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Home > Online Press > Incumbent telcos must rethink what they sell and how they sell it, says Analysys

05 July, 2005 10:01  

Incumbent telcos must rethink what they sell and how they sell it, says Analysys

* Telcos need longer-term strategies for evolving orientation of value, as regularly billed service revenue is expected to decline as a proportion of total consumer revenue over the next decade
* Retail wireline divisions must adapt to sell products and applications as well as network-based services
* Broadband has to co-exist, learn from and share resources with mobile’s distribution structures
* Much looser internal structures between customer-facing entities and network operations are required

The telecoms industry has to face up to and plan around the long-term re-orientation of value, and incumbent telecoms operators must rethink what they sell and how they sell it, according to two new reports - The Telco Product Portfolio beyond 2010 and The Telco Organisational Structure beyond 2010 - published by Analysys, the global advisers on telecoms, IT and media.

"Value will come from an increasingly complex and hybrid combination of networks, applications and devices, and in order to benefit from these fundamental changes incumbent telcos will need to think beyond the current model of deriving all revenue streams in the form of services from their network assets," says Dr Rupert Wood, lead author of The Telco Product Portfolio beyond 2010. "This complex environment will exacerbate tensions between network operation and retailing, and operators will therefore need to develop looser structures between the two."

According to Analysys, resisting the threats to traditional voice services by overhauling voice networks and reducing operating costs may prove costly and ultimately self-defeating for incumbents, as mobile voice will tend to win in price wars. A proactive engagement with broadband, and an accommodation with mobile, has the obvious advantage of targeting the most promising growth areas for revenue. However, broadband presents two major problems for operators.

As Wood explains: "First, IP can transform network-derived services into edge applications, so voice can be transformed into an application and can be sold through edge devices. Second, faster broadband will begin to trespass on the broadcasting industry, and broadcasting is more efficient for the delivery of one-to-many content. For on-demand content, the increasing capacity of affordable home storage devices means that the business case for networking content is being continually weakened."

In many cases, the report argues, the kinds of service - such as simple voice - that have traditionally been seen by operators as generators of monthly revenues will transform into applications and devices, with telcos being reduced to bit-carriers. And some new services - for example videocommunications - from which telcos may have been hoping to derive regular income, may bypass telecoms operators entirely.

To benefit from these changes, incumbents' wireline divisions need to rethink their retail strategy and the nature of their contract with end users. Applications, content and devices will have to figure as a greater part of revenues, and incumbents will have to think of new ways of packaging combinations of equipment, service and support to maintain steady revenue streams. The report suggests that regularly billed service revenue could shrink from over 90% of total consumer revenue now to as little as 65% by 2015. In a world where wireline services will have to co-exist with mobile services, such wireline retailers divisions will have to learn from, and share resources with, the mobile divisions' higher-touch distribution and sales methods.

The report states that it is wishful thinking to see a single advanced network as bringing all the elements of one-to-one and one-to-many communications together and delivering them on a plate to the telecoms industry. Instead, where they have traditionally derived value from ownership of the networks, operators must now formulate business strategies that can also derive value from intelligent edge applications and devices. As Wood argues, "From being network service providers, telcos must evolve into being full communications enablers."

To respond to these changes, incumbents must also address basic restructuring tasks, as their current structures are essentially oriented to maximising the value of their network assets. As Tim Hills, lead author of The Telco Organisational Structure beyond 2010 points out, "There have already been several high-profile examples of structural tension within European incumbents between the provision of networks and the provision of services/applications. Looser structures with distinct customer-facing corporate entities will enable incumbents to be much more effective at addressing the consumer and enterprise markets because this environment permits a much greater range of competitors, many from outside the traditional telecoms industry."

The Telco Product Portfolio beyond 2010 assesses long-term strategic options for consumer sales among European incumbent operators, in particular their consumer fixed divisions, and shows how the rise of broadband and mobile will enlarge the role of devices, applications and content within their product portfolios. The report looks at options for sales and distribution, at the evolving relationship that fixed/broadband divisions will have with mobile divisions, and provides an assessment of the likely breakdown of consumer revenues in the second decade.

The Telco Organisational Structure beyond 2010 provides a complementary angle to The Telco Product Portfolio beyond 2010, by looking at the implications for incumbent organisational structure of the long-term re-orientation of value in the telecoms industry. The report covers the evolution of incumbent structures up to now, and assesses the cases for looser bonds between retail and network entities within an incumbent framework, and for the full separation of retail and network units as independent entities.

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