European telco priorities surprisingly focused

We recently conducted an exercise looking very closely at the major strategic initiatives that have been implemented by the European telco community. It was a fascinating exercise that revealed a perhaps surprising level of consensus amongst all major European telcos. Whilst the tactics in reaching the goals may vary, our analysis showed the long-term strategic priorities are shared and fall into four very clear and focused aims.

The first is to deploy ubiquitous high-speed broadband factories. In essence, operators are focused on extending the reach of broadband to as many people in as many locations as possible using a mixture of fixed and mobile technologies to do so. On this front, the tactics in achieving the goal vary both in terms of the speed of deployment and the technologies chosen, but the operators are united in realising that high-speed broadband will be their key asset in the future. But it’s not just about coverage, quality is also uppermost in their thoughts and operators are deploying a variety of network management tools to try to lay a foundation that is leading in terms of coverage, capacity, quality, speed and experience for their users.

Whilst all the talk may be of future revenue streams, operators cannot afford to forget about the cash cows that drive profitability in their business. That means protecting the core revenue streams of voice and SMS that even in five  year’s time will continue to account for more than two-thirds of mobile operator revenues. On this front we again see a variety of approaches – some more short-sighted operators are still focused on VoIP blocking, others are keen to partner with third-party VoIP providers, while the most forward-looking operators such as Telekom Austria and Telefonica have begun launching their own VoIP propositions. SMS, meanwhile, is threatened not only by price declines, the threat of regulation as well as cannibalisation from other internet-based communications options such as Facebook messaging,

The third priority is a commitment to service quality. In a mature industry where the retention of customers is so fundamental to profitability, operators must have a razor-sharp focus on ensuring exceptional service quality levels across every part of their business, from the call centre, to the retail footprint right through into the network.

At the same time, however, new revenue streams must be found to fill the holes left by declining traditional revenue streams. That means investing in new areas to seed and nurture the arrival of alternative sources of cash. It’s no coincidence that every major European telco has set up dedicated arms to tackle the M2M business. Ironically, many of the European telcos have been engaged in M2M for nearly 10 years, but only now have the resources and focus been put behind those initiatives in earnest. The growing operator investment levels into M2M also reflect the fact that other industry verticals have suddenly awoken to the opportunity to bring enhanced products and services to market by bundling in a connectivity play.

The arrival of the iPhone and the service-strategies of others like Nokia, Samsung and RIM has caused many in the industry to debate the smartphone’s role in disintermediating the operator from the provision of services to end-users – to breaking the relationship with the customer. There’s also strong questioning from some about the upfront hit to profitability that operators take when they target heavy subsidies on these expensive devices.

But when we’ve looked at the positive impact that smartphones are having on operators businesses, it’s not hard to see just why operators have been so aggressively marketing the push for smartphones. Telenor Norway recently reported they are seeing close to 60 per cent ARPU uplift when a user migrates to a smartphone from a non-smartphone and although this is perhaps a more aggressive example, in other markets operators have regularly reported uplift in the order of 25-40 per cent per month. Not only is there incremental revenue uplift, but operators also report that smartphone customers are more loyal meaning that more revenue per month, plus a longer eventual lifecycle gives huge gains in overall customer lifetime value. Put simply, getting the right device in users’ hands has become the single biggest incremental revenue driver for today’s mobile operators.

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