The recent English Premier League (EPL) and World Cup 2010 bidding exercise in Singapore has put pressure on the local telcos to up the ante in this fiercely competitive market for exclusive content. Inevitably, it drives up the cost of running the business for operators, while at the same time causing inconvenience, anxiety and unhappiness for sports enthusiasts of having to use different set-top boxes in order to view exclusive content from separate operators. However, this is soon going to change when digital contents can be streamed through the Next Generation National Broadband Network (NGNBN) and the Media Development Authority (MDA) has already mandated the two operators to work out a way to share programmes and content through a new cross carriage rule.
This is only the beginning of the paradigm shift in the telecommunication industry. As the industry starts to consolidate, network coverage and exclusive content will no longer be the differentiators. We can expect that the telcos operating model will continue to evolve, with customers the eventual winners from these changes.
But how will the industry evolve in this rapidly changing environment? Other factors are also playing a role; as the market becomes more open and mature, revenue growth will slow down. Business leaders are hard-pressed to focus on maximising return on assets (ROA) and reducing cost.
Maximising ROA and its implications
Traditionally, telco operators provide an end-to-end value chain to customers from exclusive contents aggregation, delivery, service provisioning to customer service and network infrastructure. The forthcoming NGNBN and the mandate for operators to share content have fundamentally changed how the industry operates. Telco operators will no longer enjoy owning exclusive content or unique services to lock in customers.
To maximise ROA, we have already seen a horizontal restructuring of the industry in the more developed European and US markets. We see the industry with a smaller number of network wholesalers, e.g. network companies (NetCo) and operating companies (OpCo), an increase in the number of retail service providers (RSPs), and a handful of largescale independent media and content providers, in short, more shared network assets versus independent content aggregators such as Google, iTunes, Facebook, etc.
It is at this juncture that telco operators, especially full service providers, need to relook the value they offer to their customers. In the past, telco operators were willing to invest heavily on the network infrastructure with the assumption that additional revenue generated from contents, applications, games, etc., would justify these huge investments. However, the content aggregation business requires economies of scale to be successful and is dominated by a few large players. Some content aggregators, like Apple, even have specialised devices (iPhone and iPad) for customers to consume content. Telco operators are relegated to become just a fat pipe for customers to access content. This is contrary to the original business case.
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