Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
My last three columns explored the wave of consolidation that is washing over the wireless industry and dove deep into the actions that network equipment and mobile device manufacturers must take to not only survive, but thrive. In this final column, I’ll outline how similar changes are also taking place for service providers and discuss what they can do to adapt their models for success.
Consolidation is well under way among wireless service providers around the world. A recent study published by my firm, PRTM, and The Mobile World, found that the top 20 global service providers own more than 60% of the world’s wireless subscribers. Notably, more than 25% of subscribers belong to the top four operators alone. The service providers growing most quickly include key players from emerging markets China, India and Latin America, as well as multi-nationals based in the Middle East, Northern Europe and Russia.
However, the tide is turning quickly as growth shifts from new 2G voice subscribers to 3G and 4G mobile data users. The recent announcement of AT&T Mobility’s acquisition of T-Mobile USA Inc. is clear evidence of the shift. In 2011, mobile network operators will need to anchor firmly in their home countries, investing in network capacity, quality and data speeds to retain customers and capture new growth coming from cord cutters and new devices.
As operators return their attention to their home countries, we believe they must employ one or more of three key strategies to compete successfully.
Strategy No. 1 – Be a whale, not a minnow: Modern business experts, including luminaries such as Michael Porter and Bruce Henderson, say that stable markets will typically not have more than three significant competitors, with the largest having no more than four times the market share of the smallest. Recent developments in the wireless industry support this point, with Cingular Wireless L.L.C. snapping up AT&T Wireless Services Inc. to form the new AT&T Mobility that has subsequently snapped up T-Mobile USA; Verizon Wireless consuming Alltel Communications L.L.C.; and Sprint Corp. combining with Nextel Communications Inc. to dominate the U.S. market. Similar moves are now afoot in Europe. For example, marginal U.K. players Orange and T-Mobile recently joined forces to create Everything Everywhere.
Winning combinations have moved swiftly to integrate and capture synergies, such as AT&T’s admirable integration and rationalization of its cell sites. Others, like Sprint Nextel, have struggled to combine disparate cultures and rationalize competing technologies, and have seen years of losses and instability as a result.
Strategy No. 2 – Change the game: As the wireless industry reaches an advanced stage of maturity, companies with truly innovative operating models are uniquely positioned to take advantage of the need for consolidation of network investments. For the first time, wholesale models have become credible alternatives to traditional owner/operator approaches. Some companies, such as Clearwire Corp., are deploying the wholesale model to rapidly achieve scale and to gain access to potentially valuable sales channels and partners. For a different approach, consider LightSquared, which is using the wholesale model to disaggregate sales and service from capital investments, thus spreading the risk across multiple players with valuable brands.
The potential of wholesale models is not lost on key players as markets turn attention to 4G mobile broadband. Russian operator Yota’s recent decision to share its 4G LTE network with four leading competitors promises to accelerate the pace of network deployment in this ballooning market. No less important, it will reduce the cost to consumers while improving coverage. To make the wholesale model work, however, network operators must rethink every step in their operations and organizations. Otherwise, they could fall into the trap of past mobile virtual network operator models.
Strategy No. 3 – Deliver a world-class experience: Lastly, to rise above competitors in the consolidating service provider markets, companies must provide a superlative customer experience. Recognizing this early on, Verizon Wireless positioned itself as a performance leader and as a result saw a decrease in churn and the growth of a stable and loyal customer base. After all, the difference between 2% churn experienced by many operators and the 1% achieved by Verizon Wireless preserves nearly 10 million subscribers over the course of a year for a company of its scale.
A superior customer experience needs to cover every touch point for wireless subscribers. From sales and marketing to network performance and billing, there is no substitute for quality. One client, who improved by more than 50% less than 18 months after identifying significant gaps and radically turning around network performance said, “the key is to focus on customer impact – what moves the needle.” Listening to the true voice of the customer is always the best place to start.
I’ve enjoyed sharing my perspective on how best to thrive in today’s chaotic wireless environment during the past four months. I look forward to hearing your perspectives and success stories. Until then, may the seas of change treat you kindly.
Dan Hays is a partner in the services, electronics, and software practice of PRTM, a global management consultancy focused on operational strategy and innovation. Hays works with communications service providers, equipment manufacturers, software companies, and media firms worldwide to drive growth, boost profitability, and set new standards for market leadership. Hays welcomes your comments at dhays@prtm.com.
