Friday, April 1, 2016

Are U.S. Businesses Spending More, or Less, on Communications?

source: Gartner
Are U.S. businesses spending more, or less, on “telecommunications” services, and what does that mean for various market participants?

Arriving at a clear answer is harder than you might think, for all sorts of reasons.

Gone are the days when just a handful of companies accounted for most such spending. So any full accounting would have to include lots of smaller private firms whose actual sales cannot be verified.

Also gone are the days when everybody agreed on what “communications” spending includes. These days, mobile devices are a significant portion of “mobile” spending, but the “incidence” (which participants actually make the money) might vary.

Some products (hosted products, for example) can include bandwidth charges within the cost of buying a service. And which entity sells a particular product can vary: a cloud storage contract might be in a “communications” or an “IT” bucket for reporting purposes.

Also impossible to capture metric is “value,” as most IT products now cost less per unit of performance.

Also, some spending might now be avoided because consumers use their own tools and apps, and such spending is not captured in business accounts, or applications have no retail price (consumer versions of Google Docs, Sheets or Slides, for example).

The other issue is that it is easier to quantify large “enterprise” spending than small business spending, since much small business spending is virtually indistinguishable from “consumer” spending.”

All that noted, Gartner forecasts suggest that U.S. businesses are spending less money on telecommunications than they used to, or perhaps, will spend less in the future than they do today.

According to Gartner, less money will be spent in 2019 than was spent in 2013, for example, on a global basis. But that is not granular enough to highlight “U.S. spending.”

Consultants at Deloitte, though, working from tier one service provider annual reports, estimate that U.S. business spending on telecommunications services sold by the tier-one service providers actually is dropping substantially.

That is not the whole story, though, as some business spending on telecommunications, or on services that could be provided by telecom service providers, is shifting to newer and non-traditional suppliers such as Amazon Web Services and Google, Zayo and others.

The other issues are price declines and profit margin compression. In most markets, legacy products such as T1 lines and D-3 lines arguably have dropped substantially in price, because of competition and product substitution (Ethernet access).

That said, customers are buying more “next generation” products.

Still, it remains unclear whether the shift to buying of new products grows or shrinks demand.

Though it is not completely clear, it is possible that a shift of business and consumer computing to “cloud” delivery cuts spending on information technology for a mid-sized business.

BCG analysts suggest a medium-size retailer, for example,  could reduce baseline IT costs by 47 percent after replicating its existing IT stack in the cloud.

The bottom line is that it remains difficult to ascertain whether U.S businesses actually are spending more on telecommunications than they used to, or what the trend might be in the future.

Curious, in a way, is it not?

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