Traditional telecom carriers can no longer rely on conventional competitive tactics such as price cuts, promotions and basic product bundling to maintain their edge in the consumer segment – and face increasing competition from non-traditional players like Apple, Google and Nokia. However, more than 80% of today's telcos will fail when they try to transform themselves to meet new competitive challenges.
Gartner analysts explains that the new players have a strong understanding of consumers and are adopting new business models that are forcing carriers to
reassess their approach and service delivery.
"The players that will be among the successful 20% will be the ones that provide a consumer-centric experience, for example through interactive TV, where users will be able to chat online while watching their favourite TV programmes," says Martin Gutberlet, research vice-president at Gartner.
Owning infrastructure initially gives telecom carriers some competitive edge but this is mitigated by non-traditional competitors that don't own a network but bundle their services attractively.
"As demonstrated by Apple and Google, three new attributes are coming into play and driving change in the marketplace that the traditional telecom players must embrace to become successful content enablers, which create and/or deliver content. They are trust, usability and an exciting customer experience," says Gutberlet. "If customers trust your services, they are willing to grant you access to their personal life. Ultimately, improving the customer experience will increase customer loyalty."
In this changing landscape, the winners will be those companies that understand consumers¹ needs, focusing on usability and actually giving control back to the users. The losers will be the ones that focus on overly technical product differentiation that the majority of consumers will not understand and therefore not use.
Telecom companies need to make some strategic decisions. Gartner predicts that by 2012, half of the 20 largest carriers will establish new lines of business outside telecom, such as media entertainment, advertising and managed services, but more than half will fail.
Further, leading carriers in developed markets such as Vodafone and BT will be able to derive at least 15% of revenue from such non-traditional sources.
"To uncover adjacent markets, carriers must leverage their unique assets, in areas such as billing, secure authentication and quality of service, and develop multiple
partnerships to add creative talent to existing operational expertise."
According to Gartner, three business models are emerging that will help carriers remain competitive through 2012:
* Content innovator – entering the media market: Embracing this model, content innovators produce and own their content and will use exclusive content to differentiate themselves. For example, France Telecom is investing in film production while SK Telecom acquired a record label. The risk of this model is a temptation to focus purely on content ownership at the expense of providing customer experience.
* Aggregator: Unlike the content innovator model, the aggregator model will not involve the creation of content, rather the sourcing and packaging of it. Carriers that adopt this model realise that much future content will come from the internet. Their aim will be to make it as accessible as possible, given the constraints of networks and devices, especially mobile phones. Aggregators will engage in content location, rendering, billing, advertising insertion and customer care and, as such, will have the opportunity to offer comprehensive bundled packages.
* Bit pipe carrier: This represents a stable business model based purely on connectivity as a utility but with both lower revenue and lower margins than today. Rather than emphasising content and services, the bit pipe model is driven by operational excellence. In order to maintain profits amidst declining revenues, carriers that adopt a bit pipe approach are expected to reduce their core operational staff by at least 20% by 2012, driven by internet protocol (IP) technology, infrastructure consolidation, process automation, operational outsourcing and cutthroat competition. "The risk of this model is making the wrong network investment decision," Gutberlet says.
He adds: "We envisage that carriers will use any combination of the three business models. A company that has successfully deployed this approach is Telefonica, which was once a content innovator and following its sale of Endemol became an aggregator and a bit pipe carrier.
"The telecom industry in 2012 will be very different from the one we know today. Developing strong partnership skills, focusing on customer user groups, embracing internet services and starting to talk the language of Web 2.0 will enable the carriers to thrive well into the future," says Gutberlet.