The Digital Operator: Accelerating the B2B2C Journey through Digital Video Enter u

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The Digital Operator: Accelerating the B2B2C Journey through Digital Video

Convergence within the communications industry has been one of the prominent strategies to drive growth and improve financial performance. However, there is strong competition eroding operators’ leverage in the traditional value chain. Massive global “over the top (OTT)” players (some of which didn’t even exist a few years ago) are using operator networks as springboards for their services and are performing better than operators (see figure 1) in terms of share price growth. Facebook Inc.’s VoIP app is now in 24 countries with an expectation of more to come after their acquisition of WhatsappTM. And Netflix, Amazon Instant Video, and Hulu Plus are household brand names. Apple TV® digital media extender, Roku® and other digital media devices are expanding rapidly as they gain traction well beyond the early adopters.

Consumers have never spent more on technology and communications services, but telecom companies in mature markets have difficulties capturing value from new consumers’ behaviors. While healthy operating margins have kept stocks buoyant, imperatively, at some point, a more compelling growth story is going to be required to increase shareholder value.

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So, traditional operators are at a point of inflection where they need to make decisions:

• Be a provider of commoditized connectivity, effectively becoming the equivalent of a ‘dumb pipe’, looking for volume growth through consolidation, adding modest digital services with the hope to minimize and control operational margin erosion due to price competition within the industry.

• Take advantage of convergence to become an ecosystem provider of digital services creating a marketplace for the new digital age: a digital B2B2C provider.

Figure 1 | A Critical Time for Operators: When the Telecom Industry lowered market volatility by implementing vigorous cost cutting strategies, they underperformed against their strong OTT competitors.

Average Share Price 2006-2013

Source: Bloomberg database; Accenture Reseach analysisOTT = average: Google, eBay, Yahoo, Amazon, Netflix

2006

500.0

400.0

300.0

200.0

100.0

2007 2008 2009 2010 2011 2012 2013

OTT providers benefit from new technologies andchanging consumerbehaviors

Inde

x (1

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)

Telecom IndustryS&P 500OTT Industry

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Past moves: Limited successMany organizational and cultural aspects have also caused them to stumble. For example, operators have not traditionally needed rapid product development cycles. New services mean that the communication service providers may not control the full value chain and will need to partner with other organizations in other industries, potentially. This is exacerbated by the risk that these types of initiatives could take resources away from existing revenue channels or worse, may compete with or generally disrupt existing business models.

It’s not that current incumbents have not seen this time coming. There have been formidable barriers to overcome to launch new services. When venturing into new business lines, they are faced with lower operating margins which present challenges for their culture as well as their financial models. The high cost of capital for infrastructure improvements makes it difficult to invest in completely new initiatives/products and compete with other industry players who have different costs of capital (see Figure 2). Moving up the value chain to provide any service outside of connectivity and communications to customers has traditionally been difficult. This has been less of a challenge for new internet-only entrants who have been inherently global, not overly regulated, and well-funded.

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Figure 2 | Where is the burning platform: Telcos have to deal with high capital expenditure (capex) when competing with light OTT players

Capex Spend for Telecom vs. OTT players 2006-2013

FY2013

AT&T

FY2006 FY2007 FY2008

25,000

20,000

15,000

10,000

5,000

US Millions

FY2009 FY2010 FY2011 FY2012

Telecom Industry

Verizon

TelefonicaAverage TelcoOrangeGoogleTelecom ItaliaBTAmazonAverage OTTeBayYahooNetflix

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Now: An imperative and an opportunity (B2B2C)However, regardless of these trends, consumers will always need to subscribe to bandwidth, and therein lies the opportunity. Ownership of the consumer relationship and the ability to control distribution are positions of strength from which to build to meet customers’ ongoing communication and entertainment needs. Given their existing position in the traditional value chain, they are well situated to market, sell, and distribute all types of digital services to the households. This is especially true in developing countries where the relevance of the communications sector to consumers is much higher than other sectors. Potential services range from media, security and home automation to financial services, insurance, health, education, ecommerce and more. By concentrating initially on industries where businesses don’t have direct consumer

Despite these historical challenges, now is the time to move aggressively to build new revenue streams in response to market dynamics, choosing to serve digital customers by transforming into real holistic “service marketplaces” that achieve better return on invested capital (ROIC) to accompany infrastructure investments . The time is certainly right from a consumer perspective. For instance, more and more households are looking to reduce their monthly spending on media and entertainment services, being attracted to more “a la carte” services such as Netflix and Spotify—so much so that many satellite television companies, like British Sky Broadcasting Group plc (BSkyB) in the UK, launched an OTT service, competing with its own traditional consumer offering, to fulfill this market need.

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relationships, operators can offer the value of their customer reach and insights to these emerging digital businesses.

Consider, for example, the evolution to the “connected home” occurring in global markets. There will be many new connected home service providers who will need access to billing and customer data if they are to scale their offerings. These providers will need to work with partners to get the appropriate scale to make their business viable. Telcos and cable companies should pay close attention on how to best serve this marketplace for two reasons. One, it offers a new revenue stream, and two, if their needs are not served, they will most likely work through ‘digital natives’ like Google who have architected their businesses to connect digital service providers to consumers. However, with established customer billing and service relationships, operators have the assets, and if

packaged appropriately as B2B2C services, can provide immense value to the marketplace.

Through these new service lines and new revenue streams, operators can create a business model to stop the drop in ARPU, slow customer churn and increase customer loyalty through cross-selling – all of which are paramount as the retail communications market begins to saturate. Furthermore, they can show the financial markets they are capable of sustaining growth and increasing value chain leverage in an industry in the midst of a digital transformation.

We see that media is the industry with the most demand and aligned goals to leverage these types of services – providing operators with a charter industry to move to this new type of revenue model.

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The next move: The digital video and multi-media platformbusiness relationships with the media industry, creating leading aggregated offerings in the market. These ‘B2B2C relationships’ allow content providers to serve the consumer with digital products without having them build their own capabilities that would be required to support those products at scale. The relationship can be amazingly symbiotic (see Figure 4).

These capabilities include the following:

• Sales Channel: A distribution channel with reach into even the most rural areas. With increased focus on sales, this becomes a massive channel for the sale of numerous products and services, including consolidated music, video and media event packages.

• CRM/Billing: the ability to package multiple offers from multiple providers in an easy to buy model for consumers.

Connected consumers want a wide array of digital media offerings in way that is very simple to purchase, discover and consume. Accenture’s view is that telcos and cable companies have an immediate market opportunity to create an OTT media ecosystem and marketplace serving the broadcast, music and digital print industries. The number of devices that can consume these services continues to grow (see Figure 3), but the role of a trusted aggregator and market enabler is a gap that the operators can fill even better than companies such as Netflix. Some are seeing this opportunity as evidenced by recent acquisitions and market movements (e.g. Vodafone, Telefonica, Comcast, etc.) growing the size of the digital footprint they can serve.

With a significant digital consumer footprint, operators can leverage their differentiated assets and capabilities to establish differentiated

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Figure 3 | The next move: The digital video and multi-media platform Connected consumers want a wide array of digital offerings

Device owned or planned to buy in the next 12 months

Laptop/Desktop

Smartphone HD TV Tablet TV settop box

Connectedhome gamesconsole

GPSnavigation

Planning to buy in the next 12 months

Personally owned

eBook reader

92%

49%

72%

57%52%

44%35%

44%

33%

22%30%

25%30%

26%

14%23%

Source: CMT Digital Survey, Accenture Jan 2014Sample base: all respondents - N=23000

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Figure 4 | The symbiotic relationship between Operators and Content Providers

Consumer

Consumer - what they want, when, how and where

Operator manages interaction with consumers around marketing, sales, and fulfilment across all of its channels – including associated data collection

Operators receives OTT catalogues and bundles, markets, and sells them to consumers

Content Provider optimizes/updates their own content portfolio and associated marketing strategy

Provides content to the consumer including ‘experience’ (though can leverage operator networks)

Contentcatalogues

Audienceexperiencefeedback

Operator shares consumer segment behaviours , content performance, financial reconciliation, quality of service statistics, and other business services

Telco/Cable Co

Broadcast/ContentProvider

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• Marketing: With detailed customer information and significant reach, operators can provide services to content providers to target their own customer base with marketing messages. Digital and direct marketing services with the ability to go one-to-one with consumers (who have individual tastes in content) versus households should be a key target evolution for these capabilities in order to increase relevance to legacy wholesale industries such as media.

• Call Centers: Competitors such as OTTs do not have call centers at their disposal. However, traditional media players who want to go direct-to-consumer will need this capability. Call centers provide not only product support but value-added services such as cross-selling and up-selling when being contacted to provide connectivity.

• Network: Operators possess the network to package content delivery network (CDN) products with services and use LTE for pushing

media adapted for mobile devices. They can also guarantee quality of service (QoS) for any managed network, a differentiator from web-scale platforms.

• After sales support: Operators have the infrastructure and often times a local field force to maintain the devices and potentially increase the level of services, including home automation and remote diagnostics. This capability is beyond what web platforms can offer and is an important differentiator when it comes to customer loyalty.

• Advanced analytics: Most content providers do not have the data about consumers to target them appropriately with their product in digital channels. As telco and cable company usage data is collected to provide new insights, content providers can refine their content and increase yield for their content offerings as well as stimulate new revenue streams such as targeting advertising.

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Packaging and offering these services to the media industry will be required to be able to take a piece of the expected growth in the content market (see Figure 5).

Some providers are already moving in this direction, albeit with different content procurement strategies: BT’s launch of BT Sport, the creation of YouView which involves a consortium of network service provider, broadcasters and Internet service providers and KPN’s over the top TV are just three examples (see sidebars).

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Figure 5 | Focus on new revenue opportunities

104.4

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19.1

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10 12.1

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Mobile Advertisement

Internet Advertisement

Digital Content

Digital Video

EnterpriseNetworkConsulting

Online Music

Internet of Things (M2M)

Unified Communicationsand Collaboration

IPTV

Video Games

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Source: : IDC, PwC, Ovum

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The journey: Take a pragmatic approach For operators who do not have such revenue streams, they should look at creating a business line as independent as possible from the traditional business with the culture, organization and governance it needs to operate quickly and with agility in a new market. While independent, this new business line does need to leverage the main assets of the CSP such as interfacing with the CRM and ERP systems and leveraging the channel. Once the new business line is beyond start up it can evaluate further synergies with the existing business.

There is a need to be pragmatic and evolutionary in this journey. Which next steps to take depends on the country, the competitive and extended competitive environment, and its connectivity capacity (particularly in emerging markets), but mainly on current areas of strength.

Operators who already have revenue streams around media but are in need of augmenting services to remain competitive, should package their distinct capabilities into a service that is easy for the digital media ecosystem to transact with and benefit from – creating a differentiated service “wrapper” for the offering, aligning it to the current retail business.

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Building the capabilities

Just as Apple, Google, Amazon and others are hiring talent specializing in how their growing platforms could service content development and distribution1, operators need the right people and the right organizational structures to build these types of media offerings.

They also need to embrace connected, smart and scalable technology – which may require new technical capabilities to successfully package and provide the above integrated offerings to the media industry. These include:

• Providing a web-scale platform that enables the integration and servicing of multiple providers, aggregating their offerings to a common consumer footprint and allowing them to be packaged in a number of different offerings.

1 Etherington, Darrell, “Apple’s CDN Plans Would Give It Greater Control Over Streaming For Expanded Offerings”, TechCrunch, http://techcrunch.com/2014/02/04/apple-cdn-plans/ accessed February 5, 2014.

To attack the market with a digital media offering, operators do need fundamental capabilities that may be different than what they possess today (see Figure 6). For many, there must be a cultural shift for employees to embrace the development and launch of new services outside of traditional communications and move toward a digital mindset. The paradigm shift here is to think of the business as a Digital Services Platform, able to provide a number of offerings to its consumers across a number of providers in an aggregated, easy to buy manner. This requires both a services culture within the ecosystem and an internal culture of integrating and packaging multiple capabilities to take to the marketplace. This is a significant shift for a company used to selling connectivity service to millions of customers to move to selling multiple services, each to perhaps thousands of customers.

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governance that effectively oversees and balances the needs of the numerous parties involved. New or improved processes related to product lifecycle management, management of partnerships or joint ventures, and efficient deployment of services across digital channels will be required to compete. And these new business lines may need to be structured to support an operating and financial model that enriches the value of current lines of businesses through increased revenue per subscriber, balanced with streamlined costs as the number of content providers leverage the solution.

Finally, operators must become digital in their customer interactions (be they B2C or B2B), leveraging the sales, service and distribution assets they already have. There are opportunities for those companies that embrace digital as a means to offer innovative products and services, market and sell products, and to support customers beyond traditional contact points.

• Next generation CRM technology that allows a deeper, one-to-one engagement with consumers versus households, with the understanding that the CSP’s current capacity can be an excellent starting point.

• End-to-end media platforms which are hardware agnostic but allow access to aggregated services and digital products through a number of devices (whether or not they are connected to the television).

• Augmented analytics platforms that support the necessary tools to enable internal CSP capabilities such as segmentation, forecasting, and predictive modeling, integrated with CRM and video platforms.

From a business model perspective, these types of offerings are likely to involve collaboration across numerous internal and external organizations. This will require strong

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ContentDiscovery

Content Provider Operator B2B2C Service

ContentConsumption

Optimised Access

Consumers

Multi-ChannelInformation

ContentConsumption

Legacy Bill & FillUsage Rating Finance (GL)

Analytics• Data Supply chain• Analytics tools & Reporting/dynamic access• Visualisation/Monitoring

Legacy FulfillmentService ManagementPartner Management

Quality of Service Management• Content experience monitoring• Content exception management

Order ManagementWorkflow ProvisioningFull Integration

Customer Experience Mgmt• Lead Management • Account Management• Case Management• Campaign Management• Social media Management• Other interaction

MonetizationBilling & Account ManagementPrepaid platformsCollections

Web & Mobile ‘web scale’ Services• Reg/Order• Authorization • Self care community• Consolidated Discovery

Customer Acquisition/Upselling and Content Promotion

Next GenerationProvisioning OSP

Content/Customer Preferences

ContentTransactionManagement

MarketingCapabilities

ContentCatalogManagement

AudienceMeasurementand Insights

ContentSupply ChainManagement

Content Planning

ContentPackaging

ContentAquisition/Production

FinancialRecon

Provide customer touch-points with infrastructure, software, and people – allowing Content Providers to concentrate on content-based experiences

Omni-Channel marketing, sales, service and retention. A digital-led seamless customer experience across channels, funneling prospective or new content customers to the right service at based on intent and profile

Next generation consumer stack, allowing for more digital customer engagement, giving Content Providers 360 view of customer and access to consolidated contact, analysis, and fulfillment services –driving insights and operational strategies around content

Leverage existing legacy structures to allow existing bundles to be augmented with new Content Provider packages and returning data to drive content financial planning and strategies based on returns

Operator B2B2C Services would provide a breadth of valuable capabilities to content providers to help optimise their ability to source, package, market, and distribute content to their collective consumers

Multi-Channel Contact Handling

Figure 6

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Conclusion

A key first step is to package existing assets to provide market-relevant B2B2C digital services to the industry players for whom this is most relevant, such as video producers and broadcasters, providing the essential tools to augment their current capabilities to better engage, market, sell, and distribute to digital consumers at scale.

If executed correctly, this approach will provide a reusable framework to onboard other services providers (content or otherwise) in order to bolster their digital reach, making Operators a true force in the digital marketplace.

Operators must decide if they will remain a commodity business or become a full service provider, offering a full suite of digitally distributed services, desired by consumers today in an easy to buy and easy to access manner.

Serving the media, in particular the Digital Video industry, has the potential to be the most compelling yet simplest strategy to defend an Operator’s market share from competitors in this aggressive new digital ecosystem.

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YouView: The Future of TV

That’s in addition to being able to accommodate new content and technology partners as the service evolves.

Designing and delivering a technology platform in a multi-partner, multi-technology ecosystem with so many different ‘moving parts’ was a formidable task. Overcoming these problems demanded a wide range of industry, technical and operational capabilities that Accenture was able to provide. Accenture worked as a key partner to drive the product through from concept to launch, delivering an operating model, and helping to create a capability to evolve the platform post-launch. Accenture’s responsibilities grew to overall technology delivery management, delivery of the content discovery platform, platform and ecosystem testing, content partner integration, and device manufacturer engagement.

YouView launched to the British public in the summer of 2012 with the stated goal of bringing ‘extraordinary TV for everyone’. There can be few better examples anywhere in the TV and communications industry of leading players collaborating around a ‘big idea’ R&D project in order to deliver product to the consumer as well as a new set of services into a dynamic and evolving industry. YouView today is an autonomous company formed by a consortium of seven partners intending YouView to be the heart of a commercial ecosystem.

Developing the technical platform for YouView presented a need to manage, align and integrate a series of highly complex and interdependent initiatives and technologies. To deliver its vision, YouView had to work on a multitude of different technology devices, and integrate and operate with platforms from content providers and ISPs.

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YouView has had overwhelmingly positive feedback from both customers and industry analysts. With the product successfully launched, Accenture continues to work closely with YouView to drive forward further development and rollout of the service and incorporate new features.

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To defend market share in the broadband space, KPN wanted to launch a new offering in linear and nonlinear video distribution over broadband networks gaining a leading position in the Dutch interactive TV (iTV) market. KPN knew that successfully integrating the Internet and TV would help it differentiate itself in the Dutch TV market. KPN is improving customer loyalty by providing richer and higher-quality digital video services, which positions KPN well to generate a strong revenue stream in a B2B2C environment with content providers and end customers.

To maximize the business opportunity arising from personalized on-demand services, KPN realized that its full Digital Video service needed to be brought to market on multiple devices. KPN asked Accenture to provide a multi-screen customer experience by making Interactive TV Online available on iOS® Android™ and in

a later stage personal computer, Windows® 8 and Xbox®. They have been first to launch this Interactive TV Online service for each of the different technologies in the Dutch market, thereby beating the competition and significantly altering the Dutch TV landscape.

To meet the evolving client expectations, KPN is gradually scaling and enriching its offering in terms of features, devices and capacity. Additionally, since October 2012, Accenture is also responsible for delivering the IPTV service to KPN, giving a full support in the Digital Video ecosystem through different technologies.

Collaborating with Accenture to bring this innovation to life, KPN has been able to provide an unprecedented customer experience, helping it strengthen its leading position in the broadband space and grow its TV market share in the Dutch TV market.

KPN: Over-the-top TV for the Digital Customer

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Over the past two years KPN has continued to innovate both in their multi-screen and core IPTV offering and successfully grown its iTV base to 1.4 million customers becoming the number two provider of TV services in the Dutch market and contributing to the overall growth of KPN’s consumer residential market in 2013.

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BT Sport: Digital Game Changer On August 1, 2013, one of the most anticipated broadcasting ventures in the world of sport was launched by British telecommunications company BT. BT’s offering—BT Sport—is a full multiplatform, premium, broadband-based TV channel available on a wide range of devices—from set top boxes to smartphones—free for BT broadband subscribers.

Delivering a complex, multiplatform, live streaming and video-on-demand digital service is a complex and challenging proposition. It required finding a provider that could bring together a number of key capabilities including live digital video broadcasting, end-to-end video-on-demand supply chain capabilities, mobile app development and cloud services. In addition, the service provider would need to support a high-quality service with end-to-end capabilities from content encoding to service

management and have a demonstrated record delivering feature-rich digital services for a project that had a non-negotiable start date. BT chose Accenture as its service provider.

Within a six-month timeframe Accenture was able to deliver an end-to-end solution from stream capture to play out. Through BT Sport, BT has shown that a digital video platform can increase broadband and TV subscription and generate a substantial new revenue stream. BT Sport’s live coverage of the inaugural Barclays Premier League game drew 764,000 peak viewers, and the BT Sport App passed 1 million downloads within two months of launch.

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Key ContributorsYoussef (Sef) Tuma is a Managing Director in Accenture’s CMT UKI practice where he is the strategy lead in Accenture’s Digital Video business service. He has over 18 years experience leading and delivering large innovative technology programs and driving associated business strategies. Over his career, Sef has been instrumental in helping define and build Accenture’s global digital content capabilities, including developing assets, authoring points of view, establishing and managing relationships with emerging media and technology companies, and delivering strategic engagements. Sef has been responsible for leading engagements that pioneered new technologies or applied existing technologies in innovative ways. Sef graduated from Carnegie Mellon University with a BS in Electrical and Computer Engineering.

Fernando Usera leads Accenture’s Communications, Media and Technology practice in Africa. In his 27-year career, he has worked in the telecommunications industry in his native Spain, Italy, Poland, Korea, Latin America, and currently in Africa. For the past 14 years he has focused on the dynamics of emerging markets, where he is now co-chairing Accenture Communications Emerging Market council. His experience spans key areas such as digital, strategy, market analysis, client relationship management, loyalty, product development and mobility solutions. Fernando joined Accenture in 1987 and holds a degree in Science and a Management Development Program from the Universidad Autónoma de Madrid and IESE, respectively.

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