July 17, 2002, London -- Cap Gemini Ernst & Young and Dresdner Kleinwort Wasserstein (DrKW) have published an industry study analysing the prospects for Internet Protocol (IP) Services restoring strong growth to the battered telecommunications sector in the near future. The study calls for a new sense of “IP realism”, acknowledging immense potential benefits for users and providers alike but also warning against the widespread faith in the telecoms industry that its short-term fortunes will be revived through the growth of high-value IP services.
Services such as Voice and Video over IP or IP Storage are expected to experience only mild growth over the next two years. In refuting industry claims that IP technologies are leading to a disruption in the telecoms industry, DrKW and CGEY identify two related challenges which are blocking the path to future success: (1) the difficulty in delivery “real-time quality of service”* and (2) high costs associated with complexity in some IP networks.
“We remain intimately convinced that IP Services, which play a critical role in Entrerprise Networks today, are a key enabler for innovation and creative business models for carriers. However, having talked to end-users, service providers and vendors, we have become quite sceptical about the prospects of IP Services rescuing the sector from its high debt and over-capacity problems in the next two years”, affirm the authors. “We also do not foresee the emergence of a unified, Converged IP network: the future is hybrid. Future networks are more likely be complementary ones, where routed and switched technologies coexist and enhance each other. “
“IP technology initially met with great scepticism, only to be followed by near evangelical support. We hope this study will help move thinking to a next stage of IP realism where vendors, providers and customers focus on real delivered end-user benefits ”.The study, entitled "IP Services and Western Europe," is based on extensive research over the past four months by a joint team from Cap Gemini Ernst & Young and DrKW. Fifty corporate end-users were interviewed, as well as 15 service providers and ten manufacturers. The research team used extensive secondary sources in order to develop a unique view about the two-year outlook for IP services.
The study clearly identifies with much of what has excited the industry about the Internet Protocol: its dominance as a basic protocol for the development of applications, its ease of use, cost benefits in simpler networks, and the flexibility it affords service providers in enabling strategic services. "What is exciting is the potential for IP in corporate LAN’s and Enterprise networks: we are convinced that IP will dominate in this arena," said Tolga Uzuner, co-author and a Director with OM Technology Investments, a venture capital unit of DrKW. "It is already showing up in force in IP VPN’s and IP-enabled videoconferencing this year."
However, co-author Fred Destin, also a Director with the OM Technology Investments arm of DrKW warned: "There are strong parallels between IP Services and 3G – in the sense that both have questionable expectations attached to them that they will save operators from their current tribulations. IP Services technologies unquestionably work; the issue has really moved to how far they can work in concert across large, heterogeneous networks. We produced this report to help guide our start-ups active in the IP Services sector, and from our findings we believe the investment and growth opportunities are with businesses that can produce smart solutions to manage the complexity that IP is generating."
One of the most striking findings of the study is, despite many claims, that the outlook for IP Services growth remains low initially, with stronger uptake expected only after 24 months. "We predict that the market for IP Services in Western Europe will grow slowly from billion (USD) currently to only .5 billion in two years time," said co-author Kevin Keith, Vice President with the Global Strategic Research Laboratory with the Telecom Media Networks industry practice at Cap Gemini Ernst & Young. "There are a lot of unrealistic expectations from analysts and vendors about the ability for telecoms companies to generate revenue from providing higher-value IP services, and our research overturns this conventional wisdom that IP will be a big catalyst for growth in the short-term."
"IP has proven to be superior for small scale networks, and this is an arena in which its dominance is not in question. However, the introduction of quality of service along with IP, a technology not originally designed for time sensitive services like voice, is proving to be more complex and costly in service provider networks. This is especially true in core networks. The study predicts that unlike in the corporate environment where a single technology dominates, in the service provider world we expect to see the emergence of complementary networks, where IP and more traditional circuit switched collaborate to deliver real time services. Whether this collaboration takes place at the edge or in the core, these new networks presents inevitable complexity that must be addressed before large scale real-time services can emerge. It will take some very intelligent software to reduce the complexity associated with enabling real-time IP Services, some of which is only just now becoming available."
The reduction and management of complexity is also a key challenges for enterprises. Co-author Kevin Keith at Cap Gemini Ernst & Young said: “Our study suggests that a renewed focus by vendors and providers on simplifying end-users’ interaction with technology in the workplace might drive future uptake. While the buyers of IP services are concerned about the hidden costs associated with managing the more complex IP services, end users are seeking workplace improvements to make their lives simpler: mobile working, easier to use services/devices, the ability to access services from anywhere. Our study suggests that paying attention to these unexploited end user needs can provide a basis for the introduction valuable service in the future.
"However, new services need to be rolled out very carefully by telecoms companies if they are to make money out of them," added Jawad Shaikh of Cap Gemini Ernst & Young. "They can very easily cannibalise existing revenue, making themselves worse off in the short term and potentially lead to a scenario where customers relegate the provider to a mere utility supplier seeking to tender each service individually in order to drive down cost – for example voice, e-mail, internet connectivity. Telecoms companies need to roll out IP services in such a way that this won’t happen, with the aim of protecting margins by for example bundling various other services around the core provision of an IP VPN."
Copies of the report are available by contacting: Catherine Lawlor on +44-(0)20-7475 3940.
For further information, please contact Tim Prizeman or James Sheppard at Kelso Consulting (PR)
Telephone: +44 (0)20 7729 7595
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IP – Internet Protocol – a technology allowing voice, data and broadcast /media traffic to be distributed quickly over networks and via telecommunication connections.
IP Services – a set of technologies and applications enabled by IP; notably IP Virtual Private Networks, Voice over IP, IP Video, IP videoconferencing, IP-enabled Messaging or IP Storage.
3G – Third Generation (3G) mobile phones utilise IP to facilitate the provision of new services, such as alternative billing methods (pay-per-bit, pay-per-session, flat rate, asymmetric bandwidth, and others). The higher bandwidth of 3G will open the door for services such as mobile video conferencing. Users will also be able to have the same Internet services to which they are accustomed when at home or in the office..
IP VPN – Internet Protocol Virtual Private Network – a network used by an organisation (both internally and for remote access) provided by a telecoms carrier using internet protocol to allow the fast provision of large amounts of data, voice and media information.
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Note to Editors:
About Cap Gemini Ernst & Young
The Cap Gemini Ernst & Young Group is one of the largest management and IT consulting organisations in the world. The company offers management and IT consulting services, systems integration, and technology development, design and outsourcing capabilities on a global scale to help businesses continue to implement growth strategies and leverage technology. Early 2002, the organisation employed more than 56,500 people worldwide and reported 2001 global revenues of more than 8.4 billion euros.
Telecom Media Networks, an industry practice of Cap Gemini Ernst & Young group, focuses on the systems integration and consulting needs of communications service providers worldwide. More information is available at http://www.cgey.com/tmn
For press enquiries contact Kate Spiers on +44 (0)870 905 3024 or email: Kate.Spiers@cgey.com
Dresdner Kleinwort Wasserstein (DrKW) is the marketing name for the investment bank within the Corporates and Markets Division of Dresdner Bank AG, a member of the Allianz Group since July 2001. Headquartered in London, Frankfurt and New York and with an international network of offices, DrKW provides a wide range of investment bank products and services to European and international clients through its Investment Banking and Capital Markets business lines.
For press enquiries contact Peter Fitzpatrick on +44 (0)20 7475 3447 or email:
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