Enterprise Communication Survey'07: High on Telecom, Average on Spends

Signaling the growing importance of staying connected for
business criticality, the overall telecom spend by large enterprises during FY
'06-07 has grown by 20% over the previous fiscal. The survey reveals that the
average telecom spend per organization is Rs 3 crore. Verticals such as BFSI,
IT/ITeS and Oil & Gas are the biggest spenders on Telecom infrastructure.

At an overall level, the total telecom spend is 30% of the total
IT spend in large enterprises. As a percentage of the overall turnover, the
average telecom spend of a large enterprise is 0.17% while the average ICT spend
is around 1% of the overall turnover.

As businesses have grown over the years, the key emphasis in
enterprise connectivity is scaling up communication networks quickly and
efficiently, than on technology choices. This is a welcome sign as mature
enterprises are laying more emphasis on networks that are high on functionality
and low on redundancy, rather than the cost factor.

Multiple access technologies have become the order of the day as
staying connected becomes a crucial business enabler, but this has led to a
confused state of affairs.

As per the V&D-IDC survey, currently, in an organization,
the average number of access technologies is three. In the next two years the
preferred choice will narrow down to two. This is primarily because large
enterprises are getting more focused with their choices for access technologies,
and managing a wide mix of access technology is difficult and costly to
maintain.

In case of telecom services, the current number of technology is
four per organization. In the future, this choice will narrow down to three. Web
hosting will be the least preferred. This could mean that the companies have
already invested in Web hosting over the years and it is stabilizing.
Application hosting, conferencing and web hosting currently have maximum
adoption.

Multiplicity Advantage

DSL and ISDN are the two access technologies that have the highest
penetration (number of organizations using) and continue to dominate future
adoption. Both are head-to-head with over 70% of the companies choosing both
technologies.

Manufacturing and Oil & Gas industries are the biggest users
of ISDN, while DSL is the favorite among Media/Entertainment, IT/ITeS and
Banking/financial services companies.

DSL has clearly outperformed cable connectivity and finds a
favorable positioning as an access technology. Broadband connectivity has
finally hit the right keynote with enterprises especially with broadband service
providers eagerly churning out bundled end-to-end services.

Over 60% of companies have gone for domestic leased line and 58%
have opted for PSTN. The highest takers of these two technologies are Oil &
Gas and Media & Entertainment. The drop in bandwidth prices encouraged
enterprises to increase their investments in leased lines.

However, it is interesting to note that when it comes to the
maximum spend in future, domestic leased line and VSAT comfortably dominate over
other technologies. The main reason is due to the performance versus cost
factor. VSAT and international leased lines remain constant in the adoption
trend at 35-37% and 15-17% penetration in current and future respectively.

Currently, the highest takers for VSAT are BFSI and
Energy/Infrastructure/Utilities verticals. However, when it comes to future
investments, VSAT will increase its penetration in FMCG/Consumer Durables/Food
& Beverages industry vertical from the current 27% to 47%. VSAT services are
used for broadcast applications and enabling connections between remote factory
locations.

Telecom Services

The rapid growth of Internet and increasing business demands, have paved the
way for the development and management of bigger and complex applications. At
the same time, the need to share such applications has also increased in the
enterprise sector.

Application hosting (ERP, CRM & SCM) and Web hosting have an
overall penetration of 56% and 53% across verticals. Large professional websites
require great deal of traffic/resources like e-com applications, application
hosting, private brand resellers, and so on.

Wireless LAN and VPN penetration remain constant at around 44%
considering current and future adoption. VPNs have been employed innovatively by
Indian organizations with MPLS VPN technology being used for remote connectivity
in many cases.

Mobile email is popular with nearly 50% of the companies going
for it. In the next two years, its adoption will increase to 60%. This reflects
the growing importance of enterprise mobility application.

Where do they Spend?

The top five technologies in which the enterprises are looking to invest in
are-DSL, domestic leased line, VSAT, application hosting (ERP, CRM and SCM)
and VPN. It is interesting to note that domestic leased line and VPN are the
only technologies where organizations across all the verticals will spend.

Vendors need to look at the ITeS sector for international leased
line, while Oil & Gas and Manufacturing will spend more on domestic leased
line. Application hosting is going to be hot for FMCG/Consumer Durables/Food
& Beverages, and Media & Entertainment. BFSI and
Energy/Utility/Infrastructure sector are eager to invest heavily for VSAT in the
following years.

Choosing Service Providers

The survey results rank BSNL (32%) as the most preferred primary
connectivity service provider, next is VSNL (19%) closely followed by Airtel
(18%). However, VSNL is the highest in overall satisfaction closely followed by
MTNL. However, this is only indicative of the sample covered and does not
necessarily represent the overall market.

Among various factors of satisfaction criteria for a service
provider, the implementation process has the most influence on overall
satisfaction. This includes critical parameters such as functional and technical
understanding of the team from the service provider who could articulate the
exact need of the organization and deliver suitable mix of different services
within committed time without charging high price.

In case of BSNL and Airtel, enterprises have ranked them high on
their ability to take end-to-end responsibility. VSNL is top most in network
robustness, reliability, and redundancy. MTNL is ranked highest for ensuring
networking security.

With respect to desirable qualities from their service
providers, the enterprises have identified three main areas of concern-simplifying
the SLAs as per customer satisfaction, to reduce outage duration and frequency
drastically and to be able to quickly respond and resolve failures.

Buying Behaviour

It comes as no surprise that the decision making process for buying
technology for communications is centralized. Only 5% of the companies do not
mind taking decentralized decisions when it comes to buying technology.
Typically, these industry verticals are-Manufacturing, FMCG/Consumer
Durables/Food & Beverages, BFSI, Oil & Gas, and IT/ITeS.

The primary decision maker for ICT purchases is the CIO/CTO/IT
head of the organization (62%), while top management consisting of MD/CEO/COO
comes a distant second (26%) as decision makers. However, interestingly, when it
comes to choosing the technologies, the influencers for the ICT purchases are
primarily the IT division staff.

In more than 80% organizations, the group that manages
enterprise voice communications also manages IT or Internet services in the
organization. Only around one in every twelve organizations, there are a
completely separate groups managing the two.

Infrastructure Challenges

As enterprises expand, the foremost priority is connectivity for voice and
data traffic. When organizations are able to think and make decisions on their
feet, with real-time access to required information, they can be more productive
and provide better service.

The top five challenges in communication infrastructure facing
the enterprises today are getting connectivity options in smaller towns-requiring
more network access to cater to remote access, tackling shortage of trained
manpower, connecting handheld devices to the network and integrating voice and
data traffic. Issues like after sales support and managing networks, scaling up
and getting to know new technologies are some of the other areas of concern.

Besides the top three challenges mentioned above, the key
challenge for the Manufacturing vertical is integrating voice and data traffic
with ease, getting adequate assistance in design and implementation of
communications infrastructure. They also complain about insufficient SLAs from
service providers.

The FMCG/ Consumer Durables/ Food vertical faces a shortage of
skilled manpower, and requires adequate support for design and implementation of
communication infrastructure.

As the BFSI vertical is expanding its length and depth across
tier-2 and tier-3 cities in the country, its top most priority is to ensure
network access, connectivity to its customers for critical business demands and
connectivity to small towns.

Energy/ Infrastructure/Utilities vertical faces a key challenge
in integrating voice and data traffic and shortage of skilled manpower. They
also complain about having bitter experiences with service providers and
connectivity vendors that have resulted in delayed telecom implementation.

As IT/ITeS companies are opening up offices beyond metro cities
into tier-2 and tier-3 cities, getting connectivity in these towns is a key
challenge; next challenge is tackling shortage of manpower, and connecting
handheld devices to the communication network.

The key challenge for the Oil & Gas vertical is getting
assistance in design and implementation of network, besides connectivity issues
in smaller towns and shortage of skilled manpower.

The service providers need to leverage the opportunity of
vertical expansion of enterprises in smaller towns and focus on making
comprehensible SLAs to suit enterprise specific needs. Making robust and
flexible networks will be a key priority across all verticals.

Outsourcing ICT Management

Infrastructure management outsourcing is a tactical decision to not just
save cost but also a strategic move to stay agile while being
operations-centric. As large enterprises have reached phase 1 of maturity
levels, companies now want to focus on their core competence, something they can
do more cost effectively than anyone else.

Practice of outsourcing domestic leased line management is the
highest currently as well as in the future plans of almost all verticals. VPN
management outsourcing currently has highest takers in Oil & Gas (71%)
followed by FMCG/Consumer Durables/Food & Beverages (53%) and
Energy/Infrastructure/Utilities (55%), and the trend continues in their future
plans. VSAT management outsourcing has highest takers in BFSI (47%) and IT/ITeS
(42%). Outsourcing of VoIP/IP telephony management is highest by Media &
Entertainment (50%) and the IT/ITeS sector (47%).

However, in future, VPN management outsourcing will find more
takers in the Oil & Gas, Manufacturing and BFSI verticals. VSAT vendors can
focus more on the Media & Entertainment sector that is likely to increase
VSAT management outsourcing when compared to domestic leased line management and
international connectivity service management. International connectivity
services management outsourcing will be high priority for Manufacturing and
Media & Entertainment.

The Next Picture

The overall spending on bandwidth and connectivity is still low, but the
need for better connectivity is being felt. Today, the connectivity options for
customers are multi-fold. However, two key trends are driving adoption of these
solutions-easy manageability and reduction in TCO.

For the large enterprises, it is most important to have a right
mix of technologies, and integration of applications with the existing IT
infrastructure of partners. Availability of manpower, presence of reliable
communication systems to drive the applications across the network is also an
issue with the enterprises. The preferred network architecture is centralized,
thus enabling the company to quickly implement the changes in the system.

So what's in store for 2008? Perhaps the emphasis will be for
the CIOs to create a model to strengthen the relationship with the service
providers to ensure that key business objectives are communicated, and relevant
actions taken. Choosing a service provider with diligence is essential. It's
important that the outsourcing partner understands the business objectives of
the client's company. The time has come when enterprises expect service
providers to put on multiple hats, and to be able to transform themselves as
complete end-to-end service providers, delivering high on quality and service
support.

In response the service providers have already begun innovating
with solutions that gel well with business strategies of the enterprise
customers. The challenge before the enterprise will be then to judiciously
select service providers with the best-fit solution, that is flexible enough to
transform and have good understanding of the enterprise's specific
requirements.

Malovika Rao


malovikar@cybermedia.co.in

Graphix: Paras Jain