Motivated by increased competition in their traditional markets and the blurring of lines between voice and data, Canada’s telecommunications carriers are reinventing themselves. Though still offering basic connectivity, they are emphasizing applications and professional services and often competing
with information technology services firms.
They have little choice, according to Iain Grant, managing director of telecom consulting firm SeaBoard Group in Montreal, because technological changes threaten their traditional revenue sources. “We’re forecasting in our crystal ball that no-one going to be spending a dime for long distance,” said Grant, pointing to the growth of Internet Protocol (IP) telephony and declining long-distance charges
Lawrence Surtees, director of telecom research at Toronto based International Data Corp. (Canada) Ltd., said telcos are getting into the traditional territory of information technology services firms because IT companies and systems integrators are invading telcos’ territory. “They’re all getting into each other’s ponds,” Surtees said.
“The cozy line between software providers, hardware providers, systems integrators and ILECs (Incumbent Local Exchange Carriers) is completely blurred now, said Charles Salameh, vice-president of enterprise solutions at Bell Canada.
And Luc Vilandré, vice-president of national application solutions for Telus Corp., added that customers want complete packages.
Bell started in this direction by launching network management services in the mid-1990s, Salameh said. It evolved to include forecasting and procurement, desktop management and other services. Today, “managed network services have now become table stakes for any network provider.”
By building a Multiprotocol Label Switching (MPLS) network that breaks the traditional line between local- and wide-area networks and embedding more of its managed services in the network core, Bell can now offer what were LAN-based services as managed services embedded in the network. “It gave us the ability to create a complete professional services and consulting business,” he said.
Other carriers are moving the same way. MTS Allstream Inc. has a professional services business with eight offices across Canada and about 500 employees, and provides infrastructure management through five data centres and two network operations centres, with about 200 people in that side of the business, said Dean Prevost, executive vice-president of Allstream and president of its IT services arm.
“It used to be, providing connectivity or a pipe of any type, you weren’t so concerned with what rode on top of it,” Prevost said. But carriers have now realized that “there’s a lot more value added in moving up toward the applications.”
Telus has acquired several companies in the past few years that offer IT services, and has developed some services internally that complement its network, which Vilandré said remains the core of the company’s strategy. The company’s offerings include mobile applications, IT infrastructure management, hosting and consulting, and IT services account for seven to eight per cent of Telus’ revenue, said Vilandré.
Surtees said two smaller ILECs — Halifax-based Aliant Inc. and Saskatchewan Telecommunications (SaskTel), have made impressive strides into IT services. Aliant’s predecessor company Maritime Telegraph and Telephone made an early foray into IT outsourcing, which led to Xwave, an outsourcing subsidiary that does business in Canada and internationally. Aliant refused a request for an interview for this story, but Surtees described Xwave as highly successful.
“They’re not so much sort of inventing the same wheel but they’re actually finding new markets,” he said, adding that Sasktel, through its Vancouver-based Navigata Communications Ltd. subsidiary, is doing similar things on a smaller scale. Navigata has a national network and offers data, voice and Internet services.
Telecommunications carriers are increasingly competing with IT services companies like IBM Global Services, EDS Canada Inc. and CGI Group Inc., even though they also work with those firms at times (and Bell’s parent, BCE Inc., owns roughly 30 per cent of CGI).
Vilandré described Telus’ relationship with companies such as IBM as one of co-opetition. “While we’re competing with them in maybe three or four major opportunities throughout Canada, we are partnering with them in maybe two or three other opportunities,” he said.
Jason Bremner, director of outsourcing services research at IDC Canada, said some strengths set telcos apart from the competition. “They certainly have the strength of very broad market coverage as compared to many technology providers,” he said. For instance, each of the three biggest carriers has “thousands or tens of thousands of clients each,” Bremner said, whereas all the major Enterprise Resource Planning (ERP) software vendors put together might have 1,200 to 2,000 Canadian customers. And the carriers are experienced in marketing to small, medium and large business.
And they own extensive networks. “We think we can bring something different to the table because of the network component which we own and control and can configure,” Allstream’s Prevost said.
“Who knows telecommunications better than anybody else? The telcos,” observed Grant.
In future, Bremner predicted, telecom firms will continue pursuing IT services business with increasingly innovative alliances with other firms. Success will depend largely on learning how to “mass customize” their offerings, he said.