Adopting Change

Telcos Switching Emphasis to New Business Models but Slow to Change
by: Jerry Liao

A new IBM survey of more than 250 global telecom executives shows how the industry is responding to the ongoing revolution in the communications and media sectors.

The survey, conducted by the Economist Intelligence Unit on behalf of IBM’s Institute for Business Value, found that 69 percent of telecommunications service providers expect business model transformation to be the primary source of value over the next five years compared to only 34 percent in the preceding five years. An overwhelming majority of executives (72 percent) expect collaboration with external partners will be critical as they structure these new business models.

Cost containment and efficiency have been the key watchwords in the industry for nearly a decade. The new opportunities around data, content, video, advertising and IT services are causing service providers to take a fresh look at business models to once again drive growth. This growth imperative is reinforced by the continued decline in voice revenues — although telecom executives do not anticipate the rate of decline to be as severe as once feared — and the rapid convergence of new media, online and telecommunications players.

Business Model Transformation Far from Reality for Service Providers
Contrasting telecom executives’ reported willingness to embrace business model change, the respondents continue to prioritize traditional sources of competitive advantage such as network coverage (52 percent of respondents) and customer reach (45 percent). A smaller percentage are prioritizing the capabilities required to deliver personalized, interactive services and offers to customers, such as device control/management (8 percent), ease of use (11 percent), customer service (16 percent), and customer knowledge (22 percent).

“Service providers demonstrated a new recognition that business model innovation is paramount, yet many of our survey respondents still pointed to traditional strengths as their differentiators,” said Noel Taylor, general manager and global communications sector leader, IBM Global Business Services. “Ease of use, customer knowledge and device management are all central to the delivery of new content and advertising-based services — and all potentially offer key sources of competitive advantage — but they are not yet key priorities for many service providers.”

Converged Content Services Are Growth Engines; Voice and Broadband Will Still Dominate Revenue Mix
Although broadband and voice services are expected to remain dominant in the short term, the survey showed telecom executives expect the mix of revenue sources to shift significantly over the next five years toward converged content services like television, video and the ability to manage these environments. 44 percent of global telecom executives are bullish about securing major-to-moderate revenues from video-related services, either in the form of subscription-based revenue or through advertising. Over half the executives (68 percent in Asia Pacific and 56 percent in North America) expect non-video content services like ring tones, text voting, or music downloads to make major-to-moderate revenue contributions.

The access service providers have to customers, through multiple devices and channels, and the extensive customer insights inherent in that relationship, appeal to advertisers’ demands for personalized marketing messages based on contextual factors such as location/presence, access speed and device capabilities.

“While many operators expect advertising to make a significant contribution to overall revenues, they have yet to find a systematic way to exploit this new market opportunity,” said Bill Battino, Communications Sector managing partner, IBM Global Business Services. “Many expect to partner with established on-line players such as Google, Yahoo! and AOL for advertising-based services but just how service providers will monetize customer information and access remains to be seen. Telecom operators have a fundamental choice to make –whether to create rich customer databases with advanced analytics to serve ads directly via mobile and broadband platforms or to work through ad agencies and online aggregators in a more passive fashion.”

Customer Experience Emerging As Key Differentiator
As consumers increasingly demand convenience, control, flexibility and choice, creating a consistent ‘customer experience’ across devices and networks has become a top focus for telecommunications and media providers. Sixty percent of executives who cited revenue growth as important believe the growth can be influenced by improving the experience across all channels, including online and retail operations.

“Driving substantial revenues from new service is a vastly different challenge from delivering traditional telephony services. Consumers clearly expect flexibility and control over their end-to-end media experience across a myriad of applications, whether they’re at home, in the car or walking through the mall,” said Taylor. “To respond to consumer trends and improve loyalty, service providers will need to place greater emphasis on ease of use and simplicity despite the underlying complexity of the services and devices, and support it with outstanding customer service.”

Service Assurance Investment Lacking
Although the vast majority of respondents (89 percent) indicated that service quality is emerging as an important differentiator, less than one-third identified service quality management and assurance as an area of strong focus or investment. Indeed, nearly half of the executives polled reported their organizations had no end-to-end service assurance capability.

IBM contends that if telecom providers are to realize growth through converged telecom, IT and media services, senior executives will have to pay more attention to service quality demands. Customers expect the same carrier-grade service quality for new services as they get from providers today. This will require investment in significantly more complex, fully integrated and customer-oriented service management capabilities.

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