Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
Disruptive change, by definition, is impossible to predict. Merely eight years ago few, if any, industry observers anticipated the rise of social media or the impact that Apple would make by sparking innovation within the mobile phone and tablet revolution.
While uncertainty is a fact of life, we believe there are a few critical trends that will define the telecoms market of the future. On the demand side, a number of trends stand out including the geopolitical power shift towards Asia and Africa; the maturing Facebook generation; the need to put “big data” to work; and the increasing importance of mobile commerce. Supply-side trends point to a battle emerging for revenues and profits in adjacent markets; the emergence of next-generation cloud services; the dominance of digital ecosystems; ubiquitous network access and an increasingly global delivery mind-set. All of these will reshape the industry landscape.
The interplay of demand and supply-side trends suggests two distinct growth arenas for the industry in 2020. The first is the fast growth in developing markets – growth that will continue to fuel above average growth rates for players in those markets. The second arena – and in many ways the more exciting – is the conflict for control of critical revenue and profit pools along the digital value chain.
Strategic plays for breakout growth
We see six discrete strategic plays across the two arenas that offer the promise of breakout growth. For all but one, operators will need an applications and services focus – and that will require reinventing what it means to be a telecom company and shifting operating models profoundly.
1. Emerging market leader/innovator: Telecoms revenue growth in the emerging markets is still on the rise. The opportunity here is for operators from developed markets to bring to bear their expertise in areas like marketing, product development and operating efficiency in accelerating the growth of incumbent players. Innovative products that are emerging for mobile health and mobile money are also being deployed more rapidly in these countries and offer opportunities to put capabilities and experience to use.
2. Global or regional cloud and connectivity leader: Cloud and connectivity solutions are rapidly growing in importance for multinational and large enterprises. The challenging global economic climate is also inspiring businesses to look at how they can increase cost flexibility, achieve scalable growth and gain productivity. Most businesses believe cloud services help their efficiency. Operators will require strong industry partnerships that give them credibility and expertise, and a service-based operating model to help achieve standardization and scalability.
3. Small and medium business services’ provider: Operators have several options for tapping into this opportunity. First, they can extend their current SMB products and services to include simple, standardized and scalable cloud-based solutions. Second, they can extend their SMB products and services into developing and emerging markets to address untapped growth. Finally, they can acquire a dominant SMB service provider in selected markets, as a way to enter quickly, and can then replicate the acquired provider’s services in other markets. But they’ll need to clearly understand and deliver what SMBs need – reliability, value for money, simplicity and convenience – to gain traction with SMBs.
4. Digital services enablement leader: Having direct access to consumers’ devices, operators can become trusted brokers of digital identity. They can combine the device identity, location information, consumer data and the latest verification technologies to create a secure transaction framework. Other digital enablement opportunities include machine-to-machine services, physical order fulfillment, billing and payments, customer care, etc. While operators already have most of the delivery infrastructure required, they will need to develop capabilities in creating solutions, adapting technology and delivering or managing services.
5. Industry solutions enabler: Advancements in digital technology are revolutionizing specialized services, such as healthcare. The digitizing of health records and the use of digital devices, both wearable and in the home, are increasing. Operators can partner with vendors – such as mobile medical-solutions developers – and can collaborate with industry groups to bring e-health services to consumers. They will need to invest in emerging economies as sources of innovation, and then transfer any ideas to developed economies. Operators must then align their business practices with the healthcare ecosystem and deliver innovative services with the right technological know-how, such as interoperable devices and data intelligence.
6. Multi-market media and over-the-top intermediary: According to PwC’s “Global Entertainment and Media Outlook 2012-2016,” global electronic home video revenues are expected to reach $18 billion by 2016; and the digital music market is expected to reach $14 billion over the same period. There are two ways to go after these opportunities: by bringing premium content to subscribers and using the content to boost subscriber numbers and revenue, or to become a network-agnostic, over-the-top player to deliver content. Operators will need to either own or have access to distribution networks, cross-platform delivery networks, and advanced analytics and business intelligence tools.
Agility and focus
Each strategic play mentioned above is a big bet in its own right. All require substantial investment in new assets and capabilities. All are potentially regional and global. And all are characterized by strong established or emerging competitors.
Capital is limited, as is organisational capacity and capability. Put simply, only a limited number of truly big, game-changing strategic plays will be possible. So, companies must make choices.
Successfully working through this challenge will require a rigorous and disciplined dialogue at the management and board levels on the relative merits of various growth options. Organizations will need the agility to tackle the challenge of moving into new markets, dealing with uncertainty, and learning from both success and failure in an environment where constant change is the norm.
If operators in developed markets don’t rise to this challenge, they’ll risk remaining trapped in a cycle of decline and defense as barriers to entry are lowered in their core markets and as commoditization eats away at the profitability of their carriage businesses. From the perspective of value for shareholders, this path suggests a future as a utility stock, focusing primarily on cash flow and dividends – rather than focusing on a more compelling path to growth with a strong footprint and options in the digital economy.
