The Future for Telecoms: Challenging or Promising or Both?
Telecom operators in both fast-growing and mature markets are under high pressure in today’s business climate. These changes create opportunities but there is also increasing competition within the industry and from other industries.
The model of providing “good enough” services and locking customers into subscriptions is under pressure – telcos must now attract customer segments with relevant and unique value propositions. At the same time, operating costs need to be brought under control and many telcos are planning efficiency improvements. Either of these pressures on its own requires change that telco people are not used to. Achieving both of those requires major Leadership changes.
∧Major Trends Changing the World of Telecoms
MCE has identified four main areas of pressure for Telecoms:
∧Trend 1. Competition
Competition within the industry
The basis for competition within the Telecom industry has always been about
- Expanding into new markets
- Battling intensely for market share
Other slower paced industries have already become creative about winning customers through differentiated value propositions, but telecom operators, busy keeping up with the fast-paced growth of the 2000’s, did not have to take the time to pay attention to this in their race to market domination.
Today, telecom operators find themselves squeezed into a commodity position, as cheaper competitors from Asia move into emerging markets and even mature markets (Chinese, Russian and Indian companies in particular are expanding around the world).
Meanwhile, operational costs are constantly increasing. T-Mobile and Orange recently agreed to share networks in several countries. But then, if competitors are sharing the same network, how can we still use the “better coverage” argument to attract customers? Competitive differentiation will have to be based on something else.
The industry will further see consolidations as the large groups (and the cash-rich players from fast-growth markets) acquire smaller groups, or those who are in trouble. For example, Vimpelcom recently bought Wind. It indirectly owns a majority stake in Orascom. An Indian group, Bharti Airtel, bought Zain Africa operators. The 4th 4G licence in Belgium has been acquired by, Datang, a Chinese investor and technology group. It is widely predicted that only the large groups from 100 million+ subscribers will be able to survive independently.
Coopetition (cooperation + competition) from “partner” industries
Telecom operators’ costly infrastructures are indirectly but increasingly subsidized by the media/content industry. So-called “free” content still requires people to be connected in order to access it.
So the media/content industry is financing everyone and the few technology giants able to re-unite device, content and services (ie. Apple and Google) are so dominating that even multi-national groups like Vodafone or Sony Music have to play by their rules. Only a few years ago, Apple was making computers and mp3 players. Today they are selling millions of iPhones and through iTunes have managed to turn the business model of a number of companies on their heads. They saved the music industry by offering a solution to the piracy problem. The next rising wave is e-books.
In this value chain, telecom operators like the revenues that come in from people accessing content, and the media houses need telecoms to provide the infrastructure for their subscribers. But in the customers’ eyes, telecoms are only the unseen commodity “bit-pipe” for the premium content that customers want. Telecoms are only noticed and complained about when the service fails.
Result
Competition in telecoms has often been based on price or on ability to “lock in” customers. That was okay while the market was growing faster than competition. As markets become crowded and telecom service becomes a commodity, EBITDA, which was once in the range of 40%+ region, has now fallen below 20%. They are under pressure to reduce their operating costs and improve their efficiency.
As a result telecom operators’ “degrees of liberty” are shrinking fast. Telecoms find themselves being pushed into the “In-between” category, in the eyes of their customers – neither attractively cheap nor attractively special.
Where are you today? Where do you want to be tomorrow? Where is your market going?
Telcos must fight their way out of this “in-between” position, invest into new licenses and technologies and innovate in a clear customer value proposition for each target segment.
They must seek value-creating partnerships and ensure their share of the value. While the major content providers have control on a global scale, telecoms have the opportunity to create value through lucrative partnerships with smaller local or regional providers of content or software as a service. These can be help form a real customer value proposition targeted at consumer, small business or corporate customer segments.
And at the same time, they must improve efficiency to reduce their cost structures.
Finally, companies involved in mergers and acquisitions must manage the integration of the two or more companies involved, with regard to strategic goals, systems, and especially culture. They must agree on customer segmentation and customer value proposition so they can capture the full value of the merger.
How MCE Can Help
MCE has a team of senior associates who are ex-senior leaders from the Telecom industry. Once you have determined your strategy, they help you through coaching or consulting to translate that strategy into an action plan for business transformation, and aligning your people to implement the strategy.
Through investigation, diagnostics and experience, they can help you to determine the people issues you will have to manage to achieve your strategy implementation. Together with you, they can design solutions. Through strategy implementation programmes, MCE senior associates work directly with your managers and workforce to help them understand the new strategy and change, and develop the capabilities they need to implement the strategy.
Particularly, if you are involved in mergers or acquisitions, MCE can help you to manage the integration.
Trend 2. Technology
Technological disruption changes customer behavior and expectations.
Ever-increasing demand for bandwidth
If we assume that 4G or LTE will break the UMTS speed barrier by a factor of 10 to 20, there are high chances that as soon as this new carrier bit-pipe will be available, it will be clogged by a number of existing and new services. Streaming music and video, updates, downloads, are constantly growing. A simple driver for an HP scanner today creates a pipe-clogging 500MB file. Permanent synchronization of iClouds or Virtual Private Networks demands bandwidth on an even larger scale. Reduced travel and virtual working leads to more audio and video conferencing.
As mobile usage spreads, through smart-phones, tablets and now the replacement of ADSL with USB “air interface” the demand becomes unfeasible. Limited bandwidth scenarios will bring Fibre to homes and give XDSL new life. This will lead back to cooperation of mobile and fixed network operators, or mobile and cable providers.
Social-Local-Mobile-Commercial or SoLoMoCo are the new buzzwords that will ask for their part of the traffic increase. For example, pushing relevant promotions or services to customers based on their social profiles, events, or physical proximity to the offer are a good example of that.
Augmented Media Experience
As TV has become a home Multi Media Centre with a 2nd screen tablet computer or bigger smartphone companion, viewers can access further information about what they are watching. This finally solves the “bi-screening” screening experience started with teletext system in the background. Initially, the service never caught on because Broadcast stations could never provide the volume and choice of information and fast reaction time to make it interesting for customers. The internet enabled devices do. Viewers will also access web info while streaming TV channels to PCs or mobile devices. Think of the bandwidth required. Think of the e- and m-commerce possibilities.
My Media everywhere, anywhere
Personal and shared media - photos, videos, music and documents – will not only sit on PCs or Home media centres. But one device will do the job of collecting it, storing it into the cloud and other devices will deliver it to every room of the house or anywhere else. Maybe some of it will be shared with friends and some of it will be bought by them because social media just told them we enjoyed it. Mobile-, fixed- and broadband-solutions will have to work in complex combinations to deliver simple, high quality anytime anywhere access to consumers.
Mobile Money: Shifting your business model or bring value differently
As money and financial transactions are increasingly going mobile, Telco’s have an opportunity to join the value chain and to offer more than just a VOIP bit-pipe for others to manage their home banking transactions. As trusted partners of their customers, operators can use their infrastructure, size and distribution network in order to make their customers and bank partners benefit from their experience in a number of domains like security, authentication or localized services.
While operators are offering mobile wallet solutions for small transactions, they will need a bank unit to be responsible for the payments and in some markets, also for legal reasons. These units can be combined with the billing system of the operator under the form of a joint venture for example. For operators this is a great way of staying in the game, since most eco systems of terminal manufacturers or web-services don't have access to customers’ bank accounts or credit cards.
e-Shopping is growing rapidly. The trend doesn’t stop at desktops, but is spreading to mobile devices, and even cars. Near Field Technology (NFC) allows people to pay simply by waving their smart phones in front of a cashpoint. “Micro payments” for small daily purchases like entrance tickets, vending machines, parking metres, etc are gaining in popularity faster than expected. Smart phones become “mobile wallets”. The most experienced partner here is the operator, who already is master of event billing and also owns the payment credentials of its customers. In developing countries, mobile wallets are used instead of banks.
NFC is not a new technology. But it is only in the near future that enough handsets will be available to support it. When this happens, it is guaranteed to grow explosively. Consumers, merchants and even commune services have been longing for such an easy and secure solution for a long time.
Innovation: Make, buy, or partner?
Technology companies need to prioritize their technological investment or make them in common (ie at group level). One thing is for sure, the rhythm of innovation that was once counted in years in the telecom industry will have to join the internet speed counted in days or even hours.
One of the easiest ways to feed innovation is to purchase smaller units or university spinoffs that are full of advanced technology and motivated engineers. Too many telcos make the mistake of crushing those fragile environments. After a few years the best people have left, and the company innovative entrepreneurial spirit is gone. Sometimes, funding collaborative research might be the best way to increase their chances to finding the next new thing. If, in their cost-cutting, telcos stop conducting trials, nourishing startups, or inviting partners outside the industry to co-develop new customer services, the industry as a whole will stagnate and eventually become obsolete. Customers will leave for a more exciting party elsewhere.
But for telco’s, selecting the right partners for innovation, service delivery, and even cost optimization can be a daunting task. Telcos need to create lasting relationships with their customers and partners, or even when a 2nd and 3rd party is close to its customers, too. Customers’ trust in you is undermined when you won’t cooperate with the hardware-partner, or if you punish them for preferring to use a competing solution for one of their services.
There are opportunities for partnership at many levels: from very local partnerships with small content providers and Software as a Service start-ups, to regional partnerships, and even to global partnerships with the content giants like Apple and Google.
Result
Jumping in to take advantage of the advances in technology, or simply keeping up, require Telcos to:
- Build innovation capability
- Intensify partnership and alliance activity
How MCE can help
MCE has a team of senior associates who are ex-senior managers from the telecom industry.
We can work with your management team to review industry and technology trends and implications for your business. We have experts who can help you with innovation and with partnerships and alliances at all levels, local, regional or global. We can also bring expertise from the industries of your partner companies – for example, senior associates from the banking industry or from retail for mobile payments partnerships.
Trend 3. Customers
Telecom managers and employees may have a technical mindset. But your customers do not see you as a technology. They see you as a means of connectivity, or as a convenience. They expect everything on demand, mobile, for free and will only pay for clear convenience of usage (where and when I want it, and on what device).
Connect to people
Years ago the likes of IBM, Ericsson, Oracle or HP predicted a future where people would be in constant contact with family, friends, business contacts and even strangers around the world. That future is now. Businesses too, connect to their partners, suppliers and customers, and they connect their own employees in distributed operations around the world. The end user never sees the technological complexity behind the easy and intuitive interface, and they are not interested in it.
Connect to services
Operators with innovative and entrepreneurial mindsets will partner with other consumer services to enable just-in-time services for consumers to improve their lives – e.g. proposing deals based on the customer’s location, or profile. The most relevant offer is increasing being pushed to the customer at the right time, in the right place, at the best price, and in an engaging format. Software-as-a-Service for consumers and businesses are exploding in popularity.
Connect to content
Information is real-time, sourced from the network, for example traffic info that is gathered from connected drivers reports the traffic conditions up to the minute and down to the meter. Customers take pictures with their smartphones, and published them real-time for Facebook friends. Companies access business intelligence and engage in e-commerce.
Connect “distributed” friends, relatives and colleagues
Changing family structures, dual-career families, study abroad, international career postings and emigration, all create need for intense communication orally (Phone), visually (Skype, Facetime ) or in writing (SMS, E-Mail and messaging). Family members want and need to communicate, when they are on the road or living far apart. Far-flung friends can stay in touch as never before. Distributed colleagues communicate while traveling or to collaborate virtually.
Result
Telcos try to keep that “monthly fee for everything” coming as long as possible ie. keep the relationship with the customer as long as they can. But there are more opportunities out there to tap into what customers desire today, and the new desires they will certainly develop in the future.
Customers increasingly have a choice of service provider. Smart providers will segment their B2C and B2B customers, and listen to what each segment wants and needs from the customer’s point of view. They will then structure a unique customer value proposition - provide services customers care about and are willing to pay more for.
They may also consider the opportunities in tapping un-served customer segments, for example poorer people, by innovating on efficiency and understanding how mobile services can improve their lives.
This means structuring robust partnerships for the long term rather than slapping together quick deals that unravel just as quickly. The deals that are likely to last longest are those which best suit the customers they serve, to the mutual benefit of all parties involved.
It also means reorienting the Telecom organization in a customer-centric way: from a geographical or access mode basis (fixed or mobile) to a more service segmentation base: music, document, office, entertainment, media, etc. It means organizing processes and systems around serving the customers, rather than the traditional functions and hierarchies. Customer centricity may seem counter-intuitive to financial logic, technician’s logic, or the company’s historic viewpoint. But in the end, it serves both by keeping the most profitable customers loyal. It does this by delighting them and not by forced customer “lock-in”.
How MCE can Help
MCE Senior Associates can help you to re-think your customer segments, your value proposition, and your business models in light of industry changes. They can help you to reorganize for Customer Centricity. They can help build new capabilities for acquiring and keeping customers: sales and key account management, product management and retail capabilities.
Trend 4. Employees
As a result of the above pressures, the people in the telecom industry are facing the necessity of major change in their way of working. But in an industry with a tradition of hierarchy, silos, and doing things a certain way, how do you change? How do you act nimbly, spark innovation, strike up partnerships, merge with other companies, and become customer-focused?
Start from a clear, differentiated customer value proposition
Use this to drive activity in the company. If people at all levels have a clear idea of the value proposition, some strategic goals and the understanding that the industry is constantly moving, there is much less need for top-down directives and controls. People can work in teams to achieve shared goals. And sometimes, by listening to your people, you can decide if you have the capacities to move further vertically or horizontally in the value chain.
Leadership to manage change
Even so, many people will be threatened by change, or will not have the capabilities that the change requires. It will require very strong leadership attention. It requires the top leadership team agreeing on the direction, and setting the example for managers and employees throughout the company.
A management talent pool
It also requires a highly-skilled, engaged management talent pool. Technical skills have been king in the telecom industry, and these are obviously important. What is less obvious is that middle level technical and functional managers need business skills to make better business decisions. New functions will appear inside telco’s: Partner manager, community manager, product community managers, customer managers, Service segment specialists, etc. They need to understand the business, and how the different parts of it work together to create value. By developing their business and management skills, companies build a better talent pool to fill future leadership positions.
How MCE can Help
MCE Senior Associates can help your top team, and leaders at all levels with aligning people to implement the strategy. We can help you with your talent management strategy and succession planning to ensure that the right people with the right talent are doing the right jobs to move your company forward. We can develop the functional and cross-functional skills of your managers to do their jobs better today and to prepare them for more responsibility in the future.
Talk to MCE about Implementing Your Telecom Strategy
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