Predictions for 2011: Environmental Drivers of Communications Trends

By Rob Rich, Managing Director, TM Forum Insights Research

A fundamental in understanding growth for communications services is the state of the global economy, as overall telecom financial performance is related to economic growth. According to the Organisation for Economic Cooperation and Development (OECD) the global economy will expand 4.2 percent in 2011. The good news is that the recovery started in 2010 continues, though at a slower rate. However, concerns about the sustainability of sovereign debt levels and growing trade imbalances around the world pose risks to this recovery.

China and India are expected to lead the larger economies in growth, with China growing in the 9 percent range, and India around 8 percent. Developed economies are not expected to fare nearly as well, with the U.S. expected to achieve a rate of 2.2 percent, Japan a rate of 2 percent and the European Union slightly less than 2 percent. Other important trends include:

Strong growth in Africa: This decade is expected to see massive development in Africa, evolving from Western aid to Eastern trade-based economic models.

Energy remains a key source of growth. It continues to play a key role, with the continuing upward trend in oil and natural gas prices. Countries with large reserves will continue rapid growth.

The impact of policy-based stimulus programs slows to a crawl: Many of the stimulus programs initiated in response to the global recession have run their course and are unlikely to be repeated, if only because most governments no longer have the funds to provide additional support.

Inflation remains low to moderate. While demand for commodities (especially food and energy) increases, prices hold relatively steady. Fast growth countries like China take steps to curb national inflation. Against these global trends, here are our top 10 predictions for 2011 – we live in interesting times.

Prediction 1: The margin crunch intensifies

Fixed line revenues, including for data, are under pressure and the rapid growth of mobile broadband hasn't brought additional revenues, but requires massive investment in network capacity.

Arguably communications service providers' (CSPs) greatest opportunity is in acting as enabler for other parties in the value chain. In the short term, there is no quick fix.

Prediction 2: Cloud services approach the mainstream

There's lots of activity in this area with different companies investing in data centers, computing infrastructure, software platforms and much more. Not all of them will succeed and we expect to see rationalization during 2011.

We predict the sweet spots will be small and medium-sized businesses, emerging markets and Software as a Service. In addition, lots of enterprises will be forced towards the adoption of cloud by financial considerations.

Prediction 3: Data management and analytics become critical competencies

Communications is one of the world's most data intensive businesses, yet the timely and effective use of this data is lagging way behind that of many other industries. This needs to be addressed.

Data management and analytics can improve the customer experience, thereby increasing revenue, enhancing the brand, reducing churn and extending the CSPs' role across the value chain, particularly when the information is available in real time or near real time. CSPs need to start by figuring out where the biggest payback will be, and go from there.

Prediction 4: Machine-to-machine accelerates

After a slowdown in 2010, we predict rapid growth this year, particularly in automotive, asset management, energy management, home and business security and telehealth.

Prediction 5: Smart utilities grow

The combination of demand, rising energy costs and stimulus funds are pushing this sector along, with most of this year's growth coming from smart meters and experimentation with dynamic pricing. Demand response technologies and distribution automation will play increasingly big roles.

There is resistance among customers to smart metering – including a class action suit in California – education will be all-important. Smart grids also have a role to play in securing electricity supplies in the face of cyber attacks.

Prediction 6: Mobile advertising moves to the mainstream

Propelled by the rise of smartphones, apps and mobile broadband and mobile advertising's effectiveness, this will be the year it goes mainstream. Great attention needs to be paid to privacy and consumers' concerns to avoid irritating them and provoking regulators into action. Nevertheless, this is a huge opportunity for operators.

Prediction 7: The bandwidth crunch continues

Network operators are struggling to keep up with demand for capacity, to the extent that customer dissatisfaction with their services is having a negative effect on some brands. Given the rise in video traffic and the continuing proliferation of smartphones, the situation is likely to worsen in 2011. The uneven economic recovery is making it difficult for service providers to raise revenues and the specter of net neutrality is an additional brake on investment. Even so, massive investments in infrastructure are underway around the world, but they will not do much to ease the bandwidth crunch in 2011.

Prediction 8: Mobile payments make progress

Although many think of mobile payments in terms of developing economies where few people have bank accounts or credit cards, they are swiftly moving up the agenda in developed economies. Lots of different parties are keen to make an impact, from technology firms to network operators, credit card companies, device makers and start-ups. In November 2010, Verizon Wireless, AT&T and T-Mobile USA set up a mobile commerce venture to address this market and keep the card companies out. Many, many other initiatives are underway, with Google, Apple and others hovering.

Prediction 9: Social media prove an opportunity and a threat

In 2010, web users spent more of their time on social media – blogs, wikis, social networking, social gaming and so on – than anything else, and it is accounting for a larger share of their online activity as time passes. While this is a great way for service providers to capture lots of data about how their brand is perceived and what users are thinking, if ignored or mismanaged social media are potentially very damaging.

Yet few CSPs are using analytics to monitor and exploit social media, as they do for other channels. Most are missing huge opportunities; a few will emerge as leaders at the end of 2011.

Prediction 10: Security issues become more serious

The growth in the number and type of devices is presenting plenty of opportunity for cyber criminals of all types. As the number rises dramatically due to more affordable devices coming onto the market, the problem will only get worse. Arguably, this will be surpassed by the expected explosion in machine-to-machine communications, which will also be targeted.