Management consultancy Arthur D. Little has released a study of traditional telecom infrastructure suppliers that reveals growing pressure on the industry from IT players and emerging Asian suppliers. The study, The Future for Telecom Suppliers Technology Bets and Survival of the Fittest, concludes that traditional telecoms suppliers are facing a critical situation as the recession deepens in 2009.
Between May and July 2008, Arthur D. Little looked at ten key telecoms suppliers that generated 59% of the industrys total global revenue. Following this, the team interviewed more than 100 CTOs of fixed and mobile service providers as well as organizations within the telecommunications industry, analyzing their responses qualitatively. The survey will be carried out annually.
The increasing strength of the Asian market was identified as the primary threat that telecom suppliers face, due to its expanded reputation, innovation and consistent delivery of quality. For example, the Chinese telecoms provider Huawei has already achieved more than 10% of the global market share for investments of fixed and mobile network infrastructure, while the expansion rate for investments in fixed and mobile networks in industrialized countries is stagnating. Affected components manufacturers will see a one-digit expansion rate in the next few years, the company says, noting that this is a significant downward shift from the recent two-digit figure trend.
Given the pressure on their market shares and margins, large, well-established companies such as Ericsson, Nokia Siemens Networks, Alcatel-Lucent, Nortel and Motorola have to prepare for a completely new competitive environment, says Klaus von den Hoff, a Partner at Arthur D. Little. There are three main drivers bringing about this change. Firstly, neither the national nor the international consolidation of telecom network operators is complete, and moreover, every instance of consolidation leads to a new system standardization that will increase the buying power of the operators. Secondly, the pressure felt from new Asian competitors has increased in all markets. Finally, traditional telecoms suppliers face growing pressure from IT suppliers who have aggressively gone to market with their equipment for telephony. Behind all of this is a change in networks IP requirements that will once again see a shake-up of the entire sector. This trend will open up the formerly proprietary systems and technologies.
Von den Hoff says that innovation will be the key differentiator between established and new participants on the market as telecom infrastructure suppliers attempt  to stay ahead of the curve?  
The survey found that while Motorola and Nortel are characterized as technology followers by CTOs, the big four Ericson, Huawei, Alcatel-Lucent and Nokia Siemens Networks are seen as the leaders of technology within the industry. In particular, Huawei appears to have made an impressive impact on the market.
Even if established suppliers defend their market share through aggressive pricing policies, and network operators rethink their supplier switch-over due to the billions invested in infrastructure, the Chinese heavyweight can still gain more share through massive innovation investments and cost advantages tailored to meet specific customer solutions, says von den Hoff.  
The surveys emphasis was on the performance of three main operating areas of telecoms: access network infrastructure, core switching networks and network-oriented operating services, which have increasingly been provided by network operators. The results highlight how CTOs rate companies very differently. Alcatel-Lucent and Motorola have perceived strengths in WiMax, whereas Ericsson and Huawei are regarded as being particularly strong in 3G and LTE; Cisco however continues to shine in IP routing. Despite the individual skills of these network operators, they still get the choice of between three and five suppliers that are seen as particularly reliable.
The main challenge facing suppliers is to define both their economical and technological position from the customers point of view and to then decide how to be creative and improve most efficiently says Von den Hoff. In addition, he adds, suppliers must make tough choices about their technical focus as a direct result of their competitive positioning.
The report is available for download here.