Telecoms operators must work together as the industry evolves

The telecoms industry is entering an era of mega-covergence.

Telecoms companies are pushing for mega-convergence through platforms like internet content through web-based TV. Andrew Harrer / Bloomberg News

The telecommunications industry is converging between three tectonic pillars - broadband internet, wireless networks and content.

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Ripples and aftershocks of this collision are expected to have deep implications on how telecoms operators manage their businesses and future investments. This seismic shift is so great that it has become known in the industry as mega-convergence.

At the heart of this are key trends that are reshaping the way telecoms services are offered and used all along the chain from vendors to telecoms operators and end users.

The latter have become active contributors to this chain through user-generated content - known as web 2.0. This phenomenon has transformed millions of content users into avid content producers.

Telecoms companies have been pushing for mega-convergence most overtly, with internet content ranging from video streaming, web-based TV, music and online gaming to basic internet telephony, or voice over internet protocol.

Handset vendors, meanwhile, have also become key industry shapers with the proliferation of smartphones and tablets that have the potential to reshape data traffic and content use.

Smartphones and tablets are also driving the increase in the use of mobile content-leading operators to re-visit their mobile broadband strategies and infrastructures.

Widespread and affordable broadband access encourages innovation, contributes to productivity and attracts further investment in a virtuous cycle to widen the diffusion of broadband services even more.

Telecoms operators, victims of their own success, seem to be the first to bear the aftershocks from this mega-convergence.

These developments in the industry present serious challenges to operators' revenues and profits. The healthy increase in mobile broadband connections is expected to come at the cost of a decreasing average revenue per user.

At the same time, the increasingly higher cost of bandwidth consumption, particularly for mobile services, seems to be leading the broadband business model to face serious challenges to its profitability.

Policies and roadblocks were introduced by telecoms companies worldwide to reduce the burden of this burgeoning data traffic. But it seems absurd trying to resist and divert the trends behind it to increased demand for data services.

Telecoms operators now need to reclaim their leading role in the newly emerging converged industry.

They need to find ways to profit from the open internet, to make new revenues through "smart" services and networks and, most importantly, to optimise the cost of running their networks and to make their services more profitable.

This calls for a deep rethink in the way telecoms companies operate their networks and potentially to major restructuring in the industry. Individual telecoms companies will not be able to make much difference on their own.

Collective action will be needed for this to happen, and in some cases, external catalytic action will be essential.

On the operational level, new channels need to be established to allow some level of co-ordination between competing operators.

Telecoms services in the era of mega-convergence must comprise a complete bundle of connectivity, hardware, services and content.

In the long term, competition between telecoms companies should evolve to fit the new realities of the industry.

We envisage four levels of consolidation or collaboration taking place in the industry: in-country consolidation through infrastructure consolidation or complete mergers; in-country collaborations through partnerships and infrastructure opening for cross-sharing; cross-border mergers and acquisitions; and cross-border collaboration.

In the age of convergence and transformation, collective thought leadership is of great value to avoid pulling in different directions that will stall the emergence of telecoms companies as the leading innovators in the industry.

The telecoms companies stand to win or lose most from the global trends unless a new order is established to manage how they operate, compete and collaborate. This new order will need catalysts, both internal to the industry and external. Great value is to be unleashed if they reclaim their leadership role as innovators in the industry, and all contributors to this success will share the returns.

Ghassan Hasbani is the chief executive of international operations at Saudi Telecom