If you are looking for an easy life, do not run a fixed telecommunications incumbent. Their traditional source of revenue – voice calls – is in rapid decline. Broadband will provide a replacement in the short term, but not the growth demanded by capital markets. Future growth requires moving into media and IT markets, but these are new territories. Here, the competencies and cultures required for success are new to telecommunications operators, and the competitors are bigger, better resourced and more experienced.
The traditional approach of such operators will be to follow their monopolist instincts, creating conglomerates from IT to content. We believe incumbents should create flexible, independent organisations: free to merge with, or be bought by, content or IT providers. In short, they must be prepared to divide and conquer.
Voice is dead, long live broadband
Across Europe, since the beginning of the new millennium, the fixed sector has been characterised by lacklustre growth. Revenues from incumbents’ traditional fixed businesses have typically remained static, with share prices bumping along at below pre-1999 levels.
Delivering media and IT requires new and different capabilities
The capabilities required to deliver entertainment-focused services for residential customers differ almost entirely to those required for ICT services for businesses. The new value chain for residential services embraces many new activities currently from the media sector, such as content creation, aggregation and provision. The culture of such organisations is one of rapid response to fickle customer demands, and a keen understanding of consumer behaviour. This is a world away from climbing a telegraph pole.
Focused competitors have the freedom to innovate
The competitors in the residential entertainment and the business ICT markets are also quite distinct. Incumbents will need to compete simultaneously with the likes of both Sky and IBM. This is a very different proposition to competing with the alternative networks offering telecommunications services. These new competitors are larger, more resourceful and more experienced in these markets. They have evolved cultures receptive to meeting customer needs. They have businesses honed to the needs of the markets in which they operate, and experienced in handling the challenges of the services required.
The future for incumbents – winners and losers
In the new world, fixed telcos are having to move into media and IT to provide the growth that the capital markets demand. Nevertheless, competition in these new services will come from global heavyweights, and require competencies and cultures that are new to telecommunications operators.
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This article is from PA's 'Viewpoint on Telecoms'. To request a hard copy of this publication please e-mail: mailto:john.o'neill@paconsulting.com
