Shaky recovery in technology spending by global telecommunication majors across matured markets has slowed down the growth engines of frontline IT service companies.

Sequentially, telecom industry revenues for Infosys and Wipro shrunk by 1.75 per cent and 8 per cent, respectively in the fourth quarter of last fiscal. In the case of Tata Consultancy Services, telecom revenues were marginally up. During the same period, overall revenues for TCS, Infosys and Wipro grew by 3.1 per cent, 1.4 per cent and 0.5 per cent, respectively.

Growing data services

“Growth in mature markets has been slowing down for several years now. Whatever growth is happening is because of the increased adoption in data services… Even in emerging markets, subscriber additions are not happening at the same pace as before. Thus, core telecom business is under pressure, thereby impacting the telecom practices of IT companies,” said Kunal Bajaj, independent telecom analyst.

In developed markets, growth has been tapering off as the telecom infrastructure in the biggest telecom markets — US and Europe — has been largely completed.

In a conference call with US-based analysts, S.D. Shibulal, Chief Executive Officer of Infosys, said that most telecom clients serviced by his company are faced with slowing revenue growth. As a result, equipment makers, handset manufacturers and operators have become more cost-conscious.

According to analysts, Infosys has more exposure to wireline telecom companies in developed markets compared with its other peers.

Equipment makers such as Cisco and service providers such as AT&T and BT provide large dollops of revenues to Indian service providers. Most of the outsourced work here is on the application development and management (ADM) side.

Wipro’s ADM service line has been slimming due its heavy exposure to the telecom vertical, as mentioned by T.K. Kurien CEO of IT Business of Wipro, in a recent call with US-based analysts. (Wipro does not report standalone revenues from telecom vertical, instead it clubs media with telecom as a separate unit.)

In reply to a question of why ADM revenues were falling, Kurien said: “That is a reflection of two things… one is our original R&D work that we continue to do for our telecom equipment measures. That business is under structural challenge… I think there is a reduction in overall industry spends, which is reflected into the gross revenues…”

Next big driver

The telecom sector has a distinct cycle of boom and bust driven by regulatory or technology changes. There have not been any significant developments in either of these fronts lately. Analysts say that the next big driver of growth will come with the adoption of 4G, which is in various stages of getting launched in key European countries and expected roll-outs of 3G in emerging countries such as India.

At Tata Consultancy Services, couple of large telecom clients pulled back on their IT spend last year.

“…we have had de-growth in a couple of accounts over last year. Not a major de-growth to be concerned about, but small revenue losses here and there... so telecom was pretty muted all through the last several quarters,” TCS Chief Executive Officer and Managing Director N. Chandrasekaran, said recently.

However, he seems to be optimistic, predicting that the current fiscal will be better than the last one for his company’s telecom unit.

“…we have had some client wins all through the last year, and we also feel that the telecom clients are open for digital technologies and those kind of deals are coming in as well. So a combination of these two or three things is giving me confidence that telecom is going to grow from here,” Chandrasekaran added.

> adith.charlie@thehindu.co.in

Related Topics