November 2009
Communications industry executives around the world could be forgiven for feeling somewhat envious of the position in which China’s operators find themselves. Despite a global recession, all three mobile operators added millions of new customers in 2009. Subscribers nationwide now number approximately 680 million, and that represents only just over half of the potential customer base. Operators have plans to push the number of mobile customers in China past the 1 billion mark at some point in the next several years.
From the standpoint of potential growth, the future seems very bright. Market consolidation and the release of third-generation (3G) licenses in China have signaled an era of extraordinary opportunity for carriers, encouraging industry competition and innovation. Fees are low, access is broad and growth is strong.
On the other hand, that growth has come at a price. Adding millions of subscribers each year has strained carriers’ network service management infrastructures. Companies are poised to make massive broadband infrastructure investments, yet this comes at a time when average revenue per user (ARPU) is falling precipitously, hindering a solid investment strategy. New-product developments are likely to fuel more intense competition, forcing carriers to reduce prices. Number portability, expected to be rolled out nationwide sometime in the near future, will erode retention rates.
The Chinese government has mandated that network expansion must go beyond the relatively affluent coastal, urban areas to the 5 million villages scattered throughout the nation. Such rural expansion is an important source of growth, but such customers have more limited resources. Making services and 3G handsets affordable to this population will require careful planning.
Added up, these challenges require a major transformation of the network and business operations to provide everything from an entry-level, inexpensive mobile telephone service up to premium-level, IP-enabled services. Broadband deployment must be underpinned by operational excellence, including the integration of the new operating support systems and business support systems required to fully support a high-speed broadband environment.
To meet their competitive challenges in the short term, and to achieve high performance in the long term. China’s operators must take steps in three interrelated areas:
- Deploy broadband networks faster, at less cost and risk.
- Operate more efficiently and cost effectively.
- Accelerate the pace of new-product development and deployment.
Deploying broadband networks rapidly and cost effectively
China’s telecom operators are embarking on one of the largest infrastructure programs the world has ever seen: about $41 billion will be invested in 3G networks over the next two years. Yet evidence from other geographies suggests that broadband networks will be difficult to monetize, in part because higher speeds do not necessarily translate into higher prices. Korea and Japan, for example, have not been successful in their efforts to raise prices for high-speed connectivity, as competition continues to keep subscription costs low.
In this economically constrained environment, careful planning and execution is essential. For example, Australian operator Telstra is replacing its legacy networks and systems with an IP-based infrastructure capable of running advanced multimedia applications. Telstra had myriad network planning tools in place, and sought to create a single network planning environment. This would increase the speed of network planning and help achieve consistent output across different network planners.
Working with Accenture, Telstra has embarked on a comprehensive network planning project to reduce the complexity of its IT portfolio by replacing existing systems with an integrated, commercial package. This will provide a central planning system to be used across all Telstra domains. By automating the initial parts of the planning process, Telstra has been able to produce accurate, quality results that have helped reduce the overall plan-design-construct cycle time.
Other important network planning considerations include:
- Evaluating profitable segments and geographies. In this way, short-term profits can fuel later network rollouts in less profitable areas.
- Planning the customer migration strategy. The business case for all-IP broadband deployment is highly dependent on the ability to migrate legacy services to the new network and switch off the legacy access.
- Finding experienced resources. The mix of strategy, business, technology and marketing skills needed to deploy access-based networks at this scale will be difficult to find in any single organization or within any single nation's border.
Improving cost efficiency and operational excellence
To compete more effectively in a challenging marketplace and to support required network investments, China’s operators must look for ways to cut spending wherever possible. The network is a critical area for cost reduction, because an operator's network infrastructure typically represents between one-third and one-half of its operating costs. Such reductions must be carefully made so as not to erode critical business capabilities and future sources of value.
One proven approach is to use a comprehensive and scalable expense management methodology that improves service levels and reduces spending, often from 15 percent to 30 percent. These results can be delivered through comprehensive audit reviews, network optimization, enhanced controls and contract management, and technology and process improvements. The result is real-time visibility into the financial health of a provider's spending, helping to identify opportunities for immediate as well as long-term savings.
Another important strategy is the use of outsourcing providers in network operations and IT applications and infrastructure, as well as for business processes in areas such as finance, HR, learning and procurement. Accenture experience shows that outsourcing can accelerate IP-service developments by as much as 75 percent and can deliver cost savings up also up to 75 percent. Outsourcing the handset testing process can help China’s operators deploy 3G handsets to customers faster and more cost effectively.
Improving operational excellence through industrialization and standardization—both in processes and in systems—is also essential. Processes must operate efficiently with unfailing reliability and with ready potential for scalability.
One important area in which to improve operations is with a carrier’s business support system (BSS) and operations support system (OSS). Most carriers have managed these systems separately, as vertical silos. Today, OSS and BSS functionality can be integrated using service-oriented architectures, providing faster and more reliable capabilities at less cost.
For example, Zhejiang Telecom worked with Accenture to establish a customer relationship management and billing platform for improved service quality. Zhejiang Telecom did not have the customer-centric services in place to compete effectively enough in a broadband marketplace, so Zhejiang Telecom and Accenture teams created a blueprint for replacing the legacy customer care and billing systems for the cities in its market. These new capabilities have led to higher sales of bundled services, increasing the company’s ARPU by 25 percent per month during the pilot phase of the project.
Accelerating the pace of new-product development
Recent Accenture research, based on a global survey of 277 executives, found that most communications companies are severely challenged when it comes to effective new-product development. Half the companies in our survey experience budget overruns in new-product development. Forty-two percent of the companies report an overly slow pace as they move a product from idea to prototype to launch.
To improve speed to market for innovations, China’s operators should consider a range of options and enablers. For example, customer centricity in new-product planning will become increasingly essential. Better program management capabilities that break down internal barriers to effective collaboration is also important.
Perhaps most important, companies must tap into a larger idea pool that includes both internal and external parties. A new generation of open service delivery platforms can be an important enabler of the kind of collaboration needed to succeed in a Web 2.0 world.
Conclusion: The great trade route of the 21st century
China has always been one of the world’s greatest and most innovative trading nations. Centuries ago, the Silk Road reached out from Xi’an across Asia to Europe. Now, because of its scale and commitment to invest, China has the opportunity to lead the great trade route of the 21st century.
In the short term, immediate plans for network deployment must be carefully planned and managed to deliver a solid return on investment. Operators must find innovative yet proven ways to improve operations and reduce costs. At the same time, a commitment to innovation will be essential as the market landscape stabilizes, and as new products and service quality become critical competitive differentiators for achieving high performance.
About the Authors
Larry Socher is a senior executive and the global lead for the Accenture Network service line, Communications, Media and Technology.*
William Li is a senior executive in Greater China Communications, Media and Technology.*
*formerly Communications & High Tech
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