Spending by enterprises on their networks is expected to fall steadily over the next five years, according to predictions from research firm Gartner.
Network services spending held steady in 2007 but is expected to fall by 1.1 per cent this year. Gartner believes the downward trend will accelerate steadily from next year onwards, with companies cutting spending by 3.3 per cent in 2012. Total forecast spending in the UK will be 6.5 billion in 2012, against 7.4 billion this year.
Some companies will no doubt drive down network spending as part of wider cuts in their IT budgets over the next few years. However, according to Gartner research vice president Scott Morrison, price competition between suppliers, and a technology shift towards IP networks, which generally cost less to run, are more important factors.
"We expect a steady acceleration in the drop in total enterprise network service revenues from this year onwards. In such a broad sector, there are of course, winners and losers. Voice services continue to become more of a commodity, and the transition to IP will hasten the drop in call revenues, for example," he told IT PRO.
Other areas, though, are expected to attract more, not less spending. Enterprises are expected to devote more resources to broadband access services, although price competition between suppliers means that the compound annual growth in spending there will amount to just 0.1 per cent over the five years. The largest gains will be in internet services, where Gartner expects aggregate spending to increase by 8.2 per cent by 2012.
According to Morrison, internet services spending will grow as more companies move to managed hosting and co-location as alternatives to in-house data centres, and as companies consolidate their networks over IP-based connections. The move to IP, in turn, allows more companies to outsource network services.
None the less, heads of IT should watch the market carefully, if they are to use pricing trends to their advantage. This applies especially to the decision to move to IP.
"Moving to IP shouldn't be all about reducing costs," cautioned Morrison. "For those who haven't yet started down the road, the first thing to do is to identify the communications centric business processes which are critical to them, how these are enabled today, and whether they provide everything that the business needs."
But he added that price pressures would continue to build on suppliers, especially in commodity services.
"The UK remains a very competitive market that must still undergo a lot of service provider consolidation. With many providers targeting the market, service differentiation is only taking them so far, so price competition certainly plays a secondary role across the board."
But CIOs should also take steps to ensure that they are not locked into services that might prove unable to cope with demand, he advised.
