The Role of System Integrators in a Horizontally Stratified Telco Ecosystem

CSPs are increasingly turning to System Integrators (SIs) to support them with the ongoing modernization of their networks. For example, Telefonica recently announced a partnership with Wipro with a view to increase automation of 5G Core network operations in Brazil and Germany. Telefonica intends to work with Wipro for professional services that span Continuous Integration (CI), Continuous Deployment (CD), and Continuous Testing (CT) in its network operations. The initial focus for this partnership is 5G Core (5GC), though, eventually, Telefonica plans to extend this professional services engagement to other domains, including transport, access, infrastructure, and Business Support Systems (BSS)/Operating Support Systems (OSS). Telefonica Germany, for example, partners with Wipro to transform its BSS and associated quality assurance as part of what was termed a “radical IT transformation” program.

On a related point, Accenture, a rival of Wipro in technology, business solutions and system integration (SI) services, acquired Arca, a Spanish engineering services company with a focus on network operations. This acquisition bolsters Accenture’s expertise in engineering, design, deployment, and operation for network services in telecoms, industrial, energy, etc. By harnessing Arca’s expertise, Accenture helps clients accelerate 5G cloud network transformation. Integration is becoming a challenge for the industry because the decoupling of vertical architectures leads to a new market where complex, nonstandard integration is required. That, in addition to an incursion of other ‘Information Technology’ (IT) SIs into telecoms, means that long-established Telecom SIs (Amdocs, Netcracker) face a challenge: how do they fare against the likes of Accenture, Wipro, and Tech Mahindra, and what resources do they need to possess to be able to compete in the future?

Telecom SIs offer strong telecom services and integration capabilities, typically for own logos and BSS/OSS product deployment. A focus on telecoms continues to have commercial appeal because networks continue to remain anchored to specialized functionality. For example, control plane signaling in core network is complex due to a synchronous communication pattern that is provided by proprietary telecom equipment. Additionally, OSS elements are real time in nature and can impact the customer in a services-oriented way. Increasingly however, Communication Service Providers (CSPs) seek to buy best of breed capabilities and want flexibility that comes from shifting core network and OSS to cloud and open architectures. Consequently, Telecom SIs should equip themselves with modular, cloud native, and cloud expertise as they guide the industry towards cloud innovation. It bodes well for CSPs to monetize their networks in new ways and establish deeper engagements in Business-to-Business (B2B) and vertical markets.

By contrast, IT SIs offer a wide scope spanning project management, defining the operating model, system integration, business process outsourcing, and intelligent operations. Consequently, these players view themselves as much more than a traditional System Integrator. They have scope, but they also have scale, two imperatives that are oftentimes challenging to put together as discussed in ABI Research’s insight How Can NEPs Satisfy Today’s Market Demands while Pursuing Tomorrow’s Growth Opportunities?. IT SIs possess vast resources and are well connected to propel digital transformation in numerous industry verticals. They leverage their advisory and consulting services with deep expertise in system integration, particularly for IT transformation. These SIs bring capabilities to a global scale, and they capitalize on the breadth and depth of their expertise across every industry and market. Accenture, for example, had ~20% of its US$50.5 billion revenue in fiscal year 2021 come from its Communications, Media, and Technology industry group, with the rest of firm revenues coming from industries such as Financial Services, Products, Resources, and Health & Public Service.

CSPs’ efforts to cloudify their networks will give rise to a new consulting and integration business in the high end. Furthermore, the continued convergence of ‘loose’ IP data networking with mission-critical and low-latency voice communications further highlights the emergence of new ‘pockets’ in the value chain where non-standard integration will need to take place. This is where SIs can play a key role to integrate specialized processes with general-purpose hardware. On the one hand, Telecom SIs have depth and scale in telecoms. But on the other hand, IT SIs have scale in IT and professional services, and scope too given their increasing investment in telecoms, as it is the case with Accenture. Clearly, new value creation abounds, but the jury is still out on who will capture what parts of the emerging system integration services in the ecosystem. For Telecom SIs, a strong services business with capabilities in both telecoms and IT (cloud) is key to helping operators modernize their networks and be more cloud friendly.

In every industry there is an integrator. Sure, there are supply chains and there are telecom vendors at various points in the chain that offer only one piece of a finished technology product. But before these components reach CSPs or enterprise, somebody has to bring it all together in a way that creates value. Telecom SIs are uniquely positioned to be that company. If they can serve as the foremost integrator of technologies, they would be delivering significant value. They need to be ready for genuine problem solving and a growing requirement for system integration services that apply complex technologies to solve business challenges. Those technologies cannot be just about telecoms, but increasingly IT and Operating Technologies (OT). Until now, Amdocs and Netcracker have arguably been a ‘one-product’ company, a BSS/OSS company, with an array of services attached to their products. Going forward, Telecom SIs must launch new set of capabilities around modular and cloud solutions that must make a material and positive impact on the recipient of their services. This is especially important as telecoms seek services and inputs of strategic significance.

In ABI Research’s view, there is a gap in the market for an SI with capabilities in telecoms, IT, and OT. Telecom SIs dominate telecoms, whereas IT SIs have scale in the IT domain. For Telecom SIs, cloudification of telecom technologies will surely dilute their stranglehold in OSS/BSS domain. But as discussed in ABI Research’s report, Decoding the Process of Commoditization and De-Commoditization in Telecoms, if there is value eroded in a specific part of the value chain, there is new value being created in another part. New value stands to be created, particularly when it comes to integrating 5G and cloud into CSPs’/enterprises’ fabric. For Telecom SIs to capture that value, they must recognize that the industry structure in the coming years will be horizontally stratified, not vertically integrated. With 5G core and cloud, telecoms are on the cusp of a structural shift—the vertically integrated industry is ending. Professional services for vertical architectures are no longer the way to go. The new breed of successful SIs should provide horizontal integration that intertwines cloud agility, telecom stringent requirements, and OT reliability and availability into a functional whole.

Lastly, as reflected on ABI Research’s report The Prospect for a Services-Led Model in Telecoms, the eventual spread of service-oriented engagements brings multiple products, system integration, and related services to the market. This multiplicity affords CSPs and enterprises the option of maintaining various sources of supply and a high degree of relative bargaining power. That can potentially restrict the size and scale of any SI in any given location. For Telecom SIs to compete effectively with the likes of Accenture and Wipro, they must avoid a situation where their strong telecom and OSS/BSS capabilities translate into disabilities. A first step in that direction is to bulk up their cloud and IT capabilities to compete in the digital economy. System Integration in the digital economy is not so much about technology as it is about enabling CSPs and enterprises to obtain utility from technology integration in terms of cost rationalization, efficient operations, and new value creation. ABI Research anticipates that efficiencies in asset utilization, productivity gains, and better workforce allocation will dominate SI services of the future.