I’m currently managing director of Content and Business Planning at The Korea Times. Before I took the current position in early 2024, I served as managing editor in charge of both paper and online for over three and a half years. In 2015-2018, I worked as Singapore correspondent covering ASEAN nations.
The Future of Telecommunications
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By Kim Jae-kyoung
As wireless earnings wane, carriers confront hard choices
By The Boston Consulting Group
Since deregulation in the 1980s and the emergence of the commercial Internet in the 1990s, the telecommunications industry has faced a rolling set of disruptions. The stock market has punished most large carriers while richly rewarding companies that compete with telcos. Since Google’s IPO in 2004, its market capitalization has risen to about $150 billion, while the value of most operators in developed markets has fallen.
Carriers are not standing still. They are rapidly reducing costs and trying to streamline operations. These moves are necessary but not sufficient. The world is spinning too rapidly for restructuring as usual to keep working. Game-changing forces, such as cloud computing and “voice for free” services, are warping the industry. Cloud computing exposes operators to competition from major IT players, while free voice services, led by Google, Skype, and others, threaten operators’ main source of revenue.
As demonstrated by the successes of Google, Apple and others, tremendous opportunities abound in the broader technology and telecom space. Most, however, are suffering from the “curse of the conglomerate.” When their fixed-line business went into decline, they were able to turn first to mobile voice and then to mobile data, but now they have run out of businesses that can generate adequate returns. With no more cash cows left to milk, carriers must build new sources of competitive advantage.
There are several options. Some operators may choose to compete in global rather than national markets. Others may tap into global talent pools through offshoring, partnering and outsourcing. A few may decide to create compelling new services and compete with some of the most innovative companies in the world. Others may limit themselves to best-in-class connectivity ― becoming “smart pipes.” Many will have to make strategic acquisitions and divestments in order to adjust their footprint and their portfolio of skills and services, especially in Europe and India.
Five ways to play the telecom breakup
Because of the turmoil in telecom, the business model of traditional carriers is breaking apart. Companies such as Google, Carphone Warehouse (a European retailer), and ReggeFiber (Dutch builder of fiber-optic networks) are picking the most attractive cherries ― everything from local network construction and operations to the global development of end-user services like Google’s YouTube.
In this deconstructed world, operators will need to be both selective and aggressive in building businesses out of the fragments of their former selves ― selective because they cannot be all things to all customers, aggressive because time is a wasting asset.
Five strategic options are likely to emerge, of which operators can probably pursue two or three simultaneously. All five strategies involve massive transformation and organizational strain. But doing nothing is not an option. As an observer of a different generation of change once wrote, “He not busy being born is busy dying.”
One-stop shop for customers: Many customers, especially consumers and small- and medium-size enterprises are looking for trusted sources to help them sort through new services and products. Operators could become their partner of choice. To play this role, they would need to understand the needs of these different segments and provide them with integrated offerings. In addition, they would have to considerably enhance their retail capabilities, learn from the best retailers, and reassess their retail footprint and channels. Carphone Warehouse and Best Buy, with its Geek Squad and other initiatives to aid customers, exemplify this approach.
Best-practice network operator: Carriers could sell their network-operations capabilities to other operators. Bharti Airtel, for example, has turned to equipment maker Ericsson to manage parts of its mobile network in India, while BT and Tata Communications are outsourcing various aspects of international traffic to each other. These arrangements could serve as models for larger-scale developments that take advantage of scale, standardization, and offshore operations. Operators would need to accelerate their offshoring activities and become adept at managing an overseas workforce.
Global end-user service provider: Operators could develop global services, such as salesforce.com, a cloud-based customer relationship management (CRM) service. To pursue this approach, operators would need to target clearly defined customer segments and translate deep customer insight into great products and services. They would also have to achieve scale in research and development in order to have a strong innovation pipeline. Finally, they would need to develop a powerful global brand.
Platform provider: Platform providers would supply specific functionalities to other companies. Amdocs Limited, for example, provides CRM, billing, and operations support for mobile operators, while Gracenote has created a database of artists, titles, and other music-related information that enables consumers to manage their digital collections. To pursue this model, carriers would need to develop efficient state-of-the-art global operations.
Network developer. Finally, operators could choose to build network infrastructure for other operators, as ReggeFiber is doing in the Netherlands. KPN has a minority stake in ReggeFiber. This model would require strong project-management skills and knowledge of local markets and municipalities.
From here to there
There is nothing magical about these five models. The telecom value chain can be chopped up in any number of ways. But it is important to recognize that the activities of traditional carriers are being pulled apart by centrifugal forces, and no executive can hold them together. It is time to recognize that carriers are collections of increasingly unrelated businesses: retail, carriage, access, services, content and construction. Senior executives must answer four critical questions.
Which business models will compensate for the destruction of our core business?
Carriers need to focus on those businesses that create value and excise those that do not. Value, however, is no longer synonymous with 40 percent margins. Those days are over — or at least not guaranteed. But operators can build businesses that will allow them to enter new geographic or customer markets and compensate for the inevitable shrinkage of their core business.
Of course, building these new businesses will not be easy. For one thing, it’s impossible to “prove” which strategic option is the right one. Investors, employees, and regulators may have different views. Carriers will have to make choices on the basis of imperfect information and in the face of almost certain conflict with stakeholders.
How can we introduce Silicon Valley–type development capability?
New business models require new skills and capabilities. Many of today’s most innovative services are developed at warp speed and exist in “perpetual beta” while developers work out kinks and collaborate with outside parties. This style is galaxies away from the inward-focused three-year development cycles of many operators.
How can we benefit from the global availability of human capital?
Like all companies, carriers need to become more fluid and flexible in their management of human capital. Innovative companies draw heavily on the skills of a global workforce through partnerships, offshoring and outsourcing. Operators, in contrast, are skilled at managing large hierarchical workforces.
How can we embrace the imperatives of adaptive strategy?
Carriers must make fundamental choices about which businesses to enter and exit. That decision is the essence of strategy and is still relevant, but it is not sufficiently far-reaching. Carriers need a fundamentally different approach to strategy.
The Boston Consulting Group has outlined an approach to direction setting, called adaptive strategy that is especially relevant to the volatile telecommunications market. Adaptive strategy assumes that companies in unpredictable industries need a dynamic approach to strategy built around experimentation. This approach supplements rather than replaces the broad strokes of classic strategy. It is built on the ability of organizations to exhibit responsiveness, resilience, readiness and recursion.
In response to market signals, new capabilities and opportunities, carriers need to be able to tweak, expand, shrink or abandon businesses. This adaptability can occur only if senior leaders are willing to allow ideas to percolate up from deep inside the organization or to emerge at its periphery ― close to the market.
This article was contributed by The Boston Consulting Group