is important to many CSPs’ customers. In many functional areas within today’s OSS/BSS market, suppliers are developing systems that are faster, more powerful, and cost-effective (less hardware and/or people required) than most CSPs’ current architecture. Updated solutions for cloud-based, software-as-a-service, and network provisioning delivery are ongoing areas of innovation among vendors.
Future demand for OSS/BSS
ATLANTIC-ACM market intelligence and industry published forecasts indicate future buying intentions of CSPs will remain strong with sustained spending on OSS and BSS augmentations, upgrades and replacements. The end game is to attain new innovative ways to drive more sustainable and profitable revenue growth, expand service portfolios, and consistently provide high-quality customer experience/engagement. As in other parallel capital/asset intensive industries, CSPs are driving an incrementally greater focus on business agility alongside a lesser focus on business infrastructure assets. This puts OSS and BSS in the cross-hairs of transformation. Expanded focus on the overall customer experience combined with operational/margin pressures has prompted CSPs to realign their OSS and BSS goals more tightly with strategic business objectives. This means that business agility, customer experiences, market share/penetration rates and profitability KPIs will become vital to all levels of decision making. The four arenas of OSS/BSS innovation are likely to be:
- Cloud: Infrastructure operations are influencing the OSS/BSS market in a number of ways. Within CSP infrastructure, networks are evolving to further leverage virtualization technologies. Within CSP operations, cloud services provide both an example and a target for key OSS/BSS solutions. The evolution of network virtualization is following a pathway that may lead to 100% utilized cloud platforms in the future, but is largely in a pre-cloud stage of flexible hardware platforms today. In the short term, management and orchestration of the virtualized network function “applications” will continue to follow the existing processes for element management, network management, fulfillment, and assurance practices, which were designed for proprietary hardware network elements. As a result, with traditional systems migrating to functionality rich cloud platforms, CSPs will be able to leverage the management and monitoring tools of their subscriber network to drive higher customer engagement, satisfaction, and ultimately, higher margins.
- Analytics: CSP operational alignment trends favor increased spending on business intelligence, analytics applications and OSS/BSS solutions which have the ability to layer on significant data management and analytics capabilities. The long-standing revenue-assurance market embodies many key characteristics of the ‘Big Data’ trend and remains a source of innovative business optimization. CSPs are embracing analytics for a diverse variety of OSS/BSS functions from infrastructure management and omni-channel customer experience to fraud management and revenue optimization.
- Mobility: Mobility and the cultural shifts of an ever-increasing mobile technology experience can significantly shape a CSP’s success. OSS/BSS vendors are gradually evolving to better support enterprise and consumer subscriber requirements for functionality and customer experience. An important challenge for OSS/BSS platforms and associated solutions is to strategically quantify and monetize their contribution to the mobile experience. The evolution of user expectations, devices, and monetization practices demands agile OSS/BSS platforms for CSPs to leverage in the battle for market leadership and dominance.
- Social: Net Promoter Scores (NPS) have emerged as the key performance indicator for CSPs that are working to measure customer value, shifts in social buying power, and behavior among their customers. Supporting the empowered customer is a priority for CSPs, especially in mature markets. As CSPs work to measure the impact of network builds on the customer experience, social metrics and outside-in capabilities approaches to monitoring, service, and support are emerging as key priorities as customer experience and engagement remains a top business theme for CSPs in 2015.
Investing in OSS/BSS
Based on our engagement work and coverage within the space we believe the segment is slated to grow at ~4-5% through 2019. However, there are niches and pockets of growth within the segment that are forecasted to grow at ~15-20% during the same forecast period. These niche areas could provide a sound investment thesis and business case to private equity players looking to enter and build a platform within the space.