Stating the Obvious with Clarity and Style

The management consultancy Booz & Company have put out a short summary of what they think will be the big trends of the telecom sector in 2010. The trends are not surprising: talk of emerging markets, apps and services being more important than basic voice calls, demand for ubiquitous internet, etc.

So while there is nothing revolutionary here, it's  worth a quick read if you want to feel briefed on the major talking points for the industry going forward. You never know when the conversation at a trendy dinner party will shift to the topic of operational efficiencies - now that the era of mass greenfield growth is over, how should telcos maintain bottom line growth? When that beautiful person to your right at a trendy restaurant asks the question, you need to have an anwer.

Read on, your membership of the in crowd and polite society may depend on it...


-----PRESS RELEASE-----------

2010 telecoms marketing shifts

The changes shaping the telecoms landscape of the future are happening now and players quick to take advantage of them will find real opportunities for growth

Dubai, UAE, 10th January 2010 - The global recession of 2008-09 is seemingly lifting and the telecom sector--with the notable exception of equipment and handset manufacturers--escaped the worst of its effects. Revenues among operators worldwide remained mostly steady, with the exception of mobile roaming revenues generated by business customers, and ongoing cost-cutting efforts enabled operators to maintain profitability, according to a new report by Booz & Company.

"The coming year, however, may be different. The industry is entering a period of significant change in which five distinct shifts which will come into greater focus, in terms of geography, services, the move to digital, operations, and regulation," noted Karim Sabbagh, Partner and the Global Practice Leader for the Communications, Media & Technology at Booz & Company. Those companies that can take advantage of these changes will find real opportunities for growth; those that can't will be considerably challenged. 

Growth Shifts to the East and South

Much of the growth in the telecom industry will shift from mature Western markets toward developing countries. This trend is already fully apparent among handset manufacturers, which build most of their handsets in Asia-Pacific. Even among operators, the vast majority of subscriber growth is outside the West. In the first half of 2009 for instance, India added 142 million net subscribers and China added 87.4 million, while the U.S. added just 14 million. "In Asia, we still see telecom players with extraordinary EBITDA margins--above 50 percent--that are generating tremendous amounts of cash," explained Hilal Halaoui, a Principal at Booz & Company.

These rates of growth and cash generation are also changing the level of M&A and expansion activity across the globe. While cross-border activity on the part of U.S. operators is negligible, and sporadic in Europe, carriers in Africa and the Middle and Far East continue to make deals to expand their influence over large territories--even into the West. "Just how disruptive a global force these rapidly expanding players will be remains to be seen," added Sabbagh. 

Focus Shifts to Value-Added Services

Much of the telecom world is being rapidly commoditized--from connectivity and basic services to low-end handsets, to networking equipment to the networks themselves--prompting virtually every player in the sector to seek out new sources of value. The clear solution: services. Everyone is moving up the value chain. Equipment manufacturers are offering networking and field operations services, handset manufacturers are building high-end smartphones complete with added services and fully stocked 'app stores,' and operators are moving to provide customers with more and more online applications, complete with content deals. Meanwhile, Internet and technology players such as Google and Facebook continue to stretch their wings into the telecom space. More media and consumer electronics companies are likely to jump into the space as well.

As clear a trend as the move to services is, it is still in its infancy. "It therefore offers lots of opportunity for growth for the most innovative players, as well as the capacity to be massively disruptive to those that can't keep up," said Halaoui.

The Digital Generation Sets New Expectations

As rivals in the telecom sector battle to move up the value chain, the world is quickly moving toward an "all digital, all the time" model. Consumers are coming to expect the digital experience--texting, social networking, news and information, high-definition movies--anywhere, anytime. Telecom operators are already beginning to view their Internet portals as a critical asset in the race to provide services. "Yet this trend will affect every aspect of the telecom industry--from the high-speed networks consumers will insist on, to the variety of new devices on which they will expect to be able to connect, to the ever-expanding kinds of applications they will be willing to pay for," commented Sabbagh. "And the new generation of 'digital natives,' those who know no other world than always-on connectivity, will only grow more demanding."

Operational Efficiency Becomes Even More Critical

The commoditization of large swaths of the telecom value chain is forcing every player in the industry to create the most efficient operations they possibly can--to survive in the near term and to prepare for a future in which they must be more focused, agile, and innovative. Players in front of this curve are already looking at the long-term right-sizing of their organizations, outsourcing non-core functions such as engineering and network and field services operations, even spinning off entire passive infrastructures that are no longer central to creating real value, and completely overhauling their business processes. Many carriers are driving large-scale supply chain and device management transformations as well.

"The goal, ultimately, is to free up cash and resources for further investment in truly strategic assets, such as new services, new technologies, and new business models that will truly differentiate players from their competitors," Halaoui said. This will become an increasingly critical capability as players look to move up the value chain.

Regulators Take a Renewed Interest in the Sector

As telecom players move to add more services that require faster networks, many policymakers and regulators around the world are moving to support these efforts. No longer does the ideology of the free market hold complete sway over regulatory thinking. Instead, regulators are becoming more prescriptive and more interventionist as they look to support economic growth through large-scale broadband network deployment--in some cases even engaging directly in such investments. At the same time, regulators in some geographies are continuing efforts to free up specific markets, such as retail and wholesale telecom services in Europe, and to further ensure "net neutrality," guaranteeing equal use of the Internet by all players.

"Managing the interplay between the continued deregulation of retail and wholesale telecom services and the renewed regulation of national networks will become a critical strategic capability for industry players that hope to succeed in this more highly regulated future," Sabbagh explained. 

It is critical for all players in the telecom sector to realize that these telecom shifts are happening now. As such, they present real short and medium term growth opportunities. Operators that can begin to think about moving into the services space should do so; they must think deeply about their business models and how to acquire such assets, or tap into external innovation through cooperative agreements. They must also continue to work on long-term operational efficiencies that can earn the capital and resources to prepare for the telecom industry of the future.