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Managing Editor


Apr 09, 20033 mins
Application Performance ManagementTelecommunications Industry

CIOs do not reinvest telecom savings as spending softens

Enterprise CIOs will spend a little more this year on telecom services – 1% more – than they did in 2002, according to a recent survey of 50 Fortune 1,000 CIOs conducted by UBS Warburg. But if prices for services decline, the majority of CIOs say they will not spend their full budgets.

The survey found that the telecom service spending environment weakened over the past few months. UBS Warburg had uncovered a 4% year-over-year gain in spending in a January CIO survey.

“The survey data confirms our belief that a recovery isn’t coming in the near term and that voice revenue will remain under pressure,” UBS Warburg stated in a bulletin on the survey’s results. “Although this isn’t much of a surprise to us, it does suggest that conditions have weakened in recent months.”

The three largest pieces of the telecom spending pie – local, long-distance and frame relay – are forecast to decline for most of the respondents, the survey found. Spending on voice is expected to decline largely due to pricing, while spending on data should grow modestly as aggressive pricing is offset by increased demand within the enterprise.

Respondents expect to increase spending on ATM, IP and Ethernet services in 2003, and UBS Warburg says this is consistent with its expectation of mid-teens ATM/IP revenue growth for Sprint and AT&T in 2003.

Demand may offset aggressive pricing, but savings on pricing is not re-invested into telecom services or equipment. Moreover, two- and three-year contracts can be renegotiated every year or two, the survey found.

More than 50% of respondents renegotiated their contract within the past year, and received a 19.6% per-unit price decline on average, UBS Warburg found. And 58% of CIOs plan to save the money that would have been spent on IT services, instead of purchasing equipment in this low-cost environment.

On the positive side, only 20% of the firms surveyed have sales cycles that are getting longer, the survey found.

More than 74% of the respondents cited AT&T as being price competitive always or often. Despite this, it continues to lose market share, and is losing more share to the Bells and others than it’s winning from distressed carriers, UBS Warburg found.

The firm expects market share shifts away from AT&T to accelerate as the Bells complete the 271 process. The Bells are also seeing early signs of demand from enterprise customers, UBS Warburg noted.

Sprint is viewed by survey respondents as one of the least price-competitive carriers. But Sprint grew its market share primarily from its international expansion and aggressive data push.

The 50 companies surveyed represent 11 industries that range in size from $250 million to more than $10 billion in annual revenue, and spend from $100,000 to $65 million annually on telecom services.

Managing Editor

Jim Duffy has been covering technology for over 28 years, 23 at Network World. He covers enterprise networking infrastructure, including routers and switches. He also writes The Cisco Connection blog and can be reached on Twitter @Jim_Duffy and at

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