During the current economic turbulence, telecoms companies will need to implement open and shared innovation models in order to stay afloat.
In one of its latest reports, Frost & Sullivan says the economic crisis is inevitably affecting the global telecommunications sector with the continuous strain in the credit market having a big effect on investments and the reduction in consumption changing the adoption and acceptance of new services.
“The telecommunications sector will likely be hit by the recession in two main ways,” says Frost & Sullivan ICT analyst Saverio Romeo. “First, due to the lack of credit in the global economy, investments will fall in the beginning of 2009. Investments related to costly projects such as acquisitions, will feel this drop intensely. Second, consumption will fall as people move away from wants and focus on their needs. This will reduce the uptake of innovative services.”
Service providers, he adds, are already trimming down their operations. Since November 2008, Vodafone and Telecom Italia announced mid-term cost reductions of £1-billion and €2-billion respectively. BT and Virgin Media have both announced job cuts, the former relieving 10 000 employees, while the latter reduced its workforce by 2 200.
“Optimisation of organisational resources and processes, as well as promoting business innovation will be key success factors in this environment,” Romeo says. “This means being able to design lower cost and disruptive business models as an effective way to attract consumers. Disruptive business models here refer to combining existing technologies with new business models to create low cost products and services (i.e. the combination of mobile content with forms of marketing and advertising).”
This will require partnering with players of different expertise. This type of collaboration can reduce costs, advance the quality of service, and offer more attractive packages to the customer.
An example of optimising resources in a positive way is mobile network management sharing. The innovation process, as it is opened to different players, could prove to be the lynchpin to surviving the crisis.
Encouragingly for the industry, many national governments and super-national organisations have come to view the telecommunications sector as a critical means to overcome the crisis. For example, the European Economic Recovery Plan places a huge amount of importance on broadband infrastructure, ICT services and sustainable telecommunications.
Even the European Union has committed to an immediate investment of €200-billion to implement "public-friendly" legislation. From 2009 to 2010, the EU plans to invest €1-billion for the development of “high-speed Internet for all” with the aim of achieving 100% broadband coverage across the EU by the end of 2010.
These types of actions, from a governmental perspective, prove not only the importance of telecommunications to the economy, but also help protect this sector from drastic decline.
Yet even with this support, major mobile network operators have declared processes of strategic and operational adjustments in order to face the tough economy in 2009. Of the plethora of rescue plans presented, two trends stood out.
One clear strategy is to pull the purse strings tight through cutting costs, reducing investments, monitoring consumption through pricing and reigning in cash flows. Supporters of this strategy hope to minimise the short-term damages of the recession. The other major trend is to identify and act upon the need to use this time to build opportunities out of the recession.
“Frost & Sullivan believes that innovation should remain at the core of economic and industrial policies,” says Romeo “We also believe that the same networks that are spreading the crisis can also be the ones to promote innovation in a collaborative and open manner, stimulating economic growth.”