Telco Challenge : The quest for new business models !!


The arduous task of creating fresh and viable business models in the hyper competitive Internet era bedevils Telco CxO’s and their financial backers. All markets are becoming mature and emerging market growth will slow in the next few years. Have Telcos ever considered the nightmare scenario when Apple and Amazon offer handsets plus e SIMs. Contracts and billing could be handled via iTunes or Amazon accounts. The telco would thus become anonymous, a mere wholesaler of network capacity with no end-customer relationship of its own.

Most Telcos focus on matching and beating their rivals. As a result, their strategies tend to take on similar dimensions. What ensues is head-to-head competition based largely on incremental improvements in cost, quality, or both. So how do you leave rivals behind while sustaining spectacular growth for your company? Invent entirely new markets where no competitor has yet ventured. New business models are required where operators make money from new customers and ecosystem partners rather than exclusively from end-users.How can companies create breakthroughs in value and performance?

“Communication networks are facing a lack of scalable and sustainable architecture to meet the challenges ahead in terms of data traffic increases, video uploads and downloads, and enhanced M2M communication. The network of the future has to be highly elastic in order to facilitate the adding or dropping of capacity and real-time provisioning of service. It needs to be highly orchestrated by key business imperatives, such as customer satisfaction, and it must be highly integrated so that synergies are fully embedded and captured across fixed and mobile, across borders and across segments.”

( Bruno Jacobfeuerborn Deutsche Telekom CTO )

Companies that want to be successful in the current environment have to fundamentally scrutinize their business model on a regular basis and challenge its components if necessary. The overarching goal of a business model is to address a business opportunity in such a way that value is created for customers as well as for the company. A business model encompasses the addressed value potential, the customer interaction, as well as the value creation model.

Although many Telcos believe that they urgently need to build strong digital businesses, most are struggling to do so. Creating a Digital Telco means looking beyond traditional telco business models in the context of the changing telecom value network.The challenge for Telcos isn’t that OTT companies outspend or “ out imagine “ them in digital innovation. It’s that marginal cost analysis steers Telcos towards investments in capabilities that were relevant in the old basis of competition, rather than toward developing new capabilities relevant for the new basis of competition.

The mobile industry is undergoing a dramatic rethinking of business foundations and supporting technologies. In many ways, technologies such as cloud, software-defined networking and 5G result in a “software is eating the network” end game. This in turn will promote opportunities that are much larger than just selling voice and data access meaning digital commerce, advertising, energy services, smart home , e-health ,M2M , Connected Car , Big Data , IoT etc .It is for the Telcos to adapt , improvise , transform to profit from these opportunities. The Telco that is best able to connect the trinity of technology, content and segment will be able to reap superior profits.

“ NFV and SDN concepts are at the core of our strategy. These help us realise our future network vision, which is a mutli-service, multi-tenant platform where we can respond more quickly and efficiently to our customers’ needs. With NFV, we’re able to dynamically reroute traffic and add capacity without adding new boxes. With SDN, we’re removing pre-defined physical limits of the network by shifting control from hardware to software. These allow the network to become simpler, more scalable. They also allow us to reduce costs significantly and more quickly address customer needs “

( John Donovan, Senior VP– Technology and Network Operations, AT&T)

Perhaps one of the most successful new age ” experience ” players to date is SK Planet, which was set up in 2011 by SK Telecom, Korea’s largest wireless operator, to offer multiple add-on experiences for both retail and business subscribers. They include MelOn, already Korea’s largest music portal, with 17 million subscribers, has also been launched in Indonesia; 11st provides an e-commerce platform with related advertising and marketing intelligence services.It is now the country’s second-largest e-commerce platform and largest player in mobile commerce; “T ad” is a mobile ad platform that enables personalized ads on mobile apps running on smartphones and tablets; “T map,” a GPS-based navigation service platform with more than 10 million subscribers, also offers location-based services to businesses.

Operators need to realize that extending connectivity alone cannot keep them afloat. Instead they require software, device and service strategies that can add value and at the same time differentiate them from competition.In the future, the primary operational mode for large players might well be as aggregators of massive services. The key is to open the platform and gain as much partner power as possible. This is the fundamental reason why concepts like Web2.0 and P4P became important.

NTT DoCoMo pursued the concept of Value innovation : a new way of thinking about and executing strategy that results in the creation of a blue ocean and a break from the competition. More importantly, value innovation defies one of the most commonly accepted dogmas of competition-based strategy — the value-cost tradeoff.In order to achieve its transformation strategy, KPN Netherlands mapped out four concrete objectives: fixed and mobile service convergence; full utilization of current network resources; considerable decline in CAPEX and OPEX; and delivering a variety of new services, which are built on an All-IP network.

Through creative partnering and innovative risk sharing options, new managed services and outsourcing business model options provide the framework for creating a next generation enabled portfolio of services for consumers and enterprises ready for 2 sided business models. Instead of short-term tactical advantages, the focus is firmly on long-term strategic gains by identifying blue ocean market segments where competition becomes irrelevant . And only then will Telcos be able to reap the full benefits of managed services via trusted partnerships.

According to VisionMobile , to grow Telcos could either…

+ diversify, which means branch out into new markets by investing their profits into that new market, and try to turn that new market into a source of profits in its own rights; or…
+ grow asymmetrically, which means branching out into a new market with the intention of not turning huge profits within that new market, but rather to drive profit in the core market.

Asymmetric business models cross industries and force profits to migrate from one market to another.Google for example uses them to disrupt industry after industry: from mobile (Android), to television (Google TV and Chromecast), enterprise software (Google Apps), personal computers (Chromebook), travel (Google Flights), energy (Nest) and transportation (Android Auto and self-driving cars).

The new generation of messaging apps have asymmetric business models, they can sustain free services indefinitely and forever change the dynamics of the mobile messaging market. WeChat, Viber, Line and others monetise by using their platform for e-commerce, selling digital goods (stickers, games), physical goods and services (like taxi rides). They don’t have to charge for the messages or even voice calls to be commercially successful.

“I think you almost have two choices as an operator: either you say that you can be very, very efficient with pipes and that somebody else can deal with all of that and you’re going to have the lowest cost and the best quality on my pipe, transmit as much data as possible ”

( Hélène Barnekow TeliaSonera CCO)

Telcos need to embark on a series of such changes in order to ensure that they can build upon their successes in delivering telecoms services. In the end, they will need to ensure that they continuously challenge established models and notions on their role if they are to truly innovate their business model.

You will find more Telco Challenges and how to overcome them in my book Telco Global Connect Vol 3 available on Amazon

Sadiq Malik ( Telco Strategist )


3 thoughts on “Telco Challenge : The quest for new business models !!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s