 |
 |
| Dr Ekkehard Stadie |
Dr. Ekkehard Stadie from stategy and marketing consultants, Simon-Kucher, on choosing the right business models, today.
Developments in revenue and data flow in mobile and fixed line networks show that the telecommunications providers’ current tariff models will not remain sustainable for long. When the number of subscribers was still increasing, flat rates became the dominant model. But the broadband fixed line market has now stagnated, and the last big growth story was the mobile data market.
What is still growing, however, is users’ data volume. And that means telecommunications providers are in danger of falling into the profit trap.
In terms of revenue, providers’ income is largely fixed due to flat rates and market saturation. And from a network perspective, they are forced to invest in frequencies and capacities if they want to remain in control of data volume and continue to deliver an attractive user experience.
If things continue as they are, the providers’ EBIT margins, which are still excellent compared to the industry as a whole, are guaranteed to plummet. It’s now up to the telecommunications executives to develop and assess new business models, to decide which route to take, and to restructure their organizations accordingly.
There are five possible routes for future business models:
Monetise upload
Telecommunications providers continue to offer the popular flat rate model, but introduce fees for content providers that want to use their networks. As Telefonica Spain’s Chairman César Alierta explained: “Internet search engines use our network without paying anything at all, which is good for them but bad for us. It’s obvious that this situation must change. If the markets think we won’t make a single cent from that, they can think again.”
Alierta’s demands seem to be justified. Infrastructure usage fees are already commonplace in other industries. Trade fair organisers, for instance, charge not only the visitors (users), but also the exhibitors (content providers) who attend their events. And cable TV providers are paid by their viewers (users) and the TV stations (content providers) for enabling content to be delivered and consumed.
Telecommunications companies now need to assess whether and how this strategy can be applied to their own industry. At the moment, the power appears to rest with the handful of top content providers. Competition is intense and the telco provider business is not yet global, so it will be a challenge for providers to threaten to withhold killer content from its customers. This may, however, change in the future due to consolidation in local markets and the emergence of a small number of global telecommunications giants.
Smart download
In this model, telecommunications providers take a step back from their undifferentiated, unlimited flat rates, and start to monetise usage, either directly or indirectly. Direct monetisation means that unlimited surfing for a fixed monthly fee is no longer possible.
However, it would be wrong to completely discontinue flat rates, which are so important for large numbers of always-on applications. Instead, providers can offer fair flat rates, either with or without speed restrictions.
An alternative would be to provide data packets with the option of purchasing add-on volume during the billing period. Indirect monetisation involves introducing new pricing factors (such as maximum speed or priority) to boost revenue. These are just a few of the smart pricing options that are based on comprehensive price differentiation and linking value with cost drivers.
Commodity
Telecommunications providers are aware that the major user innovations are developed by service and hardware suppliers such as Google, Facebook and Twitter (whether they are commercially successful or not) and by Apple. The providers do not attempt to charge manufacturers for IP data streams; the money is still paid by the users.
If this were not true, it would be like a power supplier such as E.ON demanding money from Siemens because consumers use E.ON’s electricity to wash their clothes with Siemens machines. But the energy sector does show how important it is to follow a strategy of regular price increases. Energy suppliers were well advised not to make flat fees their dominant price model.
At first glance this may seem trivial, but with numerous household appliances it makes a lot of sense (or is much more convenient) to keep them switched on all the time. What the power companies actually did was to differentiate their prices. This is a simple example of peak-load pricing: customers pay higher prices for consuming energy at the same time as everybody else.
An added factor for commodity industries is a strict focus on cost-effectiveness, including outsourcing and merging network platforms. We have also started to see this form of cooperation in the automotive industry, where manufacturers are working with enemy suppliers on the consumer side.
Ultimately, this could result in independent providers joining a service organisation and supplying network capacity to it, and production becoming more efficient. On the marketing side, however, telecommunications providers will continue to position their own products and brands independently.
Third parties pay
Another possible alternative is to secure public funding to finance infrastructure usage and expansion. After all, telecommunications providers’ investments in comprehensive networks represent a key supply mandate and help to make information accessible to everyone.
Some governments have passed strict regulations on the expansion and accessibility of telecommunications networks, monitored by committees and round-table groups. It is therefore by no means unreasonable for telecommunications providers to request money in return for their services.
A wide range of models are conceivable at the interfaces between state, media and telecommunications, as has been demonstrated in Spain. The Spanish government was planning to introduce a new telecommunications fee to offset the loss of income from the abolition of TV commercials on public stations, although pressure from the EU Commission meant that this plan was shelved. Meanwhile, the music and film industry shows that additional income can be generated indirectly by means of royalty fees, for example.
New revenue streams
To avoid tackling challenges in core business areas head-on, telecommunications providers may be able to tap additional sources of revenue. This poses two challenges: past experience; and margin expectations.
In the past, providers’ attempts to diversify content have all failed; newly developed service and application platforms have been overrun by the internet. Even ubiquitous applications such as email have been perfected by Google and its counterparts. With more remote products, the challenge is usually the small profit margin, which can have a negative impact on market ratings. But this should not blind us to the fact that telecommunications providers are ideal candidates for cross-selling. They have the largest customer bases, issue regular invoices, have a direct customer contact channel, and can (if the customer gives consent) create customized offers based on internet and telephone usage data.
These are just five possible routes; some parts can also be combined. What’s crucial is not to immediately dismiss analogies from other industries that may at first seem far fetched. Each organisation will have its own focus depending on its strategy, with varying importance attached to marketing, lobbying, contracting and purchasing. But no telecommunications provider can afford to stand still. The time to act is now.
Dr. Ekkehard Stadie is a partner at the worldwide consulting firm Simon-Kucher & Partners, Strategy & Marketing Consultants.
 | | visit http://www.simon-kucher.com/ |