A recent study by global management consultancy Arthur D. Little has found that traditional telecoms suppliers are facing an overall critical situation as the recession deepens in 2009. 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 per cent 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 industrialised countries is stagnating. Affected components manufacturers will see a one-digit expansion rate in the next few years - 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."

What can telecom infrastructure suppliers do in order to stay ahead of the curve? According to Von den Hoff, "Innovation will be the key differentiator between established and new participants on the market."
Dr. Karim Taga, partner at Arthur D. Little and head of the Technology Economics Competence Center adds: "The fact that providers such as Cisco are looking for innovations outside their usual business arena makes the situation that much more complex." Based on this background, Arthur D. Little surveyed leading global managers to establish the position of telecoms suppliers in various fields of technology.
Main survey results
While Motorola and Nortel were 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. "Additionally some of the traditional suppliers are still struggling with the integration of their acquisitions and consolidated structures," adds Dr. Taga. Accordingly, those telecom suppliers researched in Arthur D. Little's survey lag behind in terms of innovation and technology positioning when compared to the bigger players.
The survey's 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.
Industry positioning required
Von den Hoff sums up the results of the survey: "The main challenge facing suppliers is to define both their economical and technological position from the customer's point of view and to then decide how to be creative and improve most efficiently." An additional concern is which market scenarios are the most realistic and what impacts they will have on individual suppliers' competitive positioning. In addition, suppliers must make tough choices about their technical focus as a direct result of their competitive positioning. Overall, as the pace of the market increases, companies have to prepare for mergers and acquisitions. They must also familiarize themselves with PMI management.
Key data of the survey
Between May and July 2008 Arthur D. Little looked at ten key telecoms suppliers that generated 59% of the industry's 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 Future for Telecom Suppliers - Technology Bets and Survival of the Fittest" report is now available for download at
www.adl.com/supplieroutlook