networks, applications and devices, and in order to benefit from these
fundamental changes incumbent telcos will need to think beyond the current
model of deriving all revenue streams in the form of services from their
network assets,” says Dr Rupert Wood, lead author of The Telco Product
Portfolio beyond 2010. “This complex environment will exacerbate tensions
between network operation and retailing, and operators will therefore need
to develop looser structures between the two.”
According to Analysys, resisting the threats to traditional voice services
by overhauling voice networks and reducing operating costs may prove costly
and ultimately self-defeating for incumbents, as mobile voice will tend to
win in price wars. A proactive engagement with broadband, and an
accommodation with mobile, has the obvious advantage of targeting the most
promising growth areas for revenue. However, broadband presents two major
problems for operators.
As Wood explains: “First, IP can transform network-derived services into
edge applications, so voice can be transformed into an application and can
be sold through edge devices. Second, faster broadband will begin to
trespass on the broadcasting industry, and broadcasting is more efficient
for the delivery of one-to-many content. For on-demand content, the
increasing capacity of affordable home storage devices means that the
business case for networking content is being continually weakened.”
In many cases, the report argues, the kinds of service – such as simple
voice – that have traditionally been seen by operators as generators of
monthly revenues will transform into applications and devices, with telcos
being reduced to bit-carriers. And some new services – for example
videocommunications – from which telcos may have been hoping to derive
regular income, may bypass telecoms operators entirely.
To benefit from these changes, incumbents’ wireline divisions need to
rethink their retail strategy and the nature of their contract with end
users. Applications, content and devices will have to figure as a greater
part of revenues, and incumbents will have to think of new ways of
packaging combinations of equipment, service and support to maintain steady
revenue streams. The report suggests that regularly billed service revenue
could shrink from over 90% of total consumer revenue now to as little as
65% by 2015. In a world where wireline services will have to co-exist with
mobile services, such wireline retailers divisions will have to learn from,
and share resources with, the mobile divisions’ higher-touch distribution
and sales methods.
The report states that it is wishful thinking to see a single advanced
network as bringing all the elements of one-to-one and one-to-many
communications together and delivering them on a plate to the telecoms
industry. Instead, where they have traditionally derived value from
ownership of the networks, operators must now formulate business strategies
that can also derive value from intelligent edge applications and devices.
As Wood argues, “From being network service providers, telcos must evolve
into being full communications enablers.”
To respond to these changes, incumbents must also address basic
restructuring tasks, as their current structures are essentially oriented
to maximising the value of their network assets. As Tim Hills, lead author
of The Telco Organisational Structure beyond 2010 points out, “There have
already been several high-profile examples of structural tension within
European incumbents between the provision of networks and the provision of
services/applications. Looser structures with distinct customer-facing
corporate entities will enable incumbents to be much more effective at
addressing the consumer and enterprise markets because this environment
permits a much greater range of competitors, many from outside the
traditional telecoms industry.”
The Telco Product Portfolio beyond 2010 assesses long-term strategic
options for consumer sales among European incumbent operators, in
particular their consumer fixed divisions, and shows how the rise of
broadband and mobile will enlarge the role of devices, applications and
content within their product portfolios. The report looks at options for
sales and distribution, at the evolving relationship that fixed/broadband
divisions will have with mobile divisions, and provides an assessment of
the likely breakdown of consumer revenues in the second decade.
The Telco Organisational Structure beyond 2010 provides a complementary
angle to The Telco Product Portfolio beyond 2010, by looking at the
implications for incumbent organisational structure of the long-term
re-orientation of value in the telecoms industry. The report covers the
evolution of incumbent structures up to now, and assesses the cases for
looser bonds between retail and network entities within an incumbent
framework, and for the full separation of retail and network units as
independent entities.
