Gartner warns operators to stay focused

Industry analyst Gartner has warned that operators are in increasing danger of drifting away from their core business. Instead, the analyst believes carriers should bite the bullet and face a future where they have to survive on much lower margins than today.

With the onset of mobile broadband and IP as core carrier strategies, there is a significant possibility that operators may become distracted through efforts to transform into media companies and end up over investing in immature technologies.

Gartner warned that more than half of these new approaches will fail because many carriers only have a limited knowledge of their existing subscriber base and often do not understand the new business models.

Some companies that have experienced first hand the challenges of venturing into non-core areas include ESPN, the American sports cable channel owned by Disney, which abandoned its mobile service in September, less than a year after launch, due to disappointing subscriber uptake.

E-Plus in Germany had to face up to failure three years after launching the i-mode content portal and Gartner is also critical of France Telecom’s and Telecom Italia’s recent moves to get in on the media game by investing in movie content.

Martin Gutberlet, research vice president at Gartner, said that the operator shift towards the media market has come about as saturated markets continue to stagnate.

Whereas historically, carriers have been able to depend on high revenue growth from broadband or mobile services, they now face increasing pressure in their native markets.

Gartner predicts that year on year growth of total revenue from telecom services shrink to just 1.7 per cent in 2010. But while profit margins are waning in Western Europe, there is still profitability for carriers in their existing client base if they are prepared to work for it, Gutberlet said.

One option is to improve network access activity and become a pure connectivity provider. Carriers looking to safeguard their (albeit slimmer) profits could do a great deal worse than becoming a really excellent bit-pipe.

“There’s nothing bad about becoming a utility,” said Gutberlet.

Alternatively, carriers could choose to embrace internet-based services and become an aggregator, concentrating on facilitating access to internet content rather than creating it.

To this end, Gartner applauded 3 UK’s recent X-Series launch as the right move – providing the access pipe to content and opening up the walled garden.

For those carriers that do want to test the water in other markets, Gartner advises companies to separate network access and new non-telecom service units into individual companies so that they can be closed or sold. “It’s all about mitigating risk,” said Gutberlet.