While telcos are experiencing stagnation in traditional service revenue, prices are expected to fall continuously as connectivity becomes a commodity. To guarantee revenue growth, telcos will have to invest in value added services since this segment is estimated to represent more than 50% of their revenue by 2020. This business transformation is obviously easier said than done.
Telcos benefit from a privileged position because they act as the main service providers for consumers as well as for businesses with high penetration and key access to the customer base.
Business clients hold the biggest opportunities as different verticals increasingly seek telecommunication-based services that will fulfill their specific needs and help manage the increasing amount of data.
Indeed, according to Frost & Sullivan’s Mega Trends research, home automation, smart metrics and other services targeting utilities and transport providers, like e-health and e-cars, are expected to account for 60.3% of the global telecommunications market, representing U.S.$7.3 trillion by 2017.
However, with residential users representing nearly 80% of the telecommunication customer base, service providers that successfully exploit the consumer market and monetize value added services in this segment will be at a significant competitive advantage.
One of the main advantages telcos can capitalize on is their direct access to the consumer’s pocket. Both in the prepaid and the postpaid segments, telecom users have grown accustomed to using credits for different services or adding them to their bills. The same ease-of-use is what brings more and more customers to give up illegal downloads and use audio and video streaming services such as Spotify and Netflix.
The main challenges here are twofold: telcos still view value added services as a customer loyalty strategy rather than a revenue generating strategy, and they are still behind in integrating their operations support systems (OSS) and business support systems (BSS) in a way that would allow them to offer tailored solutions to each customer.
While some value added services may help retain customer loyalty and reduce churn, it is unlikely to attract additional customers or revenues, due to the limited potential subscriber base and aggressive competition. This happens for instance with carriers that develop an exclusive over-the-top music service when there are so many multi-platforms services available. Partnerships with existing platforms, however, not only reduce the initial investment but also provide a singular opportunity for a solid revenue source.
Colombian carrier Tigo’s deal with French music streaming service Deezer is a successful example of an alliance between a telco and a specialized service provider.
Also, as Spain’s Telefónica’s specialized machine-to-machine (M2M) offers attest, this partnership strategy is especially valuable for the more high-end business segment. Their proposal includes services such as fleet management, consumer electronics, insurance telematics and financial services in both Europe and Latin America.
Migrating the subscriber base to newly integrated OSS and BSS is a lengthy process for telcos, but it will be an essential step in modernizing services as telecos face a growing need for flexible offers. This change is essential to increasing value added service revenue and new business models as well as to strengthen traditional telecommunication services, which will become increasingly data-oriented and will need better traffic management to keep networks up and running.
Article contributed by Georgia Jordan, ICT Research Analyst, Frost & Sullivan
Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
