Top 7 Competitive Weapons in the CSP Arsenal

Scarcely a day goes by without a new headline that announces the demise of the communications industry, which will be reduced to a few survivors who have the dreaded ‘bit pipe’ status.

Some of the latest news relates to the fact that mobile operators will soon succumb to the upcoming data tsunami that must be managed to maintain quality of service, or the recently announced iMessage from Apple, which will make SMS obsolete, at a time where growth in the volume of text messaging is already slowing considerably (at least in the U.S. and some European countries), or the increasingly challenging operational issues resulting from costly and fragmented legacy IT infrastructures.

To make matters worse, every brand in the world it seems now wants a piece of the communications pie in one form or another, whether it’s Google and Apple, Facebook and Microsoft/Skype or MVNOs such as Tesco Mobile.

But before we all jump on the handcart to hell, isn’t the darkest hour just before the dawn? Isn’t it when times are tough that the tough get going? Most importantly, is the communications sector really so bad off that we can’t see the business opportunities that are staring us in the face?

Telecom firms should stop listening to all the gloom and doom and instead clear their collective minds and concentrate on the opportunities. Remember, there are some really big clues that there’s a rosy new future for the industry if only we can position ourselves for it.

What are the Opportunities?
The first and most important clue that a profitable future lies ahead is the rising demand for communications services. Cisco, for example, forecasts that global IP traffic will grow four-fold between 2010 and 2015 at a compound annual growth rate of 32 percent and reaching 80.5 Exabytes per month by 2015. This is the equivalent to an archive of all the movies ever made crossing global IP networks every four minutes. Traffic is set to accelerate as more industries begin to use the services provided by CSPs as a channel to market. Whether you’re Netflix or Walmart, businesses all over the world are beginning to understand the power of the trinity of the Internet, social media platforms and mobility.

The opportunity becomes clear once we start focusing on the enormous potential that cross-industry cooperation can bring to the telecom business. The world is no longer a place in which each vertical can effectively function by itself, but in order to continue to expand, many industries such as retail, banking and healthcare will need to effectively partner with a CSP. In the case of the Walmarts of the world, for example, they’re all really excited about the possibility of taking their transaction-based customer intelligence and loyalty schemes to the next level. They are now getting rich customer data via online channels, and they want to get this from store transactions too. Mobility, understanding the customer’s location and context, combined with customer and transactional data delivers a powerful new paradigm for retailers to enhance the customer experience, and thus their loyalty, and thereby secure greater wallet share.

And then there’s the m-payment opportunity. We’ve seen it work in the developing world, such as Latin America and Africa, and now it’s set to enter the mature markets of Europe and North America. But will people want it when they have an alternate and established infrastructure? Well stand in line and watch people pay with a Visa card, wait for a payment to slowly transition across the current infrastructure, or watch customers struggle with change for the bus, or become aggravated at how difficult it is to pay their credit card bill and then tell us there isn’t room for improvement in the current payment system! In the UK checks are set to be scrapped completely by 2018 after 300 years of use. Change is most definitely afoot.

Yet another type of service that’s now center stage is M2M, whereby all kinds of manufacturers and utilities can envisage a better, more efficient or more lucrative business through the use of communications services.

In fact, wherever you look there are clever people dreaming of how they can transform their business and their industry in the future, and the enabler of much of this innovation is to embrace and integrate with communications services.

So What’s the Hold-up?
But if the problem isn’t about what over-the-top (OTT) or new players are bringing to the table in terms of competition, what is it? It’s more about intra-industry issues: resistance to change and fear of disintermediation. Those two elements create a compulsive need to excessively protect the status quo, which puts the entire industry in some sort of inertia or a very slow path to much-needed change resulting in an alternative business mentality and model. In telecom, we’re so paralyzed by fear of losing what we have achieved (investment in network assets, for example), that we focus too much on it and risk floundering in the storm rather than riding the wave.

Fear is what has made the communications industry protect too much and for too long the existence of business models that are broken, resulting in flat or falling core revenues, and a seeming inability to truly engage customers, despite the fact that CSPs have an incredible wealth of customer data that they can effectively capitalize on. Inadvertently, this desire to protect their existing business is hamstringing initiatives such as the adoption of new ways of doing business, and this is pushing them faster in the direction of what they wish to avoid: disintermediation and a dumb pipe future.

Take Netflix. All it did was develop a business model based on a simple idea that delivered value for customers, while cable operators were doing two things: jealously protecting their existing subscription model and not examining the shifting behavior of TV viewers.

This brings us to our next point. The fundamental persistence in viewing state-of-the art technology as the main element for survival, as opposed to embracing personalized innovation principles (“Is Your Innovation Effective Innovation?,” Monica Zlotogorski, June 2011, published by Telesperience). These principles focus on what customers value first, and then incorporate technology that helps satisfy customer needs. In other words, technology is the means, and not the objective. Or, as David Tansley puts it: “Don't confuse the art of the possible with the art of the profitable.”

All that OTTs and new players have done is capitalize on the fact that the communications sector was too protective of the utility-like side of their business, which prevented them from seeing the smart pipe side of the opportunity that was presented to them. The difference has also manifested itself in marketing ability. Apple is a great marketing machine, as are many other of our new competitors. The risk is not just that we will be out-innovated but that we will be (and are being) out-marketed.

A great example of a missed CSP opportunity is Apple’s recently launched iCloud. All Apple did was focus on the business application of the Cloud to a line of business and develop the necessary partnerships with the music industry to deliver the iCloud idea. On the other hand, the communications industry has been focusing too much on the technology itself, as opposed to what customers value in a Cloud service. Great technology that is not supported by a workable business plan from the outset is an expense and not a profitable business - or alternatively you may be making a profit but effectively leaking potential profit.

Why didn’t the communications industry come up with an iCloud-like proposition first? Because CSPs tend to over-focus on building pipes and other infrastructure rather than understanding what customers want, need and value first. Consequently, the technology is delivered, but the business idea that goes with it doesn’t resonate with customers.

Despite all the challenges though, the communications industry has some critical assets that actually put it in a much better position than many give it credit for. But to fully exploit their assets, service providers need to change their business mindset. In developing markets, this is already happening, but we need to drive this change through into the developed markets as well. This means not just investing in more infrastructure as though it is a panacea, but changing the way we approach the communications business.

CSPs have at least seven key competitive weapons that offer them the possibility of a profitable future. In the second part of this article we’ll tell you what these are and how service providers can exploit them to maximize their business potential.

Continue to the second part of this article