Telco services more critical than hardware

Strong and fast growth characterises powerful market sector

The telco services market hit $65 billion in 2007, including product, network, and IT-related service spending. Network equipment providers (NEPs) accounted for approximately 60 per cent of that total, according to Ovum, which recently published 2007 service business results for network infrastructure vendors.

"The importance of services to telecom equipment vendors is hard to overstate," said John Lively, vice president, network infrastructure, at Ovum. "The telco services market is larger, and growing faster than optical networking, switching and routing, and broadband access equipment combined, and it's generating profits. Simply put, services are key to infrastructure vendors' financial success".

Key findings of the study included:

  • Worldwide telco services revenues were $65 billion in 2007, up 17 per cent from 2006
  • Services revenues were more than 20 per cent of total company revenues for top tier network infrastructure vendors as a group
  • Average operating margin on services was 13 per cent, versus five per cent for hardware

Lively said the capacity glut of the past several years, combined with the rise of Chinese vendors, with their lower labor costs and relationships with well-funded development banks, have made it difficult for large incumbent NEPs to make money on products. "Meanwhile, service providers are increasingly pulling NEPs into network-related services".

Len Rust is publisher of The Rust Report.

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