The
central paradox inherent in the business of telecommunications over the
past several years was at its most vivid in 2012. Having finally
recovered fully from the global economic downturn and come to terms with
the challenge of mass broadband and digitization, the industry had to
contend with the ongoing issues of how to grow and become more
profitable. We define digitization as the mass adoption of connected
digital technologies and applications by consumers, enterprises, and
governments—a revolutionary movement that is reshaping the sector. - See
more at:
http://www.booz.com/global/home/what-we-think/industry-perspectives/display/2013-telecommunications-industry-perspective?pg=all#sthash.wPPUs1ma.dpuf
In
2012, data traffic grew at explosive rates, but monetization lagged
behind; telecom companies must resolve this paradox this year by
choosing how they approach the market.
In
2012, data traffic grew at explosive rates, but monetization lagged
behind; telecom companies must resolve this paradox this year by
choosing how they approach the market.
The
central paradox inherent in the business of telecommunications over the
past several years was at its most vivid in 2012. Having finally
recovered fully from the global economic downturn and come to terms with
the challenge of mass broadband and digitization, the industry had to
contend with the ongoing issues of how to grow and become more
profitable. We define digitization as the mass adoption of connected
digital technologies and applications by consumers, enterprises, and
governments—a revolutionary movement that is reshaping the sector. - See
more at:
http://www.booz.com/global/home/what-we-think/industry-perspectives/display/2013-telecommunications-industry-perspective?pg=all#sthash.wPPUs1ma.dpuf
The
central paradox inherent in the business of telecommunications over the
past several years was at its most vivid in 2012. Having finally
recovered fully from the global economic downturn and come to terms with
the challenge of mass broadband and digitization, the industry had to
contend with the ongoing issues of how to grow and become more
profitable. We define digitization as the mass adoption of connected
digital technologies and applications by consumers, enterprises, and
governments—a revolutionary movement that is reshaping the sector. - See
more at:
http://www.booz.com/global/home/what-we-think/industry-perspectives/display/2013-telecommunications-industry-perspective?pg=all#sthash.wPPUs1ma.dpuf
The
central paradox inherent in the business of telecommunications over the
past several years was at its most vivid in 2012. Having finally
recovered fully from the global economic downturn and come to terms with
the challenge of mass broadband and digitization, the industry had to
contend with the ongoing issues of how to grow and become more
profitable. We define digitization as the mass adoption of connected
digital technologies and applications by consumers, enterprises, and
governments—a revolutionary movement that is reshaping the sector. - See
more at:
http://www.booz.com/global/home/what-we-think/industry-perspectives/display/2013-telecommunications-industry-perspective?pg=all#sthash.wPPUs1ma.dpuf
The
central paradox inherent in the business of telecommunications over the
past several years was at its most vivid in 2012. Having finally
recovered fully from the global economic downturn and come to terms with
the challenge of mass broadband and digitization, the industry had to
contend with the ongoing issues of how to grow and become more
profitable. We define digitization as the mass adoption of connected
digital technologies and applications by consumers, enterprises, and
governments—a revolutionary movement that is reshaping the sector. - See
more at:
http://www.booz.com/global/home/what-we-think/industry-perspectives/display/2013-telecommunications-industry-perspective?pg=all#sthash.wPPUs1ma.dpuf
The
central paradox inherent in the business of telecommunications over the
past several years was at its most vivid in 2012. Having finally
recovered fully from the global economic downturn and come to terms with
the challenge of mass broadband and digitization, the industry had to
contend with the ongoing issues of how to grow and become more
profitable. We define digitization as the mass adoption of
connected digital technologies and applications by consumers,
enterprises, and governments—a revolutionary movement that is reshaping
the sector.
On the one hand, data traffic over both wireless and fixed networks
continued to increase at explosive rates. Traffic growth is driven by
the massive uptake of smartphones and tablets, the mobile Internet, and
digitization technologies such as cloud computing, and to a far lesser
extent by rapidly increasing machine-to-machine services. Indeed, data
traffic appears to have risen even faster than expected.
The result was that many mobile operators struggled to meet demand, and
instances of substandard network performance were more frequent. In
response, telecom operators continued to invest heavily in their
networks. With wireless broadband speeds fast approaching those of
fixed-line connections, and with ever more users shifting their online
activities to their smartphones, operators will need to rethink their
roles within the PC and mobile value chains. In particular, the mobile
value chain is becoming increasingly intricate.
Given these challenges, operators must treat 2013 as the year in which
they double down on their efforts to resolve this paradox. They must
settle on better ways to monetize the flow of traffic over their
networks and capture considerably more of the revenue now going to
Internet players. They must then use these new sources of income to keep
making the investments in new technologies that are needed to build out
truly ubiquitous mobile broadband networks on par with the current
state of fixed-line broadband, and speed up their restructuring and
innovation efforts.
Simply relying on higher demand over networks with limited capacity to
boost prices and restore growth will certainly not be acceptable to
policymakers and regulators increasingly aware of the importance of
fixed and mobile broadband to promote economic growth.
These will not be easy tasks. Every telecom player will have to make
numerous critical decisions regarding its strategic focus and its
operating model, as well as the capabilities needed to operate
coherently in its chosen markets. These decisions will lead to a
significant increase in fundamental restructuring efforts on the part of
operators, as they prepare to become Fit for Growth℠
by making the right choices about streamlining their cost structures in
order to be able to fund their expansion and investment plans. We
expect these restructuring activities to fall into three categories:
Defending the core. All operators must determine exactly what
their core business is, and then build it up to the point where it can
thrive as an organic growth machine that drives both revenues and
profits. At the same time, they must focus on transforming the core into
a highly efficient and lean operation. This will require that they
learn to tailor offerings to their chosen customer base and segments
using sophisticated customer analytics to develop profitable pricing
schemes, while offering these targeted customers the best user
experience possible.
Expanding into adjacencies. Even as they defend their core
business from interlopers coming from outside the traditional telecom
space, telecom players must themselves seek out opportunities in
adjacent sectors. Which areas they decide to venture into, and to what
degree, will depend on their chosen business model. Indeed, some may
prefer to concentrate on enabling their business customers to make such
moves into adjacent sectors, rather than doing so themselves. In every
case, entering adjacencies will require the willingness and the ability
to develop suitable innovative products and services—not a traditional
strength for most telecom operators. They must also be willing to enter
into partnerships with companies that may have more experience in these
adjacent areas. Most important, if they are to succeed outside their
comfort zones, they need to begin soon to narrow their strategic focus
and start making the tough and possibly expensive decisions about where
to invest, and which assets—even possibly network assets—to divest.
Pursuing coherence at scale. Restructuring is a difficult
process, particularly for companies as complex as telecom operators.
Nonetheless, their ultimate goal must be to achieve coherence at the
correct scale in whatever new form they choose to take on, and they must
end up with an optimal portfolio of products and services if they are
to thrive. For some, this may be a relatively simple process. For most,
however, it is likely to require a wrenching combination of divestment
and consolidation in their search for the correct combination of organic
growth and synergistic new businesses.
How telecom operators will pursue these necessary activities of
defending the core, expanding into adjacencies, and pursuing coherence
at scale will vary. We believe that four business models can move
telecom companies away from the vertically integrated structures of the
past and enable them to meet the challenges of a disrupted sector while
benefiting from existing opportunities. These business models are the network guarantor, the business enabler, the experience creator, and the global multimarketer—models that are not mutually exclusive.
The network guarantor. In this model, operators concentrate on
providing their network infrastructure and related services to retail
and business customers, promising high quality, reliability, and
smoothly integrated platforms and applications, while operating as
cost-effectively as possible. Until recently this was perceived as the
“dumb pipes” model and was much too conservative for the new digital
world. However, more operators are pursuing this model as network
traffic grows and businesses look to operators for more and more
essential services. Some companies have decided to advance this model by
pooling their resources and those of their customers, offering them the
ability to choose among different networks and services while saving
considerably on operations and network maintenance.
The business enabler. This model depends on a strategy that
extends traditional telecom network services to include helping
businesses in different verticals serve their own business and retail
customers. The business enabler assists its business customers in
capturing the benefits of digitization through reliable virtual
networking, cloud services, and other integrated services and
applications. One model might involve extending the operator’s own
billing and collection capabilities by developing platforms and selling
them to customers. Another might include providing services that help
customers to expand their online retail offerings.
The experience creator. Operators pursuing this model seek to
provide their customers with an attractive combination of targeted
applications and content and the best possible user experience. Services
might include e-wallets, personalized information apps, and access to
music, video clips, and games. This model requires deep insight into
customers and excellent customer management and service. Thus far, few
operators have succeeded in fully implementing this model, because of
the strong innovation skills needed and the stiff competition they are
meeting from established Internet players.
The global multimarketer. Large operators have the opportunity
to expand beyond their home markets into multiple segments and markets,
creating value by combining the other three models, carefully managing
the resulting product and service portfolios, and reproducing these
models and portfolios in new markets efficiently. This in turn will
allow them to provide their many customers with unique digital
identities and the broadest possible range of digital services.
Operators would do well in their restructuring efforts to consider
carefully which combination of these models will be most conducive to
their future success. That decision will depend on how well the
distinctive capabilities they already possess match up with the set of
capabilities that each of these models requires.
The coming year, then, will be one of restructuring. Operators must
build the right set of distinctive capabilities for success. This will
require the appropriate combination of five key capabilities: enhanced customer analytics, customer experience management, digital enablement, strategic partner management, and yield management.
No operator is likely to be able to build all of these capabilities
simultaneously and to perfection. What is important is to select the
ones most critical for the chosen business model.
Enhanced customer analytics. The success of all four business
models depends to a considerable extent on this critical capability.
Companies need the ability to gather and analyze data about customers
and then use it to create the right mix of price and services for each
customer segment and determine profitability over the entire customer
life cycle.
Customer experience management. Operators will need the
capability to create innovative products and services that are designed
to attract and retain customers, and to manage a complete portfolio.
Different models will require different types of services: Experience
creators may look to provide seamless service across different screens.
Global multimarketers will need to be able to replicate this capability
in their many markets. By contrast, network guarantors do not need to
acquire this capability.
Digital enablement. This capability will enable companies, and
especially business enablers, to transform their own internal services
and processes—such as billing, authentication and identification, and
location-based services—into products they can then offer to business
customers, which can in turn resell them to others. Telecom players that
succeed in understanding the relationship between online marketing and
offline sales, for example, could build platforms for managing so-called
multichannel attribution issues for their customers (multichannel
attribution includes the relationship between online marketing and its
offline effects). Other options might include digital identity services,
e-commerce, and cloud computing.
Strategic partner management. Telecom players looking to move
into adjacent sectors and new markets will most likely need to partner
with others in the broader digital space, because those partners can
provide the market footprint, experience, or services portfolio needed
to succeed. Managing these deals can be challenging, but those who build
a solid capability in this area will be most likely to find and keep
the best partners.
Yield management. For every operator, understanding the nature
of all their assets and managing them for optimal value are an essential
part of creating the appropriate cost structure and freeing up funds
for investment in developing the correct model, or models, for the
future.
The digital revolution is in full swing, and the telecommunications
industry is in the thick of it, providing infrastructure, enabling other
players, and waging its own battles. Opportunities exist, but every
player in the industry must choose its strategic direction and build the
corresponding set of capabilities necessary for success. This choice,
and the ability to pursue it, will determine how each player finishes in
this critical race: as a leader or an also-ran.
- See more at:
http://www.booz.com/global/home/what-we-think/industry-perspectives/display/2013-telecommunications-industry-perspective?pg=all#sthash.wPPUs1ma.dpuf
