Time to open up

Lack of customer knowledge is the top obstacle in operators implementing new services. This is an interesting paradox since operators sit on a pile of information from CRM systems, transaction data and network usage statistics.

The challenge of targeting new services to specific customer segments (cited by 30% of Asia-Pacific operators as a key challenge) is that in most cases this information is not consolidated for real-time access or usable to provide customer segmentation, says Jayesh Easwaramony, head of telecom research at Frost & Sullivan Asia Pacific.

Little wonder then that 26% of respondents to a Telecom Asia-Frost & Sullivan online survey are considering partnering to gain the capabilities they lack. In developed markets partnering is seen as the biggest challenge (33% of respondents).

The survey shows operators are realizing that all  innovation  cannot be in-house. Telcos are evaluating ways to open up their network to third-party developers and also specific partners  like  web  players. 

Hong Kong's CSL chief strategy officer Han Willem Kotterman says partnerships are critical as many operators lack the scale to develop extensive infrastructure to support the development of third-party apps. "With the right partnerships operators will be able to pursue hybrid models whereby certain content and applications will be developed within the so called walled garden and others by third parties."

The survey of Asian operators, the second joint poll on next-gen telcos, was conducted in August and received 145 responses from operators across 19 Asian markets. Fifty-percent were integrated operators while 37% were mobile and 13% fixed-line providers. Just over 40% of those surveyed were from operators with fewer than one million subscribers, 25% had one to five millions subs, 16% had five to 25 million and 17% had more than 25 million.

With such strong demand to partner, the question is who are the preferred partners for telcos (see chart, this page)?

Web players like Google and Yahoo are viewed as the most credible partner in developed markets (26%), whereas it is the network vendor in emerging markets (28%). Emerging market players seem keen to leverage the best practices provided by these vendors.

This is not surprising given the fact that 39% of the emerging market players have already implemented outsourcing and managed services compared to only 31% in developed markets.

Opening up

More operators want to open up their network to third parties - 22% of those surveyed say they have already opened up their network to third-party players and 24% are currently considering it (see chart 2, page 18). Another 35% of them are working with new partners and 26% are evaluating doing so. Although 44% of developed market operators still see outsourcing as a threat to the control over their network, 26% of them have already opened up their network to third-party developers.

The major deterrent to opening up to third parties is security, cited by 34% as the top concern. Another 30% admitted that integration issues with their OSS/BSS and IT infrastructure was an obstacle while 26% were concerned with problems related to revenue sharing models.

CSL's Kotterman notes that redesigning its core platform, which was designed for proprietary use, and working with other operators to standardize some key functions (or API) to nurture developers and third-party players in keeping up the latest development would be expensive.

He argued that it's more beneficial for operators like CSL to selectively open up some platforms to manage the investment. "Hong Kong is too fragmented - different operators may open up different versions which could create a high entry barrier for developer/third party players."

Turning to operators' strategic focus over the next 12 to 18 months, the survey results showed that boosting revenue through new service launches is the top priority for 47% of respondents (see chart to the right). And the move to drive revenue via new services wasn't limited to cellcos - half of fixed-line executives ranked this as their top priority compared to 43% of mobile operators.

The race to add new subscribers has definitely taken a back seat to driving revenue, with just 18% saying sub acquisition was their top priority. Even less of a priority was making network improvements - only 15% see this as the top priority. Ranking a far second was profitability management with 19% indicating it was a priority.

Not the technology

The top three factors that operators expect to determine future success are creating innovative business models (3.95 rating out of 5), improving the customer experience (3.93) and creating the capability to rollout services faster (3.76).

Network-related factors like reducing the cost per bit and IP transformation were ranked much lower by operators as a critical success factor. More than a fifth of those surveyed said the transition to NGN was the least critical factor. This is an encouraging trend compared to just a couple of years back when NGN transformation was seen as a panacea for the challenges of operators. The ability to competing effectively with device and internet players was at the bottom along with transforming the organization's culture and people (see chart, opposite page).

These new priorities demonstrate clearly that operators know what is required to launch successful new services. The challenge, Easwaramony notes, is that operators need to do a transformation exercise on the run, which he said "is like changing tires while a vehicle is in motion."

Faced with ARPU challenges on one side and competition from device and internet players on the other side, it's no surprise that creating innovative business models is ranked as their most critical success factor. An innovative business model, he says, needs to encompass value creation for consumers, greater value capture for the operators compared to over the top models and a value delivery mechanism that becomes a platform to roll-out services in a converged integrated manner.

Disparate billing systems and product activation systems with a myriad set of processes have always impeded telecom operators from leveraging their assets. They are keenly aware that improving the customer experience by having access to real-time consumer information can enable them to launch segmented services or thrill customers through-single touch experiences.

For Hong Kong SmarTone-Vodafone stringent cost control measures through automated operation processes help it stay competitive.

"One way of doing this is to make better use of our database of customers' usage behavior for more effective marketing of our differentiated products and services to meet the interests of target customer segments," SmarTone-Vodafone CTO Stephen Chau told Telecom Asia.

And of course speed to market is something most operators have long struggled with and need to address quickly as they face competition from Google and Apple, among others. >From a technical perspective, 31% of operators surveyed said the top challenge was the timeframe for deployment of new services is too long.

Looking at how operators are responding to recent trends, a surprising 29% of those surveyed say the success of iPhone and App Store will have little impact on their future plans (just 12% indicating it would have a major impact).

As you'd expect, more than half (57%) ranked the economic crisis as having the a medium to high impact on them followed by mobile broadband gaining incremental market share (66%).

Few operators (15%) see cloud computing and software as a service having a medium or high impact (a quarter expect it to have little impact).

Growth opportunities

For mobile operators their biggest growth bet is on mobile broadband, buoyed by the success of USB dongles and entry of cheaper access devices. Almost one-third of cellcos say mobile broadband will be their top growth opportunity. 

An interesting trend is that laptop sales are outpacing PC sales. For instance in India, laptop sales grew at 38% whereas PC sales remained flat.  Coupled with the availability of cheaper netbooks and internet access devices, the addressable market will double, said Easwaramony.  He notes that these users are more likely to adopt a mobile broadband connection over a fixed one, allowing the operator to earn an individual ARPU rather than home ARPU.

Frost & Sullivan expects more than 70% of the incremental broadband subscribers to come from non-PC devices, thus providing robust growth prospects for mobile broadband.

Ranking a far second as a growth driver, basic voice and SMS are still important in emerging markets (top growth focus for 25% of operators compared to only 10% in developed markets).

Emerging markets like India, Indonesia, Vietnam and Cambodia have further room for greater penetration, and basic voice and SMS remains the dominant competitive battleground. Price wars started by late entrants like Beetel in Vietnam or new competitors in Cambodia and Sri Lanka are still dominant issues for growth in these markets.

While many have focused on entertainment, mobile commerce has emerged as an important focus area. Compared to last year, we've seen heightened activity in m-commerce, which is reflected in operator optimism about this service. Some 13% of operators rated this as a top priority.

Venture capital funding poured into startups like Zong and Boku that enable micro-payments through mobile phones. These startups hope to be the mobile equivalent of PayPal where consumers can just pay by typing their phone numbers. And last month Nokia announced it would launch the Nokia Money service next year, which will enable consumers to send money to another account, pay merchants for goods and services, pay utility bills or recharge their prepaid SIM cards.

The potential for providing mobile banking to untapped bottom of pyramid consumers continues to be huge when mobile phone penetration is two to three times higher than credit card or bank account penetration.

"We believe there is significant room for growth through simple practical business models that don't require complex integration or devices like the NFC-based trials," Easwaramony said.

Areas that have been over hyped the past couple of years - mobile advertising and mobile TV - have hit a major a roadblock. Compared to last year's survey, when mobile advertising figured in the top 3, it fell from favor (to below mobile TV, with just 4% of respondents saying it's a major growth area). Mobile TV fared little better (6%). Location-based services were ranked only marginally higher (9%).

The failure of the much-touted Blyk and other similar models in APAC like CURE in the Philippines, where ad revenues subsidize subscription, has raised key concerns of the mobile advertising model.

Easwaramony says the key challenges for mobile advertising are non-standardization of metrics for the different modes like SMS, performance-based marketing and in-application advertising. In some cases operators are unable to provide the detailed consumer profiles that advertisers desire resulting in lower campaign effectiveness.

Fixed opportunities

Converged services remain the top priority for fixed-line players as they compete with or complement a mobile broadband strategy. More than 30% of respondent ranked this as their top growth opportunity. Successful operators like PCCW have a complete quadruple-play strategy where consumers have access to the same content over three screens: TV, mobile and PC. This was followed by enterprise ICT services (27%), where the need for network connectivity and managed and hosted application has shown healthy growth of 8% in APAC even in this downturn.

IPTV, seen as a growth driver by 15% of operators, faces content challenges and a lack of a viable business case in fiber-starved markets. However, the success of operators like Verizon and encouraging traction by new entrants like Singtel and KT will provide a fillip to IPTV efforts, especially since video ARPU is 50-60% of the consumer wallet in all countries.

It is still the early days for e-health and online/TV shopping, with just 2% and 6% of those surveyed seeing these respective areas as a top growth area.

In the long term, Easwaramony believes that the infatuation with a focus on a few services that are perceived as growth drivers will cease and operators will adopt a portfolio approach to their service strategy. He notes that some of the services will be growth drivers, some of them would be fillers and some would be experience builders.

"The success of the App Store means that its better to provide an attractive storefront where consumer can choose their favorite apps and services rather than the operator trying to pre-guess the attractiveness of a service."

CSL's Kotterman insists that operators need to adjust to the new reality of software and service providers (such as Google, Yahoo and Microsoft) and handset manufacturers (Nokia Ovi store, Sony Ericsson's PlayNow apps store and BlackBerry's App World) breaking into the customer relationship that they traditionally have had with customers.

"This new reality means operators have to find ways to work with the other parties on business models that are mutually beneficial and protect the customer experience."