In spite of the astounding growth rate of mobile devices and subscribers over the past few years—one of the biggest periods of expansion in the history of any industry—the future market value of communications service providers is under threat. In the face of fierce competition from nimble and innovative consumer electronics and Internet titans chasing bigger pieces of the value chain, traditional telecom operators must become more aggressive in creating new customer propositions and business models.
If operators remain on their current trajectory—simply cutting costs and making limited investments in innovation in a rapidly changing market—they are likely to be increasingly marginalized as mere connectivity providers in a commoditized industry. Because the growth curve of traditional wireline and wireless companies has reached maturity—with some areas of the business, such as traditional wireline voice services, actually in decline—telecom operators must make a leap to a new growth curve.
Cost management will continue to be extremely important in maintaining competitiveness in this new order. However, to enable long-term competitiveness, operators also need to develop and operationalize new kinds of business models that include monetizing service innovation, enabling new value for digital consumers and encouraging broader forms of collaboration by partnering and tapping into the ever-expanding Internet ecosystem.
Becoming a digital enabler
The most important aspect of leaping to a new growth curve in the communications industry is for operators to become true enablers for a new generation of solutions and services for home, business and government. To fill this role, operators must look beyond the network system to the broader digital ecosystem.
Building upon a network infrastructure foundation, operators should fashion a series of innovative enabling platforms and solutions, providing the integration engine and customer service capabilities for an exponentially growing number of connected devices and Internet services. In addition to fixed and mobile connectivity, providers should supply the glue and support that helps simplify the complexity of all these new devices and services, helping their customers install, configure, integrate and manage their increasing numbers of interconnected devices and applications.
At the core of this enabling platform and these new services is the provider’s database, which offers an integrated view of customer relationships, rights and preferences, as well as device capabilities and service configurations. It also holds presence and context information that is increasingly required to support interconnected devices and Internet services.
Operators should also provide a number of core capabilities beyond traditional communications services and content delivery networks, including offerings such as e-payments, security, sensor networks, content transcoding and cloud centers. These core services, along with the database, can enable a wide array of higher-layer applications, which could include new educational offerings, energy management and next-generation e-commerce services delivered to the home.
Service providers are in a unique position to expand upon their existing customer care capabilities to provide the premium technical support that is needed to help customers deal with the complexity of installing, configuring and managing all these new devices and services. Unlike most of their consumer electronics and Internet competitors, operators have advanced customer support capabilities, such as the ability to dispatch a technician to the customer’s site to install or troubleshoot a device or service. The trick is figuring out a monetization model to drive revenue from this high-touch service.
In addition to building the integration platform, core services and premium technical support, digital enablers must forge more collaborative relationships across the Internet ecosystem. Successful collaboration stories are already emerging as operators, software firms, device manufacturers and consumer electronics companies create multiple kinds of alliances covering everything from gaming to music to Internet TV to cloud computing services.
Identifying new revenue streams
Enhanced revenue streams can be developed based on new pricing plans as well as on the basis of new kinds of customer relationships. First, operators are already moving beyond flat-rate data packages. While these have stimulated massive demand, it’s time to launch more sustainable revenue models. Such models can include:
- Capping data traffic at a predetermined level, then reducing download speeds or charging a premium for traffic exceeding that limit. This capability requires new means of understanding and shaping network traffic, which enables differentiated service levels.
- Sharing revenues with content and application providers for high-speed, high-quality service levels to support data streaming and other mission-critical or performance-sensitive applications.
- Charging for enabling services such as customer and device queries, authentication and entitlements, presence and location, or transcoding.
Second, operators can generate new kinds of revenues by broadening their offers based on more expansive types of customer experiences. The traditional relationship that operators have had with customers has been focused primarily on connectivity. Today, connectivity should be bundled with higher-level value propositions including devices, applications, services and solutions.
Operators should look for profitable innovations that enable them to own the end-to-end customer experience. For example, technology support is emerging as a service that customers need—and for which they are willing to pay a premium. New Accenture research—“Beyond Landline: Evolving Consumer Expectations for Technology Support”—has found that a majority of consumers (53 percent) say they would welcome the opportunity to have one company provide technical support for most or all of their home and mobile consumer electronics devices.
To date, traditional customer support models such as call centers or software-driven approaches have been unable to meet the full breadth of users’ technology support needs in a cost-effective manner. Thus, offering “premium technology services” that help consumers integrate and manage devices in the digital home can be a way for operators to generate additional revenues while also deepening and extending relationships with customers.
In general, the new customer value proposition for operators must be focused on a rich set of compelling services that are bundled and branded so as to increase the presence of network operators in the buzz-generating world of broadband content and services.
Achieving operational excellence
As operators look to become enablers of customer value in the Internet ecosystem, it is crucial that they manage network capacity more effectively, especially as video and other services strain network resources. Operators must control their incremental costs while simultaneously putting in place the means of offering spare capacity on the wholesale market.
To keep capital and operating costs under control, operators should encourage innovation within their operating models, providing more modular and centralized functions and transforming network operations to control spending and improve efficiency. To keep pace with rapidly growing demand for broadband data services, service providers should overhaul their network planning, engineering, and construction organizations and processes to make them significantly more flexible and nimble so that they can handle the increasing pace of technology upgrades and massive network build-outs. Providers should also work more closely with their service delivery organizations as the significant increase in customer orders necessitates network expansion. Better network intelligence is required to be able to analyze traffic, identify potential choke points and free up unused capacity.
Transforming network operations also entails rethinking the corporate sourcing model. Many operators are now pursuing managed services and business process outsourcing arrangements for both back-office and front-office services. These initiatives can enable operators to reduce spending in non-core areas and simultaneously consolidate technologies and vendors.
Another cost-control strategy involves network sharing—a formal arrangement between two or more mobile operators to share various components of their networks. Network sharing has the potential to deliver 20 percent to 40 percent reductions in standalone cost run rates (see “Network sharing: Balancing costs and competitive differentiation,” Outlook Point of View, April 2011).
Making the leap
Today’s operators need to energetically pursue new business models and arrangements for harnessing innovation across the Internet ecosystem. Telecom operators have tremendous existing strengths, yet the distinctiveness of those capabilities will weaken over time. These companies face a real and progressive threat of losing market value in this environment, so swift action is needed. Those who act in a strategic and systematic way have an opportunity to play an important, primary role. By becoming a vital enabler in the digital ecosystem and planning compelling offerings developed in partnership with other players, network operators can ready themselves for a leap to a new era of profitability and growth.
About the authors
Larry Socher is the global lead for the Accenture Network service line in the Communications, Media and Technology* industry group.
Paolo Sidoti is the Europe and Latin America lead for the Accenture Network service line in the Communications, Media and Technology* industry group.
Sebastiano Pardi is a member of Accenture’s Network Outsourcing team in Europe, Africa and Latin America.
*formerly Communications & High Tech