Telcos forced to make organizational changes to cope with declining voice revenues and intense competition
With the global recession of 2008-09 having apparently run its natural course, operators appear to have escaped the worst of its effects. Nevertheless, telcos are being challenged to re-think conventional business models and look for new sources of value.
Mobile network operators are making organizational changes to ensure greater flexibility and responsiveness to the changing business environment.
In India, a regional operator with a largely voice-centric offer has made several fundamental changes to its business strategy, aimed at positioning itself more effectively for the highly competitive market environment. Faced with declining voice ARPU, the operator has launched a revamped VAS offer targeting the growing segment of mobile broadband and social networking users.
In addition, recognizing that network coverage no longer represents a source of differentiation, an MNO in that market sold its tower portfolio to an independent tower company, preferring to deploy an aggressive passive network sharing model.
In Russia, operators responded to a highly penetrated SIM market by investing heavily in own-branded retail stores as a tool to improve customer retention and secure a greater lifetime value from customers.
MNOs are increasingly recognizing the importance of defending their position in the content area of the value chain. Larger operators like Vodafone, AT&T and even Airtel have launched their own proprietary app stores. However, global handset manufacturers such as Apple, Nokia and RIM hold the edge over even the largest operators in terms of scale, while the entry of high-tech giants like Google and Microsoft further heightens the competition.
In response, MNOs are choosing from the following positioning strategies: open network access, tiered network access and owned platforms.
In an "open network access" model, the MNO offers network access but has a limited role to play in either content development or in provisioning/billing of external applications. There is a revenue upside from increased usage of data services, but significant control of the content value chain is passed over to online players and third-party developers.
In a "tiered network access" strategy, MNOs offer multi-tier access plans, based on the customer usage profile. The MNO partners with online players to introduce services that are better integrated with its own customer segments and its VAS strategy. The MNO no doubt experiences some loss of control over the customer service delivery experience, but this is partly compensated by an up-lift of access and content revenues.
The "owned platform" model represents a hybrid approach. Operators not only forge partnerships with third-party content developers, but also offer their own portals to consumers. Operators are likely to see significant revenue uplift from this strategy while continuing to play a leadership role in innovation.
Smaller operators would do well to adopt a collaborative approach (i.e. form part of the 24 carriers that make up the Wholesale Applications Community) to defend their VAS positioning. In parallel, operators can continue to play a significant role in the application value chain as billing/service enablers.
Another strategy being adopted is to look at new offerings as the banking sector and telecom sector converge. In markets where the penetration of mobile services has already surpassed that of banking services operators have been leveraging this distinct advantage to offer mobile payment services as a cost-effective means to carry out peer-to-peer fund transfers and generate additional revenue streams.
Create lean operations
While outsourcing has been practised quite effectively in the telecom sector with regard to IT services for several years, another area that is seeing increased attention from third-party service providers is the handset distribution value chain.
Operators that followed the "integrated reseller" model for handset distribution are considering the adoption of new partnering models (i.e. with logistics service providers or distributors), aimed at reducing operational complexity and minimizing risk, while still offering an appealing handset range in their outlets.
The commoditization of basic telco services and of the network is placing increased pressure on traditional revenue models. The evolving scenario is seeing adaptive responses by telcos, and the future winners are likely to be those that mould their business strategies to match the changed environment, adopting competitive/collaborative responses where relevant.
Zoran Vasiljev is a managing partner at Value Partners