The window of opportunity for telcos to transform their operations and way of doing business is shrinking fast. TM Forum chairman Keith Willetts says, 'The writing is on the wall for telcos.'
The industry has to get serious about change and understand it doesn't control the pace of change. 'It's time for telco CEOs to be more ballsy and bet the farm here. It's not the time for sitting back and watching someone else pioneer. The market is moving too fast for that. We want to see a few more mavericks and a few more leaders,' Willetts says.
Not so long ago, he noted, telcos could dictate when new services would be launched and when customers could buy them. 'Now it's time to get used to the pace of change not being set by it but by others around it, which is forcing the industry to start collaborating to fight the common enemy - becoming a commoditized dumb pipe.'
Alcatel-Lucent CEO Ben Verwaayen said at the Mobile World Congress: 'The new really is that consumers have got a lot more power than they ever had before, and they can create their own definition of authority or expertise, which is the fundamental change.'
The question is: how will operators adapt to that change?
Risky bets
The only way for mobile operators to expand their profitability is bet more aggressively for the future than their competitors, Softbank chairman and CEO Masayoshi Son said in Barcelona.
The winning formula for Softbank, he said, has been an increase in smartphones and an increase in tablets, which has led to an increase in the company's income and valuation. He plans to make big bets on the mobile internet over the next 20 to 30 years.
'Subscriber growth has stalled and ARPU is falling - dropping 42% over five years. Mobile data traffic also is growing rapidly, which means a lot more capex,' Son said.
Market values have also remained flat for the major operators over the past several years. 'Investors see the future and see no more growth in market values - that's the depressing reality.'
He explained that the 'depressing reality' of declining ARPU and slowing sub growth is based only on the number of people in the world who can own phones. 'But it's not a depressing reality, it's exciting when you look at the potential number of M2M connections and people-to-machine connections.'
He encouraged operators to make big bets on the mobile internet and transform to being data driven.
Sustainable capex
The idea of shifting a capex model from owing the network assets and moving into a more collaborative environment is a sustainable way to move forward, says Axiata group CTO Don Price.
Stating the obvious, he noted that telcos haven't been historically good at sharing. 'If you think back a few years, we wouldn't even share RF design - that was top secret - let alone an infrastructure.'
He says carrier collaboration, or more specifically network sharing, has picked up significant momentum - and not just passive sharing (which cuts costs just 10-12% compared to up to 30% for active or holistic sharing).
He sees infrastructure sharing as the biggest lever of cost optimization for telcos.
Telcos may finally be collaborating with each other, but when dealing with those outside the industry the pace of innovation can be stifling.
Yahoo's director of global technology initiatives, Michael Smith, says the biggest difficulty in working with telcos is that it takes too long. 'Things happen over a quarter - and they think that is fast. Yahoo works on a two-week cycle, which we call a scrum.'
He says the revenue share with telcos is also lower. 'This is a problem as we try not to deal with telcos. It's unfortunate as they are in a good position.'
As an example, when it comes to LBS, he says telcos know more than anyone else where a feature phone is. 'But they make it so hard for me to get to that data. So we are all forced to go to this open-cell ID thing that hardly gets updated. In fact, Google has built its own database. There's no reason a telco shouldn't make that available to developers.' Right now it's all smartphone driven, he noted.
Devaluing the service
CSL CMO Mark Liversidge's biggest fear as mobile operators move into 4G is that the industry will fall into the same trap as with 3G - launching new services at the same or lower price than existing services.
He says mobile operators need to learn a lesson from the huge disappointment of 3G, which they marketed on price, due in part to the over-hyped speed and coverage, and be careful not to devalue their 4G services from the start.
Telcos have traditionally struggled to give consumers a strong value proposition that makes them pay more for enhanced services, be it a faster connection or more data consumption.
Liversidge says devaluing new services and the investments operators make is a critical area the industry needs to address. 'We have done a very effective job of supporting and sustaining the business model of device makers with the subsidy model.'
Consumers have been conditioned to expect handsets for free. He calls for operators to move away from the subsidy model and base pricing on the fair value of a device.
But transforming your business on the basis of technical evolution (LTE or otherwise) is a joke, Hugh Roberts, an independent communications and media strategist, told Telecom Asia.
"4G is not about technology. It is about enabling a seamless multi-channel customer experience with an internal systems environment that is fit for purpose and will deliver a single view of the customer to those within the business who need it. Any network operator that fails to grasp this will not have a long-term future within the communications value chain,' Roberts says.
Sadly, he says, it isn't just the carriers, but also the shareholders, "articularly those in the US, who take a highly protectionist stance when it comes to the determination of telco business strategy."
'It isn't just the walled-garden that is dead, but the entire network-led view of how we should make money. The communications and media value chain now requires all of its players to embrace openness and manage their customer interactions effectively. This is the true goal of business mindset transformation.'
While telcos may know how to upgrade their networks, which they've been doing for 100 years, the TM Forum's Willetts said what they're not good at is fundamentally changing the way the business works.
Moving to a single, flat IP network is only going to take part of the costs of your operations out if you leave your business running in the same way. 'Most operators over the years have built stovepipes of networks, systems and processes. If you leave that method of operations in place, you've kept your old cost base and your old, slow way of doing things.'
He says operators have to move to a more highly automated, optimized way of running the business. 'So getting rid of those operations stacks is very important.'
The industry is at a crossroads, says Karl Whitelock, a senior consulting analyst with Stratecast, a division of Frost & Sullivan, 'With more innovative powers at our disposal - collectively from our enhanced abilities to share information - than from the combined discoveries of the last two centuries.'
The challenge, he says, lies in using these powers to better enable and more effectively create an environment of business opportunity geared to support the needs of customers in both mature and growth markets.
Side bar: Innovation beyond your four walls
The idea of simply doing innovation within your four walls is dead, Alcatel-Lucent CEO Ben Verwaayen told an audience at the Mobile World Congress in Barcelona in February. 'The challenge is not whether you have the capabilities within your four walls but if you can marry those capabilities with people from the outside.'
Frost & Sullivan MD & partner for APAC Manoj Menon agrees. 'Companies that limit innovation to come from within their organization will become redundant.' The growth of the internet and web 2.0 has opened a completely new paradigm for innovation in the global marketplace, which has accelerated the pace by making customers an active part of the process.
'The most successful companies, the companies that create tremendous value, have leveraged this power of co-creation very effectively,?says Singapore-based Menon.
'In the past we relied on the R&D teams in organizations to power the innovation. These teams had access to the most sophisticated technology and information, which enabled them to be the select few to drive this innovation process,' he explained.
'Today computing capabilities as well as the information is widely available to everyone globally. This allows everyone to participate in the process.'
Menon says companies are no longer limited by the few engineers they employ, as they are able to leverage the global marketplace for new ideas. 'Successful companies will be those that offer platforms for their partners and customers to play, participate and personalize their experiences. The idea generation will happen at a much larger scale and in turn make the companies more successful.'
Scribd CEO Trip Adler told the same MWC audience that the need to be more connected and source innovation externally is vital to a company's pipeline. (Scribd is a document-sharing website for posting documents in various formats and embed them into a web page using its iPaper format.)