Revenue contribution from telecom equipment and services sectors for Indian and global IT companies have decreased significantly in the recent quarters. Besides slowdown, several other factors are impacting the growth.
First, there’s a decrease in investment in research and development (R&D) by telecom equipment companies.
For instance, Nokia Siemens Networks, a top telecom equipment vendor, has decreased its R&D expenditure by 16.3 percent in Q1 2013.
Nokia Siemens says that its R&D expenses decreased 16.3 percent primarily due to reduced investments in business activities that are not consistent with focused strategy as well as increased R&D efficiency, resulting from the transformation and restructuring program and streamlining of its roadmaps.
The Chinese telecom equipment maker Huawei has cumulatively invested CNY 120 billion in R&D over the past 10 years, including CNY 29.9 billion in 2012, accounting for more than 13 percent of the year’s revenue.
Look at the recent growth in telecom revenue of three IT companies in India.
Infosys’ telecom revenue contribution decreased 1.8 percent quarter-on-quarter to $180.23 million in Q4 FY 2013.
Tata Consultancy Services’ revenue pie from telecom increased 0.9 percent quarter-on-quarter to $282.72 million.
Wipro’s revenue from telecom and media business decreased 3.10 percent to $218.74 million in the fourth quarter of last fiscal.
Interestingly, all these three IT majors reported increase in their overall revenue in the fourth quarter.
Sriram TV, vice president & BU head – telecom network services, Wipro, said: “A combination of slowdown, reduction in R&D by telecom operators and equipment vendors and their own IT initiatives are impacting the telecom revenue growth for IT companies.”
However, Sriram declined to comment on the specific reasons for Wipro’s performance in telecom and media sector.
The second reason that affected IT companies’ revenue from the telecom sector is telecom service providers’ major initiatives to set up their own IT companies and IT divisions. This development prompted telecom operators to look inside for IT outsourcing.
For instance, Deutsche Telekom has a division called Telekom IT. This internal unit aims to save costs for the Group and provides internal IT services by billing only cost, no longer margins. The Market Unit is responsible worldwide for serving Deutsche Telekom’s corporate customers and operates in accordance with the principles of revenue and margin growth.
In addition, Deutsche Telekom has an external unit called T-Systems. In the first quarter of 2013, Deutsche Telekom’s Systems Solutions segment recorded order entry of EUR 2.1 billion, up 33 percent. This was due to agreements with EADS and the Swiss National Railways (SBB) as well as cloud services deals.
Vodafone has its own IT support team in Pune, India.
Several telecom equipment vendors have their own offshore development centers, helping them reduce IT outsourcing from external companies.
A senior official with a Delhi-based BPO firm says that telecom companies are hiring IT executives from local IT companies and this has also impacted IT companies’ consultancy business.
Wipro’s Sriram says telecom companies will increase their IT investments in coming years as they are rolling out new and complex technologies. Also, telecom firms need the support from large IT companies with consultancy background as these IT firms offer innovative solutions to bring down cost and improve time to market.