Paul Bultema, executive director, UK and Ireland strategy lead for the communications, media and technology operating group of Accenture, talks about consolidation, differentiation and the rise of over the top services.The opportunities for differentiation in this industry are cyclical. At one time carriers competed on network coverage or price. Today, at the dawn of the 4G era, coverage and price remain important to customers—although in many cases there is nowhere for prices to go—but the deployment of new technology is adding into the mix the expectation of improved performance.
As a result, there is a significant opportunity for operators to differentiate on the customer experience, with a focus on the products and services on offer and the brands they represent. Paul Bultema, executive director, UK and Ireland and strategy lead for the communications, media and technology operating group of Accenture, believes that wireless operators are having a tougher time than the fixed line players, which is forcing a certain shift in the network operator business model.
“On the wireline side there is more of a sustainable and consistent enterprise space where you have not seen the same amount of churn,” Bultema says. “But on the mobile side you have the decline of voice and data revenues combined with the impact of growth in data over the last few years as well as the capex investment needed for those network upgrades. It puts carriers in a precarious position and they’ve historically been very vertical in everything like retail and distribution so they’ve taken a hit on many levels.”
Sticking to comparisons with the wireline industry, Bultema notes that operators have “horrific” data quality linking the physical layers of the network to the services used by customers. And while wireless operators also have this issue, they have the additional challenge of much more dynamic requirements. “It’s one thing trying to manage a POTS customer but another managing them in a 3G or 4G environment where you have to be so dynamic, while at the same time deploying your 4G network, and catering to tablets and devices that are very bursty and have never been seen before in the network,” he says.
This kind of pressure is driving operators to question themselves as to what’s really core and non-core to their business. Bultema acknowledges that operators are increasingly coming to accept that networks are not core to their business—a phenomenon which is driving the growth in outsourcing and network sharing.
“We’re going to see some major changes in the next two to three years in the mobile space, with increased M&A and consolidation impact in terms of retail and distribution and substantial consolidation on transmission,” he says. “Where regulators have historically encouraged competition they now have to change tack a bit and tolerate network consolidation. It’s more of a move towards a utility rather than each operator owning their own network.”
Bultema cites Australia as a prime example, where the National Broadband Network is being pitched as a core national utility—designed to make the country more competitive and aimed at trying to lower the cost of provision per subscriber. He also cites national investment schemes taking place in Brazil and many other countries, where it is unsustainable for every operator to have their own network.
By the same token, LTE is having a dramatic impact on operator business models—with the threat of the dumb pipe—the operator’s greatest fear—looming ever large. But according to Bultema, the dumb pipe strategy is a good thing for the industry. “Consider LightSquared in the US, which is trying to be the dumbest pipe possible. It has no product development or R&D but what it has is open APIs into their OSS and BSS and network so customers can come and plug in to their network and develop products and services on behalf of their own customers where they have greater customer intimacy. I think this model speeds innovation and moves innovation closer to the customers in niche segments,” he says.
In the wake of LightSquared’s creation, the industry has seen a proliferation of the LTE wholesale model adopted by Yota in Russia, as well as operators in Poland and Mexico. Accenture believes this will drive intense competition at the retail level and that mobile operators will be put under further pressure as a result.
“Technology is one of the drivers of this business model–Ethernet and backhaul is a pre requisite–and the upgrades around 4G are more difficult than operators expect. They may know network deployment but this is not just another network deployment,” Bultema says. “It has end-to-end ramifications across the company, starting in sales and marketing, management, infrastructure and engineering, construction, service delivery, and IT, before you even have your node ready,” he says. “Doing that in 3G with a well defined process is one thing but trying to optimise 3G much more dynamically while trying to roll out 4G—and doing that in an efficient way—is another thing entirely, and I’ve not seen one operator that has an end-to-end management workflow system to align those plans on the network. That is a significant issue and means most operators are very much behind schedule in terms of 4G upgrades.”
According to Bultema, telecoms as an industry suffers from tremendous inefficiencies. He picks out airlines as an evolutionary target. There are few players headquartered in any given country and many don’t even own their planes, preferring instead to lease them. Airlines don’t do their own maintenance or their catering, they outsource both. But what they do manage directly—and what they’re really good at, Bultema says—is pricing models, operation heuristics and supply chain management as well as supply and demand forecasting.
“This is what’s driving network consolidation and the rise of LTE wholesalers. Take Yota for example—it’s a much more capital efficient and faster way of deploying LTE,” he says.
“Telecoms has not made that type of change–most operators still own everything on an end to end basis and, outside of the US, the way operators communicate with each other in terms of third party network access is still through phone, fax and email, there’s no e-bonding infrastructure.
“So telecoms has been ripe for an upgrade for decades but nothing had emerged as a critical issue that will drive this—until now. My belief is that LTE, not as a technology, but because of the fundamental dynamics needed to support network upgrades and the innovation required to survive at the IP layer, is going to drive that kind of structural change in the industry.”
Although some operators are considering the dumb pipe model, they also need to consider content and service partnerships, and this is where the over the top (OTT) players have been much more innovative than operators. They are closer to and more intimate with their customers, allowing them to extract a significant amount of profitability from the changes of platforms and ecosystems as they develop rapidly within the industry.
Coming back to the key question of whether or not each service provider in any given market needs to have their own network, Bultema argues that this is something that is becoming increasingly unsustainable. Going forward the requirements for LTE, fibre and network upgrades will drive very deep network sharing. Operators will have to morph themselves into much leaner organisations in order to compete against OTT players and provide that responsiveness and innovation.
And analytics will play a key role in tailoring these services. The ability to dynamically link customers to their products and services and then back to the financials and network quality, so operators can proactively respond to QoS issues and improve the user experience, will be a core competitive advantage and differentiator going forward.
Customer touch points should be extended throughout the customer lifecycle—not just at the end of a customer’s lifespan and not just on the sell side but also on the customer experience side, he says. “Such as text messages when you land in a foreign country giving you information about roaming prices and a notification if you’re about to hit your data allowance–these things can be helpful or beneficial and can improve your perception of the operators,” Bultema says. Again telcos can learn from airlines with their own loyalty programs and improve their loyalty schemes in a way that attracts customers, he argues.
“The OTT players, Facebook, Google and Apple have a fairly loyal fan base and there are lessons to be learned from them by operators in terms of keeping products very simple, and the interface very clean and straightforward, creating a suite of services around what their core strengths are,” he says. “There is rapid innovation but also rapid abandonment if something does not work and all these product management elements are still slow in the operator community.”
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