VOICE&DATA-IDC Super User Survey: Data Dazzles

Telecom service providers watch out! The growth in telecom services spending
of Indian corporates is likely to hit a slowdown in growth in 2006-07. This is
what India's first survey tracking actual and projected expenditure on telecom
services of businesses -VOICE&DATA-IDC Super User Survey- says.

An analysis of data from more than 100 large, medium and small enterprises
spanning across several verticals that were surveyed shows that telecom services
spend is likely to grow by 16 per cent in 2005-06 but will grow by only 8 per
cent in 2006-07. In the case of the top ten spenders in the list, the growth on
spending would be only a shade better at 9.5 per cent in 2006-07 as against 26
per cent growth in 2005-06.

However, a decreased spending in no way would mean that businesses would use
less of telecom services. Telecom usage would surely go up as is reflected in
the surveyed companies' plans to invest more in a slew of technologies and
services like VPN, Wireless LAN, VoIP-IP Telephony and outsourced data centre.
However, their expenditure on telecom services would come down because of
factors like drop in tariffs, better contract negotiation by corporates with
their services providers, more efficient use of technology, better bandwidth
management and use of more and more managed or outsourced services.

Data Expenditure Outgrowing Voice

While voice still accounts for a significant portion of Indian corporate
sector's spending on telecom services, the importance of data services is
surely growing. Businesses are now spending more on data and less on voice. This
is clearly reflected in the spending pattern of companies in almost all the
verticals covered in the survey.

The
survey, which covered companies in major verticals like banking and finance,
manufacturing, services and IT-software services among others, found that unlike
in 2004-05, businesses would be spending more on data services than on voice in
the current financial year (2005-06) and the next (2006-07). While in 2004-05,
business as a whole spent more on voice (53 percent of their spend on telecom
services), in 2005-06, they are expected to spend more on data (51 percent) and
only 47 percent on voice. Data spend is projected to grow to 54 percent in
2006-07.

While the growing criticality of data services is one important reason for
the rise in spend on them, the overall decline in voice tariffs has played a
role in the decline in corporate expenditure on voice. However, the growth in
data spend has not been uniform across all verticals. The services sector, which
traditionally has been spending more on data than on voice - 72 percent on
data in 2004-05-will see a decline by one percentage point in its data
spending in the current year and 2006-07.

Similarly, the spending pattern in manufacturing (process) vertical is likely
to remain the same this year as it was in 2004-05. However, this would change in
2006-07 when companies in this segment are likely to spend 68 percent on data
and 32 percent on voice.

VPN, WLAN, VoIP, Conferencing Pick Up

VPN, Wireless LAN, VoIP-IP Telephony and conferencing (audio-video and web) are
on the priority list of many companies. Even as 30 percent of the companies said
they have planned to invest in expansion or deployment of WAN, 25 percent of
them have planned investments in VPN, 18 percent in WLAN, 31 percent in
conferencing and 21 percent in VoIP. Interestingly, a relatively new wireless
technology like RFID seems to have gained significant traction in India with
around 10 percent of the companies using it.

Outsourced
data center services are also gaining ground with 26 percent of the companies
currently using them. On the other hand, another outsourced service Centrex, is
yet to pick up. While only 9 percent of the companies were currently using
Centrex, only 4 percent have plans of investing in it in the near future.

Currently these services or technologies do not have significant base. The
planned expenditure of companies on these would grow many times in the next two
years with investments in VPN, WLAN and VoIP taking the lead.

BFSI on Top

The banking and finance companies are among the top spenders followed by
IT-software, manufacturing and services companies. There are four banks among
the top ten spenders. In fact the top spender is also a bank.

A significant percentage (31 percent) of companies plan to invest in Audio/Video/Web Conferencing technologies and services

The telecom service spending of the finance vertical is expected to grow at a
much higher CAGR (18 percent) than any other vertical. While the vertical's
spend on voice is likely to go down at CAGR of one percent, its spend on data
would grow at CAGR of 38 percent. In 2006-07, the banking and finance sector is
likely to spend 60 percent of its budget on telecom services on data as against
44 percent in 2004-05.

As
more and more companies hike investment on networking and telecom for running
business critical applications and interacting with their customers, their
investments in telecom services would obviously grow.

However, as mentioned earlier, as technologies advance and telecom service
providers offer more competitive rates to their business customers, businesses
would be spending less for more. In other words, while on the one hand they
would continue to use more services, they are more likely to pay less and less
for them as tariffs, especially those on data services, are likely to continue
their southward movement.

Ravi Shekhar Pandey