Disruptive business models key to survival

As the economic gloom continues to overshadow the telecommunications sector, disruptive business models combined with existing technologies are the key to staying afloat.

This is according to analysts at Frost & Sullivan, which warned Thursday that the reduction in consumption is changing the adoption and acceptance of new services.

Towards the end of last year service providers have shown evidence of trimming down, with Vodafone and Telecom Italia announcing mid term cost reductions of £1bn and Eur2bn respectively, while BT and Virgin Media announced job cuts of 10,000 and 2,200 respectively.

According to Saverio Romeo, Frost & Sullivan industry analyst, “The telecommunications sector will likely be hit by the recession in two main ways. First, due to the lack of credit in the global economy, investments will fall in the beginning of 2009. Particularly, investments related to incredibly 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.”

Romeo believes that the key to surviving the credit crunch is being able to design lower cost and disruptive business models as an effective way to attract consumers. Here the analyst highlights the combination of existing technologies with new business models to create low cost products and services, such as the combination of mobile content with forms of marketing and advertising.

But in order to develop these more attractive packages, service providers will need to partner with players of different expertise, Romeo said.

Frost & Sullivan notes that from a public sector perspective, national governments view the telecommunications sector as a critical route to overcome the economic crisis, with the European Economic Recovery Plan placing a huge amount of importance on broadband infrastructure and sustainable telecommunications. The European Union has committed to an immediate investment of Eur200bn to implement ‘public-friendly’ legislation as well as development of high speed internet for all with the aim of achieving 100 per cent broadband coverage across the EU by the end of 2010.

Yet even so, the operators are following a strategy of pulling the purse strings tight through cut costs, reduced investments and reigned in cash flows, as well as looking to identify opportunities to build out of the recession. “We believe that innovation should remain at the core of economic and industrial policies. 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,” said Romeo.