Editor's Blog

Where next for telcos who want to be IT services providers?
Wednesday, June 24, 2009

Is the European market turning its back on the converged provision of IT services/telecoms by telecom vendors in Europe? That’s the interesting question recently posed by analysts Kata Hanaghan and Katy Ring at the Bathwick Group.

The research firm publishes the Bathwick Services Index (BSI), which tracks the quarterly fortunes of European IT service providers - and noted an interesting trend in the first quarter of 2009. Among the European-headquartered companies tracked by the BSI, two providers of converged IT and telecoms services showed serious signs that they were struggling and both are divisions of big-name telcos.

The first is BT Global Services, identified as the division dragging BT Group into a loss for the year. The other poor performer was T-Systems, the IT services subsidiary of Deutsche Telekom.

“The challenge is that for decades, and still to the present day, the businesses of a telecoms company and an IT services company are very different. And the oft-foretold technology-based convergence of the two is taking a very long time to arrive, especially in how IT departments in buy-side organisations are structured,” say Ring and Hanaghan.

“However, it does seem ironic that, at the point when the majority of buy-side organisations are developing a virtualised IT infrastructure requiring the convergence of network, server and application systems and skills, providers that might seem especially well-placed to provide and manage such an infrastructure (and deliver services across it) may be divested by their parent companies.”

With the second quarter’s Index due to end next week, the two analysts will be no doubt be looking for improvements in the performance of these two companies.

The current financial woes at BT GS, they point out, have predominantly been caused by the mis-management of two mega-outsourcing contracts in the UK (widely believed to be the NHS and Reuters contracts). “The management team is now different, new contract management processes are being introduced and the division is being restructured with the aim of returning the division to profitability,” they point out. T-Systems, they add, has a very good dynamic services offering but needs to dramatically ramp up its customer base for these and other services, in order to compensate for reduced captive revenues from its parent company.

The suggestion is that these problems are specific to the two companies in question. It may be too early to attribute them to an inherent flaw in the model of delivering converged IT and telecoms services - but it does seem that, to date, that this model has been slow to gain acceptance.

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