2014/02/18 Operators must play on current strengths and develop new competencies to thrive in the digital economy

Kodak, once a giant in imaging in the pre-digital world, is now but a shadow of its former self. As its analogue, physical market changed to virtual and digital one, the company continued to focus on film, its 'cash cow', rather than planning for future opportunities. The company went into bankruptcy and has since sold off most of its assets. Researchers and business planners at Kodak knew what was happening – and what would happen – to its market, and were planning a future of digital cameras, teleprocessing, online storage and archiving, and near-instant image production. However, the company chose not to participate in that future, every year making reasonable business-case-based decisions to cost-reduce its current business to maintain margins, rather than moving into some new, risky area.

Telecoms operators need to learn from the example of Kodak, by recognising their business strengths and planning how to use them in new digital economy businesses. Analysys Mason's Digital Economy Software Strategies programme is researching how the leaders in this digital revolution are moving into the digital economy of the future. This article examines the strengths that telecoms operators can use to move beyond current telecoms services, via a classic 'core competency' analysis.

Operators' core competencies are impressive

Telecoms operators participate in one of the largest, most dynamic industries in the world. They also have almost inconceivable business and operational strengths (see Figure 1), which they can use to move into new areas.

Figure 1: Core business competencies of telecoms operators [Source: Analysys Mason, 2014]

Established customer relationships

Consumers are familiar with operators' brands, and in most cases trust them. This relationship could help operators move into areas such as security software and services, and mobile money.

Operators also know a significant amount about their users, such as what kind of offers they take or reject, where they live (in some cases), their family unit members, and the locations in which they use their services. Such knowledge could lend itself to the provision of location-based services or predictive marketing services.

Established billing relationships

Millions of people worldwide already give money to the operators, some monthly via postpaid bills, and some more often via prepaid top-ups. Operators know their credit history, and often have stored credit information about their users. They can make use of these established billing relationships to sell new services to their customers. Amazon.com, for example, started by just selling books, but its product range has expanded dramatically.

Large amounts of behavioural data

Even without advanced technologies like deep packet inspection (DPI), operators have a large volume of behavioural data on their users, including who they call, when they call, and when they access the Internet. DPI makes even more information accessible, such as who they visit and, perhaps, what they do (privacy laws may intervene here). In addition, operators know if users are accessible ('presence'), and whether they are heavy users of BitTorrent or exhibit other network-intensive behaviours.

Knowledge of these behavioural data points gives an operator the opportunity not only to market targeted or even personalised services and service packages to its users, but also to provide information to other businesses that can benefit (subject to privacy laws).

Operational strengths

Operators are experts at hiring, training, and moving to exactly the right place, technicians who can perform complex tasks to plan, add to, configure and maintain a complex network with a vast array of services – with very high quality. They have spent more than USD30 billion per year for the past 15–20 years on buying or building BSS and OSS to improve efficiency, increase service quality, and speed up the introduction of new services. Few other industries have invested as much.

Operators know how to build, operate, and maintain data centres – keeping the computers powered, cooled and running efficiently, while ensuring software is up-to-date and resolving any operational issues. Any provider of cloud-based services such as IaaS, PaaS or SaaS would need this knowledge, putting telecoms operators in a strong position to provide such services.

Telecoms operators know how to define, offer, implement and support complex services via self-service, stores, kiosks, web and customer service representatives, providing a good operational base for any ecommerce service.

Operators must use their established strengths and add new competencies

To move into new digital economy markets, operators must work out both how to use their existing strengths and what new competencies are required. Figure 2 shows that many of the new services make good use of the operators' current core competencies (y-axis), although many require new competencies to be added (x-axis). The figure shows only a few selected digital economy services, for simplicity. The size of the bubbles represents the size of the entire market – not just that part accessible to operators (which is typically about 10–50% of the entire market, as determined from a value-chain analysis).

Figure 2: Selected digital economy markets mapped against current operator strengths and the need for new competencies [Source: Analysys Mason, 2014]

Operators must make big decisions about how and where to move into new digital economy services

Moving into new digital economy services will require operators to make many major decisions, including the following.

• Which services should the operator provide? Figure 2 illustrates that to fuel growth, operators will probably have to launch a number of these new digital economy services, not just one. Questions include which services, and the length of time for which investment will be required.
• How should the operator enter the digital economy market? Operators have three major options here.
  • Become a digital economy service provider in that service itself, using its own competencies.
  • Partner with another company, perhaps via a white-label arrangement. Several operator forays into mobile commerce are using this model.
  • Provide the B2B2C infrastructure for other companies to enter the digital economy space in their markets. This option is the most radical, but represents, in our opinion, the largest opportunity for CSPs. In this case, the operator would provide not only the communications channel part of the value chain, but also services such as billing, advertising, customer support and installation. Its B2B2C customers would not have to invest in their own infrastructure to try to compete (in their niche) with the leaders in the digital economy field – the 'Magic five' of the digital economy, Amazon, eBay, Facebook, Google and Twitter – and all the others entering the space.
• Where should the operator try to become a digital economy services provider? Operators must decide between providing services worldwide or just in their home markets, and, for B2B2C, whether to provide services to businesses worldwide.

Some operators have already launched digital subsidiaries, and we will track further investments

As the science fiction writer William Gibson has remarked, "The future is already here, it's just not evenly distributed." Operators such as Deutsche Telekom, SingTel, SK Telecom and Telefónica have created 'digital subsidiaries' to increase digital service revenue. Services such as digital advertising, local content, gaming, cloud computing services, online back-up, home and office security, e-health, electronic marketplace and mobile education are all being investigated, or are already implemented. These leading-edge CSPs are already each investing about USD1 billion dollars per year. Analysys Mason will follow these, and other, operators, as well as the vendors and partners that help them. We will report on the services and how the operators are achieving their results.

Source: Analysys Mason