However, according to Gartner, as they confront these industry upheavals, carriers face risks in building non-core telecom business units and over-investing in immature technologies. Gartner says that the reality for most telecom carriers is a future where they have to strive to be profitable on much lower margins than today.
 
Historically, carriers have been able to depend on high revenue growth from broadband or mobile services, but they now face the prospect of rapidly declining revenue growth. Gartner predicts that year-on-year growth of total revenue from telecom services (80% of total global telecom market size) will shrink to just 1,7% in 2010. Gartner expects total telecom service revenues to rise only modestly over the next four years from $1,3 trillion in 2006 to $1,5 trillion in 2010.
 
As a result, Gartner says that, over the next few years more carriers will invest in new markets, such as media or IT, to compensate for revenue losses in traditional telecom services like public switched telephone network voice.
Examples of this practice include:
 
* Telecom Italias recent transformation into a media company. It has signed agreements with Fox, MGM and Sony and is pushing for content distribution to increase the demand for higher fixed-broadband connections.
* The partnership between BT Global Services and HP for integrated IT services. This is a step towards hosting BT¹s application and managed services business.
* SK Telecoms entrance into the content creation market. It has acquired Koreas largest music recording label, YBM Seoul Records.
 
However, Gartner warns that more than half of these new approaches will fail because many carriers have a limited knowledge of their existing subscriber base and often do not understand the new business models.
 
The synergies between the different business models and markets are very limited, says Martin Gutberlet, research vice-president at Gartner. This type of diversification carries a high risk of losing focus on today¹s core business priorities such as customer retention and cost cutting, with no guarantee of increased revenue growth in the long-term.

Gutberlet adds that, due to the high risk of failure, Gartner is advising carriers to carefully define risk mitigation and potential exit strategies. It will take more than just hiring a few media or IT executives for carriers to succeed in these new markets, he concludes.
 
Gutberlet references a few examples of companies that have experienced challenges venturing into non-core areas. ESPN, the American sports cable channel owned by Disney, abandoned its mobile service after less than a year due to disappointing subscriber uptake. E-Plus in Germany had to face up to failure three years after launching the content portal, iMode. Gutberlet noted that it will be interesting to follow whether O2 will able to launch iMode more successfully.
 
Nick Jones, vice-president and distinguished analyst at Gartner, says that while profit margins are waning in Western Europe, there is still profitability for carriers in their existing client base if they are prepared to work for it. These are certainly tough times for carriers, but the answer is not necessarily to invest huge sums of money in new business models, he says.

Instead Jones recommends that carriers look for opportunities with existing customers as a less risky way of securing future revenues. Carriers should consider how they might improve on the services that they already provide in order to exploit their existing client base better.
 
Jones outlines two potential scenarios for carriers who opt to develop opportunities within their existing customer base. The first option is to improve network access activity and become a pure connectivity provider. Carriers looking to safeguard their (albeit slimmer) profits could do a great deal worse than becoming a really excellent bit-pipe. There will be steady returns for those who focus on reducing costs and increasing efficiency, he said. Alternatively, Jones said that carriers could choose to embrace Internet-based services and become an aggregator, concentrating on facilitating access to Internet content rather than creating it.
 
Those carriers who do decide to diversify into new markets are likely to acquire companies to form new lines of business and Gartner predicts more partnerships between carriers and media or IT service firms. The engagement of carriers in media and IT services will lead to more competition and, therefore, we expect increased price pressures, particularly in the consumer segment, says Jones. He advises carriers to separate network access and new non-telecom service units into individual companies, so that they can be closed or sold and to create partnerships for non-telecom services to share the risk.
 
From an enterprise point of view, Gartner warns that carriers will offer more complex bundles, which will make service selection and contract negotiation more difficult. It advises enterprise buyers to evaluate carefully the value of commercial bundles to avoid buying extra services that are not needed.