There is, without question, a growing awareness that a storm is brewing for the global communications industry: justifiably so suggests Ray Dogra 

A range of factors have converged to create an unprecedented and daunting array of operational challenges for the major players, which has the potential to realign the communications landscape in the future. As well as being beset by level or declining, revenues from their core voice and connectivity products, network operators must simultaneously adjust to the new digital reality and the irreversible effect this is having on consumer demand for data and IP-based services.

As the dark clouds gather, it is enough to keep the communication strategist awake at night. However, as the storm intensifies around them, instead of trimming the sails and battening down hatches, network operators are being given a one-off opportunity to undertake a profound restructuring of their business models and ride the perfect wave of opportunity that this storm is unleashing beneath them.

Riding the Waves
Broadly the storm can be seen in the three waves. The first represents the slowing of voice and access: in mature markets with high levels of penetration, network operators have to deal with flattening connection rates and revenues, in both fixed and mobile. At the same time, mobile usage is on an upward curve, albeit a slowing trend, with an ongoing shift underway from mobile to fixed minutes and an upsurge in SMS volumes. Margins are under pressure as never before. Prices and market share are being eroded by regulation and competition but there has still been limited success where cost reduction is concerned (western European mobile opex is expected to grow from 60% of revenues in 2002 to a predicted 64% by 2010). Increasingly the emerging markets are rewriting the rulebook for all players, with rapid growth in mobile penetration in many of these markets predicted in the mid-term, accompanied by the emergence of powerful emerging market operators on the world stage.

The second wave represents the mobility and broadband services market. Rapid growth in traffic, driven largely by video, coupled with the upsurge in mobile data delivery, is indicative of clear customer demand for new services and operators are, as a result, racing to capture value from mobility and broadband services. The problem encountered by the majority is that costs are scaling with traffic, while revenues are not scaling at the same rate. Although operators are embedded in the value chain for these services, many remain unclear how best to set about monetising these opportunities without being saddled with extra costs.

There has already been a dramatic increase in the volume of IP traffic – in a number of services fulfilled via IP. Concurrent with this trend, the ingredients are now in place to make mobile broadband a viable product and most operators are reporting rapid increases in mobile data revenues. Innovation is happening in multiple fields, with network operators following the open innovation trend started by internet players. There is also a push towards common, open development platforms, a trend spurred by Service Delivery Platforms (SDPs), going mainstream.

The combined impact of these first two waves has fuelled a third wave – a wave that promises to remould the landscape for telcos worldwide. At its core is the fast-growing gap between surging costs/traffic and diminishing revenues/customers for telcos. This is coinciding with the rush of value to new, nimbler market entrants who, unencumbered by costly network infrastructures, can target services at specific areas of the value chain, where they are best placed to delight customers. How communications network operators prepare for it will define their business success from now on. However, implementing a phased strategic plan and organisation-wide restructuring capable of weathering the storm and catching the wave undoubtedly represents a significant management challenge.

To achieve a high performance in this new environment, operators must define and execute strategies that deal with each of these three waves according to the pace of impact in their own market. At a fundamental level, this means:

Delivering profits with core communications services – this calls for a deep understanding of pricing levers and systems that enable effective bundling of products and customer segmentation. Network and customer data can be used to tailor these packages and high-growth markets targeted for both costumer additions and product innovation. Cost take-out can be achieved through simplification and streamlining.

Demonstrating a growth story – operators need to be pushing mobile broadband very hard from now on. ‘Open innovation’ with third parties will play a vital role in driving this forward – with an ‘open SDP’ being used to streamline and facilitate the development of a wide range of low-cost services. Usability should be used as a differentiator, combining network devices, controls and content to deliver the best possible user experience. And digital advertising should be leveraged to exploit existing network and customer data.

Positioning for the convergent IP world – the communications industry is splitting into three distinct segments: InnovateCo; NetCo and ServeCo. Many operators have already begun to restructure their organisation and capabilities to align themselves with each of these segments, as well as generating more options for the future business models. At the same they realise they must develop new products using consumer data and network characteristics to exploit maximum benefit from all three screens. Wholesale capabilities need to be expanded and enriched to include third-party devices, CDNs and features for third-parties. And NGN roll-out plans must be tightly managed and coupled to product migration strategies if they are to succeed.

As everyone in the business knows, the challenges facing network operators at this point are daunting, however the strategies are simple – ensure operational excellence; show excellence in innovation and time-to-market and prove excellence in strategies and capabilities. For those organisations that are willing to move the telco business model on, driving towards execution excellence, the opportunities for achieving high performance are unsurpassed.

Ray Dogra is a senior executive at Accenture