Business Strategies of Telecommunication Software
Vendors
Eetu Luoma1; Lauri Frank2 ;Pasi Tyrväinen 3
1
Researcher, ITRI/University of Jyväskylä, eetu.luoma@titu.jyu.fi
2
Senior assistant, Department of CS and IS/University of Jyväskylä, lauri.frank@.jyu.fi
3
Professor, Department of CS and IS/University of Jyväskylä , pasi.tyrvainen@jyu.fi
Abstract
The aim of this article is to create a strategy classification for software vendors providing
software for communication service providers (CSPs), and to examine the occurrence of
different market scopes. Seven different strategy options are derived using market
segmentation, the eTOM framework and theories related to industry evolution and strategy
classification as a background. The results of our analysis indicate that, out of these seven
strategies, niche, vertical and broad strategies are common and that the majority of software
vendors are telecom-focused. As CSPs are currently upgrading and replacing their OSS/BSS
infrastructures to suit the new network technologies and services, the seven described
strategies enable identifying the initial positions as well as the likely courses of actions of the
OSS/BSS vendors.
Keywords
Operations Support Systems (OSS), Business Support Systems (BSS), Market segmentation,
Business strategies, Market evolution.
Acknowledgements
This paper is a result of the SmarTop project, which is funded by the Finnish National
Technology Agency (Tekes).
Introduction
The telecommunications industry provides communication and information services, i.e.
delivery of voice, data and media over different networks, including computer networks,
mobile and telephone networks, and television networks. A communication service provider
(CSP) refers to various telecommunications companies, whose fundamental business
activities are to maintain its network infrastructure and operate the services based on the
networks. A currently dominant view is to divide the communication service provider's day-
to-day operations in to vertical processes of service fulfilment, service assurance and billing
(Kelly 2003; TMF 2005). Further, the view sees the processes to divide according to the
horizontal layers of customer management, service management and network management.
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In the past, CSPs had their own ICT-departments or divisions and, therefore, have themselves
developed and maintained the software systems needed. At present, CSPs are increasing focus
on their key competence areas. Consequently, they tend to outsource software development
and maintenance to software vendors or ICT service providers. As a result, a new market has
been developing around the CSPs’ software systems.
The operations support systems (OSS) and business support systems (BSS) are software
systems for managing CSPs’ vertical processes across horizontal layers. Together with
network management systems and element management systems, OSS and BSS constitute the
CSP system environment. The term OSS is usually connected to the system dealing with
telecom network elements, supporting processes for maintaining network inventory,
provisioning services, configuring network components, and managing faults. The typical
processes and tasks for BSS are managing customer data and relationships, managing order
data and related workflows, and rating and billing the customers. (Terplan 2001).
This article investigates the present strategies carried out by the current actors in the OSS/BSS
market and especially the horizontalization of the software market. Hofer and Schendel
(1978), Miles and Snow (1978) and Porter (1980) have concluded that the frequently
discussed elements of strategy are those of product and service offering, differentiation,
breadth of operations and cost control. This article aims in providing a strategy classification
for telecom software vendors, based on selected aspects of strategy: 1) the breadth of the
market scope and 2) telecommunications industry focus (i.e. differentiation and offering) of
vendor strategies. The first dimension aims at observing the occurrence of different market
scopes, and the second dimension analyzes the presence of horizontal software vendors in the
market.
Our strategy analysis considers the current positions and likely actions of the existing vendors
and entrants, actions that result in evolution of the market structures. The investigation is done
by analyzing empirical OSS/BSS vendor data for the year 2005 (Dittberner 2007), and
relating the derived information to the market playground presented as market segmentation.
Analyzing the vendor strategies gives a picture of the current situation and the evolution of
OSS markets. This knowledge is thus useful in the strategy formulation of firms acting in the
markets, and it also gives a view of the market situation for CSPs. The results of this article
are of strategic value for the companies currently acting or considering entry to this specific
market, and also give insight to the theory of vertical disintegration of industries.
This article proceeds as follows. The next section characterizes the evolution of the OSS/BSS
market and results in providing the current segmentation of the market. In the third section,
the hypothesized strategies for OSS/BSS vendor are elaborated, followed by the examination
of occurrence of different strategies and horizontalization of the market in section four. In the
fifth section, the conclusions of the study are provided.
Evolution of the OSS/BSS market
Industries are generally noted to evolve in disintegration and integration cycles, and on the
other hand, evolve through general industry lifecycles. In this section, we present theories,
which consider the evolution of a new industry from the producers’ side and hypothesize how
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the number of producers evolves through time. These theories are complementary and may be
utilized in linking the current strategies to the evolution of the market.
Macher and Mowery (2004) have studied the evolution of the structure of industries, more
specifically the disintegration and integration cycles. They define vertical specialization as
“… the restructuring of industry-wide value chains, such that different stages of the
development, production, and marketing processes are controlled by different firms, rather
than being vertically integrated within the boundaries of individual firms.” Usually vertical
specialization is considered to attract new entrants to the market and intensify competition.
Vertical specialization is often noted to emerge, as entry barriers of an industry’s segment are
reduced. Macher and Mowery claim that vertical specialization occurs in the early phase of an
industry’s lifecycle, as entry firms start to produce those products, which have “declining unit
costs and a substantial minimum efficient scale of production”. Re-integration would be
common in the mature phase of an industry’s lifecycle as vertically specialized firms are no
longer supported by the market. Studies have shown that often there are cycles in an
industry’s structure, where vertical specialization and re-integration follow each other.
(Macher and Mowery 2004).
In the model of Gort and Klepper (1982) the lifecycle of an industry starts after the product
has been introduced into the market. The five stages depicting a general industry evolution
pattern are:
1. The introduction of a new commercial product by its first producer (or producers). In
this stage the number of producers is small, usually between one and three.
2. A period of rapid growth in the number of producers.
3. A period where the number of new entrants is about equal with the number of exiting
producers, i.e. an ensuring period of zero or almost zero net entry.
4. A period of negative net entry, where more firms exit than enter the industry. This
phase is also referred as the industry shakeout.
5. A second period where the number of entrants approximately equals those who exit.
This stage continues until the product obsolesces or fundamental technological
changes launch a new cycle.
Tyrväinen et al. (2004) have concluded the evolution of the software industry to go through
the following three phases. In the first phase, software development is conducted mainly
within the industry, which is using the software. Internal ICT divisions (also referred as the
secondary software industry) take care of the software development needs of a company.
External software vendors only participate in some client-specific projects. In the second
phase, software products serving the industry’s needs emerge on the market: industry-specific
software vendors are established as spin-offs from an individual company, or as a result of
outsourcing the software development activities. However, in this phase the majority of
software operations are still taken care of within the client company and the industry. In the
third phase, software products supplied by external vendors (also referred as the primary
software industry) dominate the markets. These software products are complemented with
external consultation services, tailor-made software, and integrated software products, and the
amount of industry’s internal software development is reduced to minimal. In the third phase,
a few producers capture the market, often with horizontal products that are later sold across
multiple industries.
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Cusumano et al. (2006) have studied the lifecycle of the pre-packaged software product
industry. They propose a lifecycle model by which as an industry matures, competition not
only shifts from product innovation to process innovation, but further to services. They show
that the share of services revenue has overtaken the share of product revenue in many
software firms, and that the total share of services has increased as the industry has matured.
The OSS industry’s lifecycle could be linked with the above theories as follows. In the past,
telecommunication was a state monopoly. With regards to the software systems, the CSPs
produced their own software, thus, the software development was carried out by the
secondary software industry. The deregulation of the telecommunication industry in the past
fifteen years has led to the outsourcing of OSS and BSS development activities, for example,
to spin-off software vendors and to software service providers (Terplan 2001). This evolution
has further resulted in an establishment of a primary software market for OSS/BSS. Thus far,
the OSS/BSS market has some hundreds of primary software companies, both software
vendors and service providers. As the number of OSS/BSS vendors reaches its maximum,
internal software development within CSPs could be expected to be already very low. After
this, the number of vendors in the OSS/BSS market should decrease as industry shakeout
occurs as a result of intensifying competition between the firms operating within the
OSS/BSS market.
It is characteristic for OSS/BSS software to automate one or many of the vertical telecom
processes. The software is usually supported by middleware (such as database, integration and
application server software), and it manages data either at the customer or network interface.
Thus, in order to enter and compete in the OSS/BSS market, a vendor must possess
knowledge on the above mentioned properties: vertical processes and interfaces. Initially, the
competition on the OSS/BSS market focused on software for controlling and monitoring
networks, that is, on the network management layer. The current emphasis is on supporting
the processes close to the customer interface (Thomsen 2006) that creates an entry initiative
for companies currently providing this kind of software for other industries.
In order to examine the current vendors’ market scope, an interpretation of the market in form
of segmentation is needed. Several market research companies (e.g. Dittberner, Lightreading,
OSS Observer) have followed the evolution of the OSS/BSS market, and classified firms
operating in the industry into various market segments. We base our segmentation of the
OSS/BSS markets on the definitions provided by these three market research companies, as
well as on the defining properties of the OSS/BSS software. For identifying these properties,
we have divided the OSS/BSS market into 15 segments and positioned them on top of the
above-mentioned vertical processes and horizontal layers. Figure 1 presents this mapping of
the OSS market segmentation on top of the operations process categories of the eTOM
framework. The eTOM framework describes a standard structure for the CSP processes at
different levels of detail according to their priority for the business (Kelly 2003). The
framework thus provides basis for restructuring CSP operations and for general working
agreements with other providers. Most notably, the framework depicts 1) the vertical
processes of service fulfillment, service assurance and billing and 2) the horizontal layers of
customer management, service management and network management.
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Figure 1. eTOM framework and OSS market segmentation.
Business strategies of the telecommunication software vendors
The breadth of a firm’s operations is seen as one component of its strategy to gain competitive
advantage (Mintzberg et al 2002). For example, Zammuto (1998) and Carter et al. (1994)
analyze organizations’ strategic types based on breadth as a competitive dimension. The basic
classification according to this dimension is to narrow/niche strategies and wide/broad
strategies. Also in our analysis, the breadth of operations plays an important role. Determining
whether companies deploy niche or broad scopes allows identifying the current positions and
likely actions of the OSS/BSS software vendors. With the aim of observing the breadth of
operations, the current offering of the software is reflected against the segmentation of the
market. The OSS/BSS vendor may provide software for only one or several segments and,
accordingly, deploy niche or platform (i.e. broad) strategy.
The segmentation, provided on top of the eTOM framework, is also able to reveal two new
types of strategies, which lie somewhere between niche and broad strategies. We hypothesize
that in the OSS/BSS market there would be vendors specializing in one vertical process group
(e.g. billing) and in one horizontal layer (e.g. resource management). Such specializing is
likely in the telecommunication software industry, where large parts of CSPs processes may
be common between companies, resulting in outsourcing opportunity of the software
development, and where for historical reasons the focus on software development has been
close to the network interface. A notion of vertical and layer strategies enable a deeper
analysis of the current strategies and may also expose important factors regarding the
horizontalization of the market.
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The market scope strategy used by the vendors has yet another dimension: the extent of focus
on telecommunications of the vendor. In order to examine this, the vendors’
telecommunications industry focus is measured by calculating the share of a vendor’s revenue
from the telecommunications sector of its total revenue. The assumption is that in the latter
phases of software market evolution there should be more firms which focus less on the
telecommunications industry, i.e. firms for which the telecommunications industry is only a
minor source of revenue. Based on the theories on market evolution, market segmentation in
Figure 1 and the two dimensions, breadth of operation and focus on the telecommunication
industry, it can be hypothesized that OSS/BSS vendor might consider seven distinct business
strategies. The hypothesized strategies are described below. The first two strategies are both
niche strategies and they are separated by the focus on telecommunications.
1. Telecom specific niche strategy. This refers to the strategy of companies operating
only on the OSS/BSS market and concentrating only on one market segment. The
companies deploying such a niche strategy must possess distinct knowledge or strong
customer relationships. Market entry using a niche strategy seems to be usually
connected with the introduction of a new network technology (e.g. WiMAX) or
middleware.
2. Cross-industry niche strategy. Some software market segments have common
properties with other industries. For example, sales or billing processes are generic
enough to be supported with similar software in telecommunications and other
industries. A company thus might carry out a cross-industry niche strategy, providing
similar software also to other industries than the telecom industry. As, however, the
network interfaces remain telecom specific, market entry is most feasible with this
strategy close to the customer interface.
3. OSS/BSS platform strategy. This strategy is deployed by the vendors possessing broad
expertise on both telecom specific technologies and processes. These companies
generally have the resources to opt for wide breadth of operations. Such a vendor
provides OSS products for several segments, at least one of the vertical segments
and/or one of the horizontal layers as described above and in Figure 1. Vendors in this
strategy class are the established firms in the OSS/BSS market, e.g. network
equipment providers, having their focus on telecommunication industry.
4. Horizontal platform strategy. This strategy is deployed mainly by the software ICT
industry heavy-weights. Here, a software vendor has market presence through
middleware platform and pursues to expand to telecommunication specific segments.
Usually, such companies obtain missing pieces, knowledge on processes and
interfaces, through mergers and acquisitions. Within the past two year, more than two
dozens of OSS firms have been acquired by major generic software companies,
including Oracle and IBM. The strategy class can be characterized as having broad
breadth of operations, but only small focus on telecommunications industry.
5. Telecom specific vertical strategy. This refers to a strategy where the vendor provides
software in at least two market segments, but in only one of the vertical segments
presented in Figure 1. To be able to provide software for managing vertical processes
(fulfillment, assurance or billing), a vendor is required to have special knowledge on
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both, the particular processes and the network interfaces related to this vertical. A
company might, for example, offer mediation, offline billing, real-time charging and
interconnect billing software that integrates into a solution for the billing vertical. This
kind of a strategy is also typical for the established firms on the OSS/BSS market.
6. Telecom specific layer strategy. This refers to a strategy focused on supplying
software to one of the horizontal layers (customer, service or network management).
Established companies would likely be close to the network management layer,
whereas new entrants are likely to appear close to the customer interface. The
telecom-specificity of vendors operating with layer strategy is two-folded: On one
hand, strategy of providing software systems on network management layer should be
regarded as having high telecommunication focus. On the other, the companies
providing CRM software close to customer interface tend to be cross-industry players.
7. Service providers. This class consists mainly of system integrators, which provide
CSPs with software consultation services, tailor-made software and integration of
software products as a service. A service provider benefits from being a generalist,
knowing a little bit about a large number of products. Therefore, service providers are
considered to be present in several segments and have less telecom focus.
Figure 2 below depicts the two dimensions of our strategy analysis and the seven business
strategies for the telecommunication software vendors. Referring to the aim of the article on
whether horizontalization exists in the telecommunication software market, it is worth
mentioning that there are three strategies with low focus on telecommunication industry. The
presence of the vendors operating in multiple industries should be regarded as indication of
cross-industry horizontalization. This also has implications to the lifecycle phase of the
OSS/BSS market as elaborated above.
Figure 2. Framework for OSS/BSS vendor strategy analysis and the hypothesized strategies.
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Exploratory study on OSS/BSS vendor characteristics
In order to examine the software vendors’ business strategies and the horizontalization of the
OSS/BSS market, a set of commericial data was obtained from Dittberner Associates, Inc.
The data consists of information about the OSS/BSS vendor revenues from the year 2005.
The data covers 187 companies of the approximate total of 250 companies in the OSS/BSS
industry, thus, the data is excluding smallest and only regionally operating vendors.
The initial premise for the sample selection was that all included OSS/BSS companies should
provide software products according to the common segmentation for OSS/BSS software
vendors. The service providers, such as systems integrators, were therefore placed under
separate category from the other six strategies. In addition, we removed revenue data outside
the telecom specific segments (five segments removed) and merged the data on some of the
segments, such as provisioning software segments for different network technologies.
The first classification of the OSS/BSS software vendors into the hypothesized seven business
strategies was carried out applying the following rules: i) A strategy was classified as a niche
strategy (either telecom-specific or cross-industry), if the vendor received revenue from only
one segment. ii) For a telecom specific vertical strategy the vendor had to have revenues from
two or more segments on different layers, but only on one vertical (fulfilment, assurance or
billing). iii) A strategy was classified as telecom specific layer strategy, if the company
received revenues from multiple market segments, but only on one of the horizontal layers
(customer, service or resource mgt.). iv) Broad strategies (the OSS/BSS platform strategy and
horizontal platform strategy) were such where a vendor occupied at least one of the verticals
and one of the layers. v) Finally, the service providers were separated from the software
vendors.
After being organized to the selected breadth of strategies, the companies were also labelled
to the industry focus classes. This was accomplished by comparing the vendor's total revenue
with particular telecom industry revenue, and then placing the companies under telecom
specific (>50% of the revenue) and cross-industry (<50%) categories. As a result, the list of
vendors deploying niche and broad strategies were split into telecom-specific and cross-
industry, as well as into OSS/BSS platform and horizontal platform strategies. Table 1
presents the results of this analysis as the number of vendors in the seven strategy categories.
Strategy # of companies Average OSS Revenue
1. Telecom specific niche strategy 40 M$ 826,0
2. Cross-industry niche strategy 8 M$ 143,0
3. OSS/BSS platform strategy 26 M$ 5347,2
4. Horizontal platform strategy 5 M$ 1064,0
5. Telecom specific vertical strategy 39 M$ 2778,6
6. Telecom specific layer strategy 8 M$ 842,0
7. Service provider 61 M$ 11801,0
Total 187 M$ 593,9
Table 1. The number of companies for the seven business strategies of the vendors in the
OSS/BSS market in the year 2005 (Data source: Dittberner Inc.).
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The information of the business strategy analysis provides the following conclusions. Firstly,
it seems that all the hypothesized strategies were used in the year 2005: The market has
OSS/BSS vendors with niche, vertical, layer, broad and service provider strategies. Further,
vendors with both high and low telecommunication industry focus compete in the market.
From the results of this analysis, it is clear that the OSS/BSS market is at present occupied by
the company with high telecommunication focus and that the service providers are strongly
present. This is a reasonably strong indication of the third phase in the model of software
industry evolution presented by Tyrväinen et al. (2004).
Next, a look on the main strategy groups was taken, in order to examine the extent of
horizontalization in the OSS/BSS market, and whether the cross-industry vendors’
characteristics differ from the telecom-specific vendors’ ones. This was accomplished by
analysing the vendor revenue data for typical characteristics of three groups: telecom specific
(strategies 1, 3, 5 and 6), cross-industry (strategies 2 and 4), and service providers. The three
groups were compared using the vendor revenue data from Dittberner Inc. The data was
searched for market volume by the strategy group vendors, volume of the strategy group
vendors in geographical segments and for types of customers (by network technology) by the
strategy group vendors.
Table 1 above shows that in the year 2005 only a small fragment (5,3%), of the market
volume is received by the cross-industry software vendors, whereas 43% of the market
volume is taken by the telecom specific vendors. This would indicate only minor amount of
horizontalization in the software product market. Conversely, service providers seem to get
more than 51.7 % of the total revenue generated in the OSS/BSS market. As the service
providers are treated as cross-industry players, one could interpret that a relatively high
amount of horizontalization exists. Referring to the lifecycle model presented by Cusumano’s
et al. (2006), this could further indicate maturity in the evolution of the OSS/BSS market.
The differences between vendors in 1) the revenues from geographical segments and 2) in
revenues according types of customers (by network technology) by the strategy group are
depicted in the Table 2 below. Regarding geographical focus, these results suggest that the
service providers have the biggest market share in the EMEA area, telecom specific software
vendors on North America, and cross-industry software vendors strongly present the
developing markets. Some differences between strategy groups are also visible in
technological focus: Established companies are stronger in more mature technologies and
cross-industry companies are focusing on mobile and wireless technologies.
Geographic segments Type of Customer
(% of revenue) (technology, % of revenue)
North Asia Latin
Strategy group EMEA wireline broadband wireless other
America Pacific America
Telecom specific 42,8 38,1 14,2 4,9 31,2 17,9 46,0 4,9
Cross-industry 37,1 37,0 16,7 9,2 26,9 8,8 61,1 3,2
Service provider 37,6 48,0 9,9 4,5 31,5 15,1 45,3 8,1
Total 39,2 41,0 13,6 6,2 29,9 13,9 50,8 5,4
Table 2. The percentages of revenues from geographical segments and types of customers by
the business strategy groups of the vendors in the OSS/BSS market.
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Conclusions
This article examined the business strategies of vendors operating in the OSS/BSS markets.
For analyzing the vendor strategies, a strategy segmentation was created using information
about market segmentation on top of the eTOM framework, and the strategy components of
the breadth of operations and telecommunications focus. The view of the market consisting of
15 segments enabled a strategy analysis of product strategy, differentiation and breadth of
operations. The segmentation and the framework were applied to commercial market research
data.
The aim of this article was to create a strategy classification for telecom software vendors and
to examine the occurrence of different market scopes. All of the seven hypothesized strategies
were present in the analyzed data. Another aim included investigating whether
horizontalization of vendors’ operations, related to the disintegration and integration cycles,
exists in the OSS/BSS market. The results of our analysis indicate that the introduced niche,
vertical and broad strategies are common and that the majority of software vendors are
telecom-focused. On the other hand, the results also imply a relatively high number of service
providers operating in the market, whereas there are only a small number of cross-industry
software vendors operating in the OSS/BSS market.
Overall, the results suggest that the OSS/BSS software market is already approaching
maturity. Common trends in the telecommunications industry seem to be customer-orientated
operations and outsourcing of secondary functions, including software development. As the
communication service providers are currently upgrading and replacing their OSS/BSS
infrastructures to suit the new network technologies and services, the seven described
strategies enable identifying the initial positions as well as the likely courses of actions of the
OSS/BSS vendors. Our analysis of the strategies can further be used to predict the evolution
patterns of the OSS/BSS software market.
The available market data, however, limits this kind of empirical research and also the
conclusions made in this paper. Data for only one year, the year 2005, does not give the
possibility for a more detailed analysis of the trend of the market. Thus, the conclusions and
results presented should be read with care, and further work needs to be directed to looking
into the stage or phase of the markets more closely.
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