The FINANCIAL — Telecommunications operators (telcos) must reposition their business models and adapt to new roles across a growing number of new technologies or else risk losing major growth opportunities warns a new report by EY. This challenge, along with questions surrounding regulatory uncertainty, privacy and organizational flexibility represent the latest risks and opportunities facing telcos.
Top 10 risks in telecommunications 2014, the annual study based on the insights of EY’s Global Telecommunications Center and other leading sector practitioners, underscores that although the industry is starting to benefit from the global economic recovery, many structural challenges still exist. While operators stayed largely competitive during the downturn through defensive positioning, there is now an expectation for the industry to push new business models in the face of new technologies to unlock new growth, according to Ernst & Young Global Limited.
“Telcos’ legacy status as high dividend yield stocks is under scrutiny, and while there are a number of ICT growth opportunities, profitability remains under significant pressure. Many leading players have announced long-term strategic visions, but turning vision into reality brings a number of challenges,” Jonathan Dharmapalan, Global Telecommunications Leader at EY said.
The biggest threat facing operators lies in the industry’s ability to embrace new digital technologies and the new competition this landscape creates. This environment, while both volatile and rapidly changing, requires new value chain positioning in areas as diverse as cloud computing and over-the-top (OTT) smartphone applications. In many instances, telcos will share ownership of customers with a host of players, whether partners or more disruptive competitors. Isolating new roles in complex and fast-changing ecosystems has never been more important, according to Ernst & Young Global Limited.
“The constant evolution of value chains is forcing the industry to work more closely with OTT players. In many cases, OTT providers have created more appealing alternatives to traditional offerings, like mobile instant messaging with greater interactive features compared to standard SMS services. The challenge for telcos is whether to replicate these competitor offerings by developing their own apps, or do they partner with these newer players to deliver a richer customer experience. The longer operators wait to enter a particular segment, the potential for lost growth only escalates,” Dharmapalan said.
Regulatory pressures climb the list in this year’s study as the second highest risk as global operators seek greater scale efficiencies through more rational market structures. For example, European operators see consolidation as a route towards ultimately committing to higher levels of network investment in 4G. At the same time, ongoing uncertainty in both the US and Europe over net-neutrality regulation continues to undermine the industry’s ability to solidify long-term business plans, according to Ernst & Young Global Limited.
“Operators and regulators both need to focus on how to create and sustain incentives for long-term network investment. But in order to drive progress, operators need to prioritize shared industry positions and reevaluate the relative merits of in-market consolidation – including conditions attached to mergers – compared to network sharing and other synergy drivers,” Adrian Baschnonga, Lead Telecommunications Analyst at EY said.
Consumer trust in service providers has declined sharply this past year in the wake of the global political fallout over mobile data privacy and security. Operators must ensure that they cope with a changing compliance landscape while redefining their relationships with consumers and businesses alike.
“Proactive stances are required on privacy and security issues with partners and policymakers so that new demands for data sovereignty, personal data privacy and cyber-security – which may vary according to geography – can be reconciled in the long term,” Baschnonga added.
Like adapting to new technologies, organizational flexibility is paramount as telcos compete with smaller, more agile competitors and expand their service propositions in new directions. Meanwhile, operators also need to improve inter-deparmental communications and overcome the fragmentation of customer information assets if they are to make the most of big data opportunities, according to Ernst & Young Global Limited.
“Simplifying and streamlining internal structures, while driving new forms of interaction within organizations will be vital if telcos are to make the most of new demand scenarios. Moreover, operators will need to develop fresh competencies and skills within their organizations to maximize and capitalize on their new strategies,” Dharmapalan said.
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