Convergence between telecoms and IT services businesses has been a topic of industry discussion for quite some time. However, in the last year, this has hugely accelerated as a result of the dramatic shift in working practices caused by the pandemic. The question is, what long-term impact will Covid-19 have on the telecoms and IT services markets and which businesses are well placed to take advantage of the shifting dynamics?
Telecoms vs IT services offerings
Before the pandemic, it would have been the norm to see a phone on every desk in an office. Historically, phones would be connected to the Public Switched Telephone Network (“PSTN”) via a Private Branch Exchange (“PBX”) – essentially meaning that individual phone lines in an office would be grouped together and plugged into the copper wires under the road. ‘Lines and minutes’ telecoms providers traditionally helped businesses set these systems up and then resold the accompanying line access and minutes, which in turn were supplied by a network operator, most likely BT. Businesses would typically also have a separate IT service provider who might help to implement, manage and support their wider IT estate. This might include managing the company’s cloud environment, providing it with IT desktop support and ensuring it has suitably robust cyber security practices and policies.
The convergence between these two areas was initially driven by the rise of IP telephony (telephone systems that work over the internet rather than through dedicated lines), with PBXs becoming applications in the cloud rather than physical on-site hardware. The demand for this grew alongside flexible working practices, with employees needing to log in to their phone/headset from different locations and to share different forms of media beyond simply voice. Furthermore, IP solutions tend to be significantly cheaper and more scalable with no expensive hardware investment required. These benefits have therefore led to a gradual shift towards IP with the phone becoming an app on a computer, rather than a physical device on the desk.
With a narrowing market to sell hardware to, telecoms providers have evolved their product and service offerings, selling additional service packages such as Microsoft 365 or basic cyber products. Meanwhile, as the importance of cloud infrastructure and applications has increased, IT service providers have responded to the market demand for connectivity by white labelling wholesale providers’ services as their own. These changes began to blur the lines between what was traditionally seen as either a comms or IT services business.
The effects of Covid-19
It is no secret that the pandemic drastically altered working practices for almost every business around the globe. Overnight the world of work changed, and people began to ask: ‘How do we effectively communicate and collaborate when our whole team is working virtually and what products will allow us to do this in a scalable and secure way?’ In short, a lot of businesses have been forced to rapidly digitally transform to continue operating effectively. This has created a step change in the adoption of IP telephony systems.
Since March 2020, tools such as Microsoft Teams and Zoom have become the most prevalent business comms platforms, with mobile a distant second. While office phones have been made redundant for the most part, the question is, will the desk phone ever be necessary again? Or, will cloud-based platforms such as Teams and Zoom continue to reign supreme.
Despite replacing a “telecoms” product, many forward thinking IT service providers took the lead in rolling out these platforms, both in selling the licences and ensuring they were set up appropriately within a company’s existing IT environment. Given that IT managed service providers, generally speaking, have a broader remit than comms businesses, they typically will have wider and more trusted access to things such as end users’ cloud and cyber security environments. Therefore, they are better able to knit IP telephony into customers’ wider technology estate.
ECI’s portfolio company Content+Cloud has experienced this shifting dynamic over the last eighteen months, supporting many of its customers in transforming their IT infrastructure to support remote working. It has recently invested in a leading IP comms business, Sipcom, which brings advanced IP engineering skills in-house, adding scale to its comms capability and making the business a fully converged service provider.
The future of telecoms
This sudden move away from traditional telecoms products has presented a clear challenge for comms providers. In recent years – pre-pandemic – the more forward-thinking telecoms companies saw the IT space as a key area for growth and expanded their capability to reflect this, so have been able to benefit from the IP adoption trend. For other providers, the pandemic’s almost instant change towards online communication caught them off guard. Many providers have used M&A to move quickly up the curve, integrating competitors into their existing core platforms to expand their capabilities to cater for new demands. Doing so at a time when cloud skills and services are in such high demand was, however, always going to be difficult.
Telecoms businesses do benefit from strong relationships with their largely SME client base. Those that can adapt quickly to changing demand will be able to use their existing relationships to their advantage, responding to bespoke demands and providing additional support when needed. This is truly where the quality of sales teams comes into its own – a great sales team with strong customer relationships will be crucial in retaining business through a period of change.
A collaborative offering
Realistically, the market will adapt to the needs of customers, who will see an ever-reducing benefit to having two separate suppliers. However, telecoms businesses with the right skills base that can adapt quickly, retain existing customers and pick up more IT services to support businesses with migrations to the cloud, will be in a good place to compete. The incentive for them to do so is clear: IT services providers, such as Content + Cloud, have been rapidly growing and demonstrating their value add to customers, and are already well equipped with the knowledge and skills that are now in demand.
Fundamentally, the question is not about defining whether it is IT services or telecoms businesses that are responsible for a service, but which individual players will be able to offer the right value add to businesses who are looking to collaborate from anywhere, through the cloud.