By Dr Ekkehard Stadie, head of the telecom and IT practice at Simon-Kucher & Partners
The party is over. With no real innovation on the horizon, mobile phone services and fixed line broadband are reaching saturation point.
Mobile data retains some momentum, but is approaching the latter stages of its lifecycle.
Revenues are constantly declining and, due to an outdated data model, costs are likely to explode.
Cost cutting can help in the short-term but won’t prevent negative profit developments. A game changer is needed.
There are three major routes open for operators to drive innovation and change: a new revenue model for access pricing; the restructuring and revamping of retail channels; and the smart monetization of assets.
Access pricing: Operators should charge a premium for high quality voice and texts because they can be used by everybody, as opposed to users of OTT services who require a particular app. However, metered pricing is over and should be replaced by a service fee.
For data it’s the other way round – the model should be fully differentiated. Airlines provide a good benchmark of how industries can be creative when pressure intensifies. Speed, priority, quality and additional devices are a few examples of how different dimensions can earn their price tag.
The bigger challenge is kick-starting this transformation while leading the market and educating the various sales channels and customers. Other industries such as digital music have done this.
Market leaders in particular must show market stewardship for their environment and shareholders.
Restructuring retail: The telecom industry indulges in one of the most expensive retail channel systems. Markets are at capacity, yet high streets are packed with shops from all the telecom brands.
Shops are similar, costly, serve a bloated market and are basically handset showrooms. The number of shops must be optimized, making developments similar to those in banking and insurance unavoidable.
Remaining shops should be revamped – new shop concepts like shop-in-shop, dynamic pop-up stores and cross-selling of “must-have” products to increase margins and shopping frequency are needed.
Making the most of existing assets: Telcos are exceptionally rich in assets and should use them as the basis for new revenue sources. They possess billing relationships, trusted brands and country-wide infrastructure; they know customers’ preferences/locations, have full scale multi-channel sales networks and the contact channels to approach clients.
It’s the perfect playground for new and smart services. Why shouldn’t a base station be upgraded to a “gas/refuelling” station for hybrid cars powered by electricity?
Why shouldn’t telos help credit card transactions become more secure? Fraud prevention systems at credit card companies may pick up that a card is being used in an unusual location, but when the card company knows that the owner’s phone is booked into a corresponding cell in this location, the likelihood of fraud is much lower. Crucially, credit card companies are likely to pay for this type of information.
Caution is needed. It would be fruitless to attempt to try to become a second Facebook because there is no real structural or cultural fit – it would be akin to a road builder becoming a car manufacturer.
Nevertheless, telcos must adopt a new approach to innovation, one leading to a brighter future for a great industry delivering products people won´t live without.