protecting data revenues
DESCRIPTION
Telecom revenues are declining.Till now, Data revenues have been critical for Telcos which have successfully followed a “walled garden” approach. But the "walled gardens" are fast eroding under threat from integrated players like Google and Apple, and the telco revenues are fast declining. This presentation presents strategies a Telco to counter this emerging threat from different types of online players and increase or at least retain a share of data revenues.TRANSCRIPT
PROTECTING DATA REVENUES: POSITIONING TELCOS FOR GROWTH
Prepared By Charan Puneet Singh
Telecom revenues are declining. Data revenues have been critical for Telcos which have successfully followed a “walled garden” approach. But with Google and Apple, their revenues are fast declining. How should Telcos counter this threat from online players and retain a share of data revenues.
Executive Summary
Telecom companies in mature markets are increasingly under pressure, to protect data revenues given the competition from different players in market, the transformation under way in the industry and increased capital and operational spends. In its current avatar, the scope for today’s Telcos in the emerging telemedia value chain is limited to that of a “dumb pipe” , pushing content to the consumer. In order to stay relevant in the market, the telecoms today have four imperatives:
1.Defend and grow telecom’s share of the broadband market through network improvements and high-value integrated and interactive multimedia services.
2. Focus on enabling the 4A vision (content accessible by anyone at anytime through any device) and empowering users, be they individuals, communities or companies.
3. Exploit the advertising potential of the subscriber base - especially mobile.4. Adopt innovative content development and delivery models, and focus on the
consumer experience.
Also, Telecoms today will have to transform themselves in terms of cost structure, organizational structure and business processes to allow them to take on the emerging competition in the form of internet and media companies.
ROADMAP FOR PRESENTATION
Understanding the factors at play
Key Recommendations
Challenging times for Telcos Globally
Declining Profits
Declining
Revenues
Increased Costs
Declining Tariffs
Disruptive Innovations
High Customer Churn
Evolving Customer Needs
Evolving Technology Trends Breakdown of “Walled
Gardens”
Investments in Capex
Regulatory Costs /Fees
Interconnect Costs
Investments in Next Generation Technology
Investments in Opex
Telcos must prepare to face potential threats from within & outside the industry.
*Limited scope of root cause
Macro economic Challenges
What is keeping Telco CEOs awake?
Data revenues now constitute 50% of revenues for some leading Telcos; implying how leading Telcos are adapting to changing market trends.
Global data traffic now exceeds global voice traffic; implying an underlying change in the way customers use telecom services.
Globally, the telecom industry is set for M&A; only the big and bold will survive.
Disruptive innovations in Consumer Electronic Devices (Netbooks/ Iphones/Ipads /IPTV / Satellite Navigation) are affecting a transformation of the telecom industry.
Global Mobile revenue growth has stabilized, with ARPUs declining and subscriber penetration reaching saturation in most industrialized markets.
KPIs like ARPU are becoming redundant; the focus now is on margin (AMPU)
The pricing models are being adapted for a multi-platform & metered consumption
Telcos are losing relevance with consumers, replaced with next-gen. internet brands.
1
4
5
6
7
8
2
3
The Emerging Telecom Ecosystem
Content Production
Aggregation and
Packaging
Distribution
Advertising Aggregator
Portals and Search
Transport and
Delivery
Customer Device
Management
The emerging telemedia value chain spawns new business models, undercutting the dominance of telecom service providers who are being forced to innovate to avoid
being labeled a “dumb pipe”
License Rights
Content Packages / Services
Sales /Advertising
Search /Advertising
Traffic Acquisitio
n
Online Traffic
Advertising Campaign Broadband
Subscriptions
Content Distribution
Customer Devices
Sales
Customer Data Targeted Deals
Customer Content
Management
POTENTIAL REVENUE OPPORTUNITY FOR
TELCOS
Factors Affecting Growth in Data
• Development of VAS Eco-system: Telecom Operators have developed an eco-system for consumption of Value-Added Services like Video-On-Demand etc.
• Growth of Local Content and Search Companies: In most of APAC, VAS demand is dominated by local internet companies and content providers.
• Growth of Smart Phones: Smartphone prices have crashed and intense competition between major players has resulted in the best deals for consumers.
• Growth of Netbooks: Demand for mobility and proliferation of cheap computing power has pushed data consumption
• Growth in mobile-based applications: I-phone segment represents the most profitable of this lot, but analogies can be found globally.
• Growth in Mobile-based transactions: Specially in economies where banking network is undeveloped or is sparse or inaccessible for other reasons.
• Products offering Convergence / Triple Play: Operators have products selling packaged Broadband, Voice and IPTV services in the UK market.
• Innovations in Pricing: Developments in Billing Systems has allowed telecoms to charge consumers on a more granular level to ensure retention.
• Innovative Business Models: Data based services like TiVo, Netflix and new devices like iTouch, Ipad , Kindle and Dash have pushed data consumption.
Factors behind a global rise in data revenues:
VAS Eco-
Systems
New Devices
Mobile Applicati
ons
Innovation /
Convergence
The Demand for Data: Bursting Pipes
• Smart phones have increased data consumption by manifolds: Average data usage went up by 50-100 times with devices like Apple Iphones / Android G1.
• It is Data Cards, USB Dongles and
Data Cards that make up the bulk of Data consumption today.
• Mobile data ttraffic growth will be lead by smart phones and flat price data plans by Telcos and data card traffic.
• Investments in 4G technologies like LTE / Wimax will influence success.
The size of data opportunity is huge, will be led by proliferation of smart phones and data cards but will require heavy capital investments in 4G by
Telcos.
Source Chetan Sharma Consulting
ROADMAP FOR PRESENTATION
Understanding the factors at play
Key Recommendations
The Emerging Opportunity For Change
The opportunities for telecom operators thus translate into four broad imperatives:• Defend and grow telecom’s share of the broadband market through network
improvements and high-value integrated and interactive multimedia services.• Focus on enabling the 4A vision and empowering users, be they individuals, communities or
companies.• Exploit the advertising potential of the subscriber base - especially mobile.• Adopt innovative content development and delivery models, and focus on the consumer
experience.
To avoid becoming a “dumb pipe”, the emerging telemedia value chain also opens up a lot of opportunities for Telecoms.
Walled Gardens Cant Alone Save The Telcos
• The Mighty Fall of American Online: AOL refused to understand that consumers want to exercise choice and not be tied down.
• Failure of Microsoft’s MSN Strategy: MS could not see evolving trends: Desktop was the final destination, till Google changed the game.
• Success of YouTube: Google's’ free content sharing site succeeded despite Viacom’s attempt to protect its content.
• Closure of Yahoo’s Search Business: Yahoo could not afford continued investment, given Google’s complete dominance of the search business.
• Failure of Netflix- Streaming: The product was positioned to control TV viewing experience.
Where and Why it workedWhere and Why it failed
The complexities of ever evolving online consumer and technological trends, together with constraints on capital investment make “Walled Garden” a
doubtful choice.
• Success of I-phone: Apple created a new platform to push data based services, (via numerous applications sold on iTunes) helping Telcos generate profits . However, Apple allows content developers to build and sell applications for Iphones and thus it is a modified “Walled Garden” strategy.
• Success of Facebook: Facebook has rich security features, a platform for application developers to generate content. With the new ”like” feature, where users can share content from external sites on Facebook, it has extended the virtual walls to new boundaries.
Don’t run with the Mob While some Telecom s throw money on replicating competitors and building new “walled gardens”, few leading companies are creating their own paths to success
based on understanding of customer needs .
Note: • As per a Gartner Study in 2009, 9 out of 10 corporate social media initiatives have failed.• Though Iphones is a success for AT&T in the US market, it could not stop the market-leader, Verizon from adding more customers and increasing its ARPU, including data revenues by focusing on business design. When Verizon launches I-phone in 2010, AT&T will have a lot to watch out for.
Source Oliver Wyman Consulting
Meet Evolving Customer Data NeedsGo back to basics to identify what customers really want, customize service plans and product offerings, rather than force fitting solutions to product
offerings.
Customer SegmentBusiness Owner
HomeMaker Student Salesman
Income Band A1 C B A2Telco Bill X Y Z K
% Spend on Data x y z kHandset AA BB CC DD
Smartphone Yes No Yes Yes
Data Needs
Email, Web browsing, Alerts, MS Office, File
Sharing
Weather Updates,
SMS, Ticket Bookings, Directory Services
SMS, File Sharing, On-
line Games, Dating
Email, Alerts, Ticket
booking, MS Office, VPN,
Skype
Data Usage Medium Light Heavy MediumData Plan bb cc dd ee
Cost to Serve xx yy zz kkBusiness Priority 1 4 3 2
Use customer data to identify customer niches and serve them
with right handset
capabilities, services and price plans.
Identify priority segments and focus to serve them better.
Offer customizable data
plans to users and ensure long term retention.
Ensure that business priority is communicated
in outbound communication clearly.
Identify data needs of different
customer sets; there is no
magic bullet for all.
Customer is the KingStay relevant to your core audience and invest in brand building the way
FMCG and Lifestyle companies have done.
Stay On Top Of Consumer Trends
Focus Customer Communication On Core Values Of Your Brand
Focus on Customer Services
Innovate Customer Price Plans
Keep track of evolving consumer trends like Web2.0 in local and international markets. It may not be economical to serve a niche, but it is when trends go mass.
If there is no perceivable difference in network quality, the communication should focus on softer aspects of the Brand and its core values to drive customer loyalty.
Use customer services to make an impact on consumers; achieve higher cross-sells and ensuring satisfaction. No use investing in new technology if the existing are dissatisfied with existing service.
Make price plans more transparent and granular to allow a metered access to services. Use the Subway-model to offer consumers freedom to pick and chose components of their service plans at standard prices.
Collaborate, Combine and Compete
Open Your Walled Gardens
Open up your networks to external application providers to enable the development of new services that incorporate telecom capabilities, such as location tracking, voice mail access, contacts management and presence.
Collaborate Across the Chain
Expand presence across the emerging telemedia value chain with exclusive tie -ups with production houses, internet companies, technology start ups.
With margins decreasing and the pressure to transform business, smaller companies will find it difficult to survive alone.
Merge or Acquire
Build The Right Skills
Build the right skills in your organization to transform it to the next generation telecom. This will enable it to take on competition from different quarters .
.Find partners and collaborators because it will be difficult for any telecom operator to invest everywhere by itself when the margins are falling.
Change Management is the Key
Reduce Opex
Reduce sales, general and operating expenses by right sizing the organization. Centralize non-essential functions and outsource network specific functions like network maintenance to specialists like Ericsson / IBM. Invest In R&D
The telecom sector is way behind internet companies in terms of investments in R&D as a percentage of sales. It is imperative that telecom companies be on the leading edge of technological evolution to stay competitive in future.
Reorganize To Focus On Innovation
Most Telcos today are descendants of erstwhile P&T departments, with bureaucratic org structures that complicate decision making. Telcos need to move to a new organizational design to be competitive against internet/media companies.
Reduce Time to Market
Optimize business processes to enable the business managers at the Telco to launch new products and service plans rapidly, without having to go through a technology cycle.
The new Telco will be very different from the one we know today and managing this change will be critical to its future.
Appendix
Global ARPU Trends
Source Chetan Sharma Consulting
Comparing Mobile To Wire line Growth
Source Chetan Sharma Consulting
Global Wireless Data ARPU Trends
Sou
rce:
Che
tan
Sha
rma
Con
sulti
ng, 2
010
10%
20%
40%
$5 $10 $20
Japan ($24, 44%)
South Korea
UK
ChinaUS
Germany
Canada
Italy
Spain
HongKong
Average Wireless Data ARPU (USD) for carriers in a country
Dat
a as
a %
of
tota
l rev
enu
es (
aver
age
acro
ss c
arri
ers
in t
he
cou
ntr
y)
Singapore
Switzerland
Norway
New Zealand
Belgium
Austria
France
Netherlands
Russia
Greece
DenmarkPortugal
Israel
India
Sweden
Finland
Thailand
Brazil
Indonesia
Philippines ($1.8, 47%)
Czech
Turkey
Mexico
Malaysia
Asia
Europe
Americas
Australia
Venezuela
Source Chetan Sharma Consulting
Skills Required For Telco 2.0
Global Leaders in Data Revenues
So
urce
: Ch
etan
Sh
arm
a C
onsu
lting
, 20
10
$10 $20 $30
20%
40%
NTT DoCoMo
KDDI
Softbank
Sprint
Verizon
T-Mobile US
AT&T
Wireless Data ARPU (USD)
Da
ta a
s a
% o
f to
tal
reve
nu
es
SK Telecom
3 UK
Vodafone UK
KTF
Vodafone Spain
Vodafone Italy
Vodafone Germany
3 AustraliaO2 UK
O2 Germany
RogersChina Unicom
China Mobile
Reliance
Bharti
Vodafone India
T-Mobile UKT-Mobile Germany
A
B
C
Asia
Europe
Americas
3 Italy
50%
Orange France
Orange - UK
3 Sweden
SMART ($2, 53%)
Telstra
Source Chetan Sharma Consulting
Don’t Follow the herdDelegates at a recent telecom industry meet were divided about the success of online
application stores which the telecom operators are opening in a frenzy.
http://www.telco2.net/blog/2009/12/smartphones_and_app_stores_whe.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+Telco20+(Telco+2.0)
References:
• “THE ENTERPRISE OF THE FUTURE – TELECOM INDUSTRY EDITION” IBM GLOBAL CEO Study
• “ Managing Growth and Profits in Yettobyte Era” Chetan Sharma Consultants
• “A Future In Content(ion): Can Telecom Providers Win A Share Of The Digital Content Market? “IBM Global Business Services
• “The Upside for Telecom Operators: Turning strategic threats into growth opportunities”Oliver Wyman
Contact
Charan Puneet SinghAccount Manager - APAC RegionThoughtWorks Studios
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