Photo - Tom Loozen, MD, Global Communications Industry and the EALA Communications Industry Lead at Accenture.
Meteorologically speaking, 'the perfect storm,' doesn't need an explanation. It's big. It's bad.
The situation - circumstances that align to produce unusually negative consequences - is something that today's communications service providers (CSPs) face as they try to ensure a successful future and position themselves in a digital world.
Undoubtedly, digital technology makes it easier for companies to respond more quickly, improve productivity, exercise more control over inventories, and boost efficiency. But these technologies - encompassing everything from interconnected devices and products, to wearable technologies, to mobile devices consumers use to purchase goods and services -- are but a prelude to something more profound.
In fact, companies are open to new technologies, but more significantly, how they are changing their entire business and operating models on the back of them. All industries will be affected, especially the sector at the heart of what makes it all possible: communications networks service providers.
But how are CSPs to flourish, not merely survive, in such an environment? The obstacles are plentiful, and they are arising simultaneously. For starters, there's the challenging economic environment that is causing revenue and cost to part ways. For example, in many markets, even mobile data revenue isn't enough to compensate for declining legacy services, such as voice and SMS, which are being supplanted by over-the-top applications that can generate as much as 90 percent less revenue for CSPs. Simultaneously, mobile data consumption is expected to grow more than 66 percent annually over the next five years, pressuring CSPs to invest in their networks just to keep pace.
As if that wasn't enough, customers want fast access, sophisticated, useful services -- but CSPs scrambling to attract and keep customers can find it challenging to justify the return on investment. Competition is available in spades, and with new entrants, the next wave will look very different from the last one because CSP-agnostic devices, communication and entertainment services, direct-to-consumer channels, and extensible cloud platforms supporting rapid innovation are cannibalizing paid services while boosting customer expectations for pricing, experience, and service.
Then there are the expectations of the digital consumer, who wants the best experience at the best price, and personalized service, and content everywhere, on any kind of device, and the rising expectation that CSPs provide services, designed from the ground up, to support multiple devices and adjacent businesses.
Finally, governments worldwide are increasingly regarding CSPs as "network utilities" and have introduced new policies designed to foster competition, expand access and reduce prices. Similarly, the emergence of over-the-top and mobile video alternatives has resulted in increased scrutiny of video distribution.
The conundrum: deciding what's next
As a result, CSPs are examining the right portfolio of services, and the business model needed to achieve them. Should they build? Buy? Partner? Possibly all of these, but above all, telco operators must embrace the role of "integrated digital services provider," essentially providing the integration engine and customer service for the exponentially growing number of connected devices and Internet services, as well as cloud, social, mobile and analytics technologies that can turn vast amounts of data into actionable intelligence. These operators must find new ways of doing business-and that, in turn, requires new capabilities.
These challenges raise the question of whether there is a sustainable model for CSPs in today's world. The answer is "yes", but the model for success requires the following fundamental changes in the way CSPs operate their business. CSPs must:
Collaborate -- CSPs should no longer regard networks as discrete islands. In a converged, digital world, collaboration is the key. In fact, many are beginning to reevaluate the differentiation of proprietary network ownership and to explore models that drive greater build and operating efficiency.
For example, network sharing, especially in Europe and developing markets, is being driven aggressively by CSPs as they forsake sole ownership in favor of efficiency. Estimates suggest that network sharing offers the potential for a reduction of up to 40 percent in run rate costs. In some cases, CSPs are also engaging in out-of-footprint extensions that piece together non-overlapping networks to expand the customer value proposition without overbuilding. In the U.S., for example, an alliance of cable operators is enabling seamless Wi-Fi roaming across their regional footprints.
Leverage network intelligence -- CSPs should also consider employing new capabilities - such as real-time analytics for service quality and customer experience management -- so they can offer differentiated converged product experiences, such as multi-screen video and communications. Easier said than done. In fact, in an Accenture survey of CSP executives, 80 percent of respondents agreed that managing service quality is more important than ever, as well as one of their biggest challenges. But network management capabilities, such as tools that use customer and network insight to shift non-time-sensitive traffic to periods of excess capacity or to alternate networks - can help improve network efficiency and mitigate the need for capacity upgrades, as well as enable multi-sided business model opportunities by addressing the needs of third-party content providers and consumers.
Create integrated experiences -- As consumers become increasingly more connected, they are realizing that their experiences are highly fragmented and they notice the relevance of OTT players who can offer services as well as experiences on any connected devices, free from the bonds of location, or technology infrastructure. Here, becoming an integrated digital service provider is paramount, with a corresponding shift away from selling vertical services (voice, connectivity and services) to selling horizontal services, such as communications, entertainment and control.
Develop a digital strategy -- New engagement and experience expectations are being increasingly defined by the new digital customer. CSPs need to use digital first as an integration strategy in order to create a personalized customer experience across channels (web, social, retail). Many prominent companies from various industries are leveraging social media platforms in order to learn more about individual customers, test new product ideas and keep a communication channel open. CSPs likewise need to lay out an integrated social media strategy regarding how to engage existing and new potential customers in a meaningful and mutually beneficial dialogue.
Expand into other markets -- While CSPs will always be pressured to maintain revenue and profitability targets for core/legacy services, they will also need to find new ways of growing revenue. As data connectivity and increasingly powerful devices become more accessible globally, opportunities exist for CSPs to build services supermarkets that participate in (or disrupt) adjacent value pools. These businesses range from "small m" (for mobile) solutions (such as mHealthcare, mEducation, mPayments and connected car) to consumer clouds, location-based data services and financial services.
As the services supermarket, CSPs can play three potential roles that define sources of differentiation and value capture: reseller, enhancer (use assets to improve the product and create differentiation) and inventor. But there's a catch: they must upgrade their innovation processes, from how ideas are sourced - to how they are filtered and tested - to how they are brought to market and scaled.
Some final thoughts:
Using these survival tips, CSPs have an opportunity to break free from any rigid, siloed processes and ride a wave of growth. That's a better contingency plan than sinking in a perfect storm.
- Tom Loozen is the Managing Director of Global Communications Industry and the EALA Communications Industry Lead at Accenture.
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