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As the challenges and opportunities facing telecoms operators around the world continue to evolve, the sector’s risk universe is changing rapidly. And as companies formulate and execute their strategies to sustain and grow value in today’s fastmoving environment, they have to ensure that their understanding and management of risk keeps pace. Today, navigating through the sheer speed and scale of change presents challenges for all operators. We have produced Top 10 Risks in Telecommunications 2012 to help them map out the right path. This is the latest in our ongoing series of studies designed to pinpoint the most critical risk issues, analyze the sector’s evolving responses and highlight elements of emerging best practice. As in previous reports, we do not claim that the list of risks we present here is comprehensive. Also, by its nature, it can only provide a generalized snapshot of the risks that we — and the sector as a whole — see at this time. Given this, we would encourage you to read this report with an open mind and inquisitive attitude. Are these really the risks you face in your own business? If not, how and why are your organization’s risks different? And how do those particular risks impact you? The answers inevitably vary from company to company. But in every case, we believe that leaders should take the following steps: • Undertake a thorough risk assessment at least annually, to define your key risks and weigh their impact on business drivers. The risks in this report can provide a useful starting point. • Extend this risk assessment beyond the usual financial and regulatory risks to consider the wider environment in which the organization operates and the full extent of its operations, now and into the future. • Conduct scenario planning for the major risks that you identify, and develop a range of operational responses, possibly as an integrated part of the planning cycle. • Evaluate your organization’s ability to manage its risks — ensuring that the risk management processes are linked to the actual risks that the business faces, especially those that are new and emerging. • Ensure that effective monitoring and controls processes are in place to provide both earlier warning and an improved ability to respond. • Keep an open mind about where new risks may come from. Despite — or, in some cases, because of — the continuing uncertainty and volatility in the global economy, there are major opportunities for operators. Each company’s ability to identify and seize these opportunities depends critically on its ability to understand and manage risk. Unless your growth strategy has a solid underpinning of risk management, it will never be truly sustainable. This publication aims to help you build and reinforce that sound platform.
Failure to shift the business model from minutes to bytes Disengagement from the changing customer mindset 10 11 1 2 1 3 14 15 16 18 19 20 22 25 02 03 04 06 08 3. Lack of confidence in return on investment 4. 6. security and resilience 8. Lack of organizational flexibility What’s below the radar? Contacts . 9. Insufficient information to turn demand into value 5. 2.Contents Introduction The Ernst & Young risk radar 2012 Editorial committee Sector context Executive summary The top 10 business risks: 1. Lack of regulatory certainty on new market structures Failure to capitalize on new types of connectivity Poorly formulated M&A and partnership strategy Privacy. 7. Failure to define new business metrics 10.
our 2012 study indicates that operators face a wide array of risks.Introduction Amid the recent global economic uncertainty. This is a valuable dialogue that we hope to continue for many years to come. supplemented by research and analysis by the Ernst & Young Global Telecommunications Center. we provide an analysis of each of the top 10 risks. I would like to thank all our contributors for their time. An understanding of how to respond to these shifts will help operators manage risk more effectively. optimize performance and increase operational efficiency. insight and cooperation in the preparation of this report. Many of the other risks in our top 10 spring directly or indirectly from that seismic shift. The most fundamental of these changes is encapsulated in the risk that tops our list: the migration of sector value from minutes of usage to bytes of traffic a change that must be mirrored in operators’ business models. Jonathan Dharmapalan — Global Telecommunications Leader Jonathan Dharmapalan Global Telecommunications Leader 2 Top 10 risks in telecommunications 2012 . the answer today is a resounding “Yes. the telecommunications sector has performed relatively well. we believe that telecoms providers will position themselves to take their businesses forward more effectively and make the most of the growth opportunities that emerge. We also report on risks currently “below the radar” that our panelists believe may move up the risk tables in future years.” As in previous years. in a sector where new over-the-top entrants are competing fiercely for revenues from emerging service areas. we in Ernst & Young’s global telecommunications network seek to help operators maximize value and tap into new sources of growth through our ongoing series of reports identifying the key risks to their businesses. This report was produced by collecting and synthesizing the insights of our practitioners and sector professionals. To help companies formulate and execute the right responses. we asked our sector professionals to evaluate the most important strategic challenges for telecoms businesses globally and to rate the severity of these risks for the sector. ranging from rapid advances in technology to new customer behaviors and expectations. However. During the research process. By addressing the top 10 risks highlighted in this study. It will also empower them to capitalize on the profound changes under way in the telecoms ecosystem. the question is: Is now the time to shift from a defensive to offensive posture? For many telecoms executives. and that the relative positioning and scale of these risks have continued to change. As in previous years. with operators once again emphasizing their strong defensive qualities and well-developed capex management capabilities.
These quadrants are: • Compliance threats — originating in politics. 3. regulation or corporate governance • Operational threats — impacting the processes. systems. Privacy. Lack of confidence in return on investment 4. security and resilience e nc ia 6. law. Lack of organizational flexibility 3 Top 10 risks in telecommunications 2012 at io n s Failure to capitalize on new types of connectivity t ra St . Insufficient information to turn demand into value 5. security and resilience eg ic Lack of organizational ﬂexibility r pe O Below the radar Evolving service cannibalization scenarios Concentration of equipment vendors A more pressing green agenda Difﬁculties in managing debt and cash 10. by dividing risks into four quadrants that correspond to Ernst & Young’s Risk Universe™ model. Failure to shift the business model from minutes to bytes Disengagement from the changing customer mindset The Ernst & Young risk radar presents a snapshot of the top 10 business risks in an industry sector. Disengagement from the changing customer mindset 7. people and overall value chain of a business • Strategic threats — related to customers.The Ernst & Young risk radar 2012 Telecommunications Top 10 business risks for telecoms operators 1. Failure to define new business metrics 9.” 2. and lists the risks that are currently just “below the radar. Lack of regulatory certainty on new market structures Failure to capitalize on new types of connectivity Poorly formulated M&A and partnership strategy Top 10 business risks for telecommunications in 2012 ial nc a Lack of conﬁdence in return on investment Failure to shift the business model from minutes to bytes Insufﬁcient information to turn demand into value Poorly formulated M&A and strategic partnerships Lack of regulatory certainty on new market structures Fi n Co m pl Failure to deﬁne new business metrics Privacy. competitors and investors • Financial threats — stemming from volatility in the markets and in the real economy The radar below plots the top 10 risks for telecoms operators on the risk radar. 8.
In 2011 Holger was appointed the joint Ernst & Young Global Telecommunications Markets Leader. In 2011 Prashant was appointed the joint Ernst & Young Global Telecommunications Markets Leader. Luis is the leader of Ernst & Young’s telecommunications practice for the Americas region. Holger Forst Global Telecommunications Markets Leader With 20 years of experience. India and Africa (EMEIA). Bala Balakrishnan Telecommunications Partner — United States Adrian Baschnonga Senior Analyst. With 25 years of experience. Global Telecommunications Center Rohit is a Director within Ernst & Young’s Global Telecommunications Center. Bala has over 20 years of consulting and industry experience within telecoms and other industries. servicing Indian and multinational telecom clients. Middle East. He has significant experience in both mobile and terrestrial communications. including channel strategy. product profitability. He brings over 12 years of professional services experience focusing on telecoms finance and business strategy. David McGregor Asia Pacific Telecommunications Leader David has been with Ernst & Young for over twenty six years and has worked in a number of countries including the UK. and currently leads the development and implementation of the Center’s strategy. 4 Top 10 risks in telecommunications 2012 . leading a team of over 2. Holger Forst has been the Global Client Service Partner for Deutsche Telekom AG since 2007. Luis Monti Americas Telecommunications Leader Luis has 19 years experience in the telecoms industry. and has worked with several large telecom groups. Jonathan has served some of the largest companies in the telecommunications sector. transaction support and advisory services to many international telecom operators across Europe. CRM strategy and implementation. Rohit Puri Director. and operations effectiveness initiatives. marketing effectiveness and analytics. Olivier Lemaire EMEIA Telecommunications Leader Olivier has 15 years of experience working in the telecommunication industry. He is also experienced in group reporting under IFRS. Global Telecommunications Center Adrian Baschnonga helps produce and deliver thought leadership for the Global Telecommunications Center. He is the coordinating core assurance partner on Telstra and the telecommunications and media & entertainment leader for Asia Pacific.Editorial committee Jonathan Dharmapalan Global Telecommunications Sector Leader Jonathan Dharmapalan is Ernst & Young’s Global Telecommunications Leader. he has been rendering audit. Bala has assisted several cable and telecommunication companies with the definition and implementation of strategic initiatives. Olivier has been leading the Global Telecom Revenue Assurance team for 6 years and led several revenue assurance global studies. As an Audit and Business Advisory Partner and chartered accountant. Prashant Singhal Global Telecommunications Markets Leader Prashant has extensive experience of over 15 years in Assurance and Advisory Business Services. sales effectiveness. USA and Australia. Africa and Middle East. He advises clients on strategic issues in the telecommunications sector and is a regular speaker at industry events.000 telecoms professionals across the world in their work with the world’s leading operators. Since September 2011 he is the leader of Ernst & Young’s telecommunications practice for the Europe.
telecommunications clients. operational assurance and improvement and valuations. merger and acquisition projects and valuations. Pieter Verhees Telecommunications Partner — Netherlands With over 15 years of experience. With 35 years of experience serving global clients. Mike has extensive experience working as lead partner on large telecom groups. internet and mobile operations. He has also participated in other projects for telecommunications operators including consulting and advisory work. in and outside Europe. including price squeeze methods and models. and the international operations. the internal control 404 audit.Vincent de La Bachelerie Telecommunications Partner — France Dennis Deutmeyer Global Telecommunications IFRS Leader Mark Gregory Telecommunications Partner — United Kingdom Vincent de La Bachelerie has been involved in the telecommunications sector for 20 years. He has extensive experience of internal audit. Pieter Verhees is currently working with leading fixed and mobile telecom operators. 5 Top 10 risks in telecommunications 2012 . Dennis has over 24 years experience providing auditing and advisory services to of our largest U. Mark has over 25 years experience in more than 40 countries as an advisor to the telecommunications industry. including risk reviews. fraud. Jeremy is a partner in the Paris Assurance practice experienced in telecoms and media. His experience covers the audit of the €30b French fixed line. cash-flow forecasting capabilities. working in strategy. Vincent has extensive experience working as lead partner on large telecom groups. performance management and regulation. Manesh Patel Telecommunications Partner — India Michael G. Dennis is the Global IFRS Leader for the Telecom Sector. cost and pricing analysis and market analyses. Manesh Patel currently leads the telecommunications risk advisory services group in India. He has also participated in other projects for telecommunications operators.S. regulatory. Stoltz Telecommunications Partner — United States Jeremy Thurbin Telecommunications Partner — France With over 19 years of experience working with Indian and multinational companies in the telecommunications sector. regulation. delivering and implementing complex projects. In his career he has undertaken engagements for several large telecom groups. internal control and risk management issues within the telecommunications industry. costing models.
For example. rates of landline loss are slowing in the European fixed-line. helped by positive structural trends. And operators worldwide have proved themselves strong on cost control in recent years. Figure 1. “European Telcos: The best way to play. And in North America.0 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 01 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 European telecoms revenue growth Euro area real GDP growth However. having seen its voice volumes fall significantly during 2009 in the wake of the recession. players in Europe and other developed markets are likely to benefit from some easing of the regulations on mobile termination rates. Experience shows that operators’ revenue performance tends to be linked to employment rates which are trending downward and under threat of an accelerating decline.” 5 September 2011 (reports were sourced from author website unless otherwise noted). As a result. the sector is quite solidly positioned as a defensive “safe bet” in the eyes of investors (though the mobile segment is slightly more exposed). For example. But this silver lining comes with a cloud: investors are taking an increasingly ambivalent view of the sector. Reaping the rewards of a defensive status Through its history. Improving performance — supported by structural trends Operators can look forward to improving performance.0 -6. 2011F–2013F Operating cash ﬂow margin (%) 25 20 15 10 5 0 Global Americas Asia ex Japan FY 2011 Japan Europe FY 2013 Africa FY 2012 1Eurostat. 2Macquarie.0 -4. The recent past has been no exception. Deutsche Bank. Figure 2. the fluctuations in telecoms revenue growth in Europe have been far smaller than the volatility in European GDP over last three years. the outlook is positive as smartphone growth opens doors to new opportunities in the sector. Looking ahead to future structural trends in the sector. 6 Top 10 risks in telecommunications 2012 . The sector is riding out the economic storms relatively well. This picture is being replicated in other regions across the world. with strategies such as network sharing helping to ease the pressure on infrastructure upgrades.0 2. asking questions about the levels of capital expenditure that will be needed to support future growth. Europe — GDP and telecoms revenue development1 % change y/y 6. In Asia. the high valuation multiples currently being applied to mobile players signal continued confidence in the outlook for the sector.” 15 September 2011. investors remain optimistic about the ongoing impacts of increasing smartphone penetration and investment in 4G networks. while landline is set to see the pace of its structural decline slow down.0 0.0 4. They are also questioning whether operators will take their fair share of future expansion in service revenues. or whether the over-the-top players will once again seize the initiative in monetizing new offerings. with operators’ robust defensive positioning generally regarded as being reinforced by strong cash flow and rising dividend yields. the telecommunications sector has often demonstrated its robustness in downturns and periods of market uncertainty. challenges remain.0 -2. the stillgrowing mobile segment is the most economically sensitive. More generally. “Global Telecoms.Sector context “Safe haven” positioning threatened by questions over future growth Telecommunications has weathered the downturn and subsequent economic uncertainty and volatility relatively well compared to many other sectors. And of the sector’s segments. as Figure 1 shows. Telecoms companies’ Operating Cash Flow margin 2 percentage by region.
given the uncertain capex commitments as mobile traffic growth and mobile data revenue growth diverge. investors’ view of the telecoms sector remains fundamentally ambivalent. both reflects and reinforces the current assessment by investors and analysts that the global telecommunications sector can weather any financial storms that may be ahead.000 800. Figure 3.000.000 4. data is projected to rise from 20% of global mobile revenues in 2008 to 36% in 2015. as they did with mobile apps. highlighted in Figure 2.000 200. Investors are also concerned about the massive capex that will be needed to support this growth. Investors are positive on North American telcos due to early investment in 4G and high smartphone penetration.Driven by such cost control measures. there are conflicting perspectives on how the sector will evolve.000 400. focusing on dividend yields tends to encourage a short-term view of the sector’s performance.200. 4Ovum Mobile Voice and Data Forecast 2011-2016. Global mobile voice and data revenues 4 A bright growth outlook … As these trends play out. 7 Top 10 risks in telecommunications 2012 . Figure 4. such as mobile data. As Figure 4 shows. “Global Telecommunications. 2008 Population Revision Database. This improving picture. as the “long tail” of users in emerging markets get connected. and as trends escalate such as multiple SIMs and devices per person.000. while high valuation multiples in Asia reflect confidence in continued revenue growth.” 25 July 2011. UNFPA.000 0 2009 2010 2011 2012 2013 2014 2015 Population Annual smartphone shipments (m) 600 500 400 300 200 100 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011E FY 2012E 0 Mobile voice revenue Mobile data revenue 3Ovum. January 2012.000 1. As a result. embedded SIMs and machine-to-machine (M2M) connectivity. Mobile connections are forecast to surpass the overall human population in 2014. the sector is already outpacing recent assumptions of its growth rate (see Figure 3).000 600. threatening major disruption to revenue models. global smartphone shipments continue to escalate at impressive rates. Ernst & Young analysis. and about whether over-the-top players might once again beat the operators in the race to secure new revenue streams. There is also concern over the trade-off between the cost and value of new growth areas.000.000 6.000. Yet this is a sector where the models for long-term value creation need to be addressed — and soon.000 0 2008 2009 2010 2011 2012 2013 2014 2015 Mobile connections Revenue (US$m) 1.000 2. operating cash flow metrics are forecast to improve for global operators. Against this background. Global mobile device and subscriber penetration3 Global population and mobile connections (m) 8.000. with wireless data growth set to remain strong across all regions — although minutes of use (MoU) are flattening in mature markets such as the US. reflecting the difficulty reconciling its structural weaknesses — such as heavy regulation of highermargin activities — with specific opportunities for rapid growth. Cisco Visual Networking Index. Deutsche Bank. At the same time. … but clouds are gathering Against this generally improving outlook.
here is a summary of each of the top 10 business risks for telecoms operators. it is increasingly clear that tight capex control can limit their ability to grow new services quickly. 8 Top 10 risks in telecommunications 2012 . which have had the effect of commoditizing the value of minutes and bandwidth in customers’ eyes. operators need to understand and respond to fast-changing customer expectations and behaviors if they are to fight off the competitive threat from over-thetop providers.Executive summary The top 10 business risks for telecoms operators The top 10 1 2 Failure to shift the business model from minutes to bytes Disengagement from the changing customer mindset Aggregating our interview responses worldwide. Better information can also help operators reduce operational costs and ensure regulatory compliance. helping them understand customer changes before their competitors. and allowing them to reuse network data in collaborative partnerships. Instead of concentrating on fighting churn. 2 Disengagement from the changing customer mindset With global technology brands now top of mind for consumers. timely and comprehensive business intelligence and customer analytics. 8 Failure to define new business metrics 9 Privacy. operators need to move away from their legacy strategies focused on customer retention. and technology cycles quickening. 1 Failure to shift the business model from minutes to bytes 3 Lack of confidence in return on investment 4 Insufficient information to turn demand into value 5 6 7 Lack of regulatory certainty on new market structures Failure to capitalize on new types of connectivity Poorly formulated M&A and partnership strategy As value shifts from minutes of usage to volumes of data. while tracking technology and consumer developments closely to ensure they target their financial investments at the right areas at the right time. So they need to maintain their commitment to investing in growth opportunities. operators need accurate. This will require operators to communicate clearly the underlying value of the network and the sources of added value that differentiate their offerings in new service areas. operators need to target revenues from new services that tap into rising demand and master a wider array of charging models to monetize these services. underpinned by aligned and integrated operational support and billing systems. 4 Insufficient information to turn demand into value To drive profitable customer propositions and improve their time-to-market for new services. Innovation in the service model could also be used to build brand loyalty in the same way technology players have done. security and resilience 3 Lack of confidence in return on investment 10 Lack of organizational flexibility While operators have proved adept at managing capital investment and balancing it flexibly with free cash flow and dividends. These elements pave the way for efficient growth by enabling operators to produce better business intelligence for decision-making.
But acquisitions and partnerships are essential for success in emerging market segments such as mobile advertising and cloud computing. It is increasingly crucial for governments and regulators to adopt pro-investment policies to sustain the sector’s momentum and for operators to form workable stances on a range of issues. This will mean identifying core competencies for use in composite value chains and delineating clearly between the need to build capability and the need to partner or outsource.and networkoriented. Yet they still hold operators responsible for threats from third parties even for mobile malware attacks and rogue apps. including the increasing relationship between fixed and mobile policies. Instead of continuing to think of connections in human terms. Many internal metrics are still service. Operators now need to align their business units to maximize the economies of scale and scope in their geographic footprints while reconciling the competing forces of geographic sensitivity and global strength. New types of connectivity such as machine-to-machine (M2M) are redefining the concept of connectivity. and do not provide enough granularity to improve the customer experience. all these groups must work together to achieve greater clarity over regulatory approaches. macroeconomic and regulatory risks are increasing. Also. At the same time. security and resilience 7 Poorly formulated M&A and partnership strategy Customers place more trust in operators than in social networks. 6 Failure to capitalize on new types of connectivity The metrics and key performance indicators (KPIs) that operators use to manage their operations internally and communicate their performance and prospects externally have not kept pace with the shift in business models from minutes to bytes.5 Lack of regulatory certainty on new market structures 8 Failure to define new business metrics Uncertainty over regulators’ approaches to new market structures is undermining operators’ willingness to invest. 9 Top 10 risks in telecommunications 2012 . operators need to develop new understandings of connectivity and target new growth areas. requiring operators to adopt new strategies. the rise of partnering and the rising imperative for speed-to-market. Operators need to clearly discriminate between when they should acquire and when they should partner. its nature and risks have changed. 9 Privacy. regarding operators as security guarantors across a range of services. commonly used external metrics such as average revenue per user (ARPU) fail to give investors a full picture. operators have already made significant changes to their organizations. and collaborate with suppliers and partners to tackle privacy and security issues in new service areas such as cloud security and mobile apps. 10 Lack of organizational flexibility With their organizational structures subject to forces such as the shift to data services. But more are needed. Operators should work closely with governments to clarify their responsibilities in areas such as anti-terrorism and content for children. Though M&A activity has accelerated recently. Footprint control increasingly takes precedence over footprint growth. Operators urgently need to define a new and different set of metrics that puts the customer first and leads to improved financial performance. The ability to sustain partnerships will emerge as a strategic differentiator. and political. Effective management and implementation of M&A and partnerships offers significant operational upside to telecom players.
000 4. Global mobile data revenue and traffic growth5 Revenue (US$m) 450.000 2010 2011 2012 2013 2014 2015 0 “Losing ownership of the client” was ranked as the telecoms sector’s top business risk in 2008 and 2010. Even operator-provided products such as SMS that were previously insulated from new offerings are under growing pressure from new free services.” December 2009. “Telecoms in 2020: Executive Summary. the current split of revenues is roughly 50% in the consumer segment. they need to move away from legacy strategies that have focused on retaining customers’ loyalty rather than monetizing demand. such as mobile instant messaging. 5Ovum Mobile Voice and Data Forecast 2011-2016. The focus on preventing and minimizing customer churn has had the effect of commoditizing the value of minutes and bandwidth in customers’ eyes.000 300.000 250.000 150. As Figure 6 shows.000 0 Trafﬁc (PB per month) 6. Depending on the chosen strategy. January 2012.000 5. we believe that operators should now raise their sights to target revenues from new services that tap into rising demand.000 400. the revenue growth potential in the enterprise segment remains high in comparison to the consumer market. As demand increases. The direct impacts of this commoditization are clear in offerings such as free upgrades for fixed broadband. Pivotal to these changes is the migration of value from charging for minutes of usage to carrying rising volumes of data across networks. this split could evolve by 2020 into a “smart” operator with revenues dominated by customers or a “lean” model rebalanced toward wholesale service provision. Operator revenue mixes — 2020 scenarios6 Current Smart operator 2020 Lean operator 2020 0% 20% 50% 60% 30% 30% 25% 50% 80% 100% Wholesale 20% 15% Focusing on retention stifles value As operators respond to this seismic shift. telecoms revenue mix forecasts point to an increasing shift toward wholesale.000 100. Cisco Visual Networking Index. To exploit this potential. Mobile data revenue Mobile data trafﬁc Adapting to a wider ecosystem … In response.000 1. as the ongoing fragmentation of the sector value chain makes it increasingly clear that no single participant can ever truly “own” the customer. new consumer service areas are being exploited by players with new business models. Figure 6.000 3.000 200. 6Ovum.000 350. And the customer-focused risk of “disengagement from the changing customer mindset” has slipped to number two. and advertising-supported apps.000 50. 10 Top 10 risks in telecommunications 2012 . The risk of failing to shift from minutes to bytes reflects the new challenges now facing operators around the world. as a result of aggressive moves by competitors entering from other sectors and rapid change in telecoms’ established value chains. operators need to adapt their business models to a wider ecosystem and make firm decisions about which revenue sources they are going to target within that broader environment. with the rest divided between business and wholesale. These underline the fact that user-loyalty considerations are now actually stifling value creation. Operators face the challenge of identifying new types of wholesale customers in the context of a shifting value chain. flat-rate mobile data services and discounted multi-play packages.The top 10 business risks 1 Failure to shift the business model from minutes to bytes Figure 5. Pursuing new service areas Instead of concentrating on fighting churn. In general. data traffic is expected to grow exponentially in future years. business models for enterprise customers have to embrace new approaches to provisioning — such as cloud computing — alongside collaborative approaches to service development and delivery. As Figure 5 shows. 20% 40% 60% Consumer Business … while seizing the enterprise opportunity In light of developments such as the rapidly intensifying competition for consumers’ spending. Our analysis shows that this risk has now been overtaken by the urgent need to develop and deliver new data-enabled services that will generate fresh revenues from users. such as “freemium” music and data hosting/file transfer services.000 2.
Quickening technology cycles reshape brand affinities This dominance by the technology players reflects the extent to which quickening technology cycles across both the consumer and enterprise segments are impacting consumers’ everyday working habits and lifestyles. As Figure 7 shows.” 4 August 2011. And cross-sector growth strategies will require vertical market business models. As this explosion in online/mobile applications gathers pace. At the same time. 8Ofcom. disruptive players are leveraging their rising brand values to extend their service propositions. as demonstrated by a raft of announcements in late 2011 of cloud-based unified communications and collaborations services for businesses. an area where operators are continuing to make good headway. As Figure 8 indicates. This risk is underlined by the extent to which technology brands are now top of mind with customers. Top 10 global brands 20117 Rank 2011 1 2 3 4 5 6 7 8 9 10 Rank 2010 2 20 5 4 1 7 6 10 11 8 Rank 2009 5 27 4 3 1 8 6 10 14 7 Brand Google Apple Microsoft IBM Walmart Vodafone GE Toyota AT&T HSBC Industry group Technology Technology Technology Technology Retail Telecoms Diversified Automotive Telecoms Financial services 27 4 4 Netbook 2 3DTV 2 Tablet Laptop One of the reasons for this acceleration is that operators’ fixed and mobile networks are now a platform for access to a wide number of sectors and services. Figure 8. Figure 7. operators should seek to master a wider array of charging models. in turn. ranging from flat-rate to per-event and ad-supported. with the top-ranked operator brand coming in at number six. “Global 100. 7Brand Finance. “Communications market report: UK. In parallel with these initiatives. and reshaping their brand affinities. tailored to the particular sectors — a need well served by the low costs and high scalability and configurability of cloud services.Operators are embracing this message. retail and banking. today’s top four global brands are all technology players.” September 2011. multiple devices per user is increasingly the norm. our number one risk in 2010 of losing customer ownership has evolved into the risk of becoming disengaged from the customer’s changing mindset. So. require changes to IT and charging systems. as well as slipping to second place behind the need to migrate from minutes to bytes. often supported by new data center investments. such as television. Small and medium-sized businesses are expected to act as early adopters for these cloud-based services. Take-up of consumer electronics devices8 UK device penetration Q1 2011 (%) 100 98 80 60 40 20 0 TV set 93 85 60 55 54 33 2 Disengagement from the changing customer mindset Landline phone Mobile phone Games console HDTV receiver HD-ready TV Smartphone As we previously noted. And the time taken for new technologies to reach 50% penetration is shortening rapidly down from 15 years for mobile phones to 4—5 years for smartphones and tablets. devices are playing a pivotal role in shaping the mobile customer experience. All of these changes. 11 Top 10 risks in telecommunications 2012 e-Reader . there is now very little prospect of any individual participant in the value chain fully owning — rather than sharing — the customer.
getting the timing of new investments right is critical for achieving the targeted returns. External forces such as regulation and customer demand mean operators remain cautious about investing in infrastructure. These same considerations — together with uncertainty over new market structures — are also contributing to persistent doubts over the revenue potential of new services. the risk of ineffective infrastructure investment was ranked in fourth place. there is a risk that tight capex control can undermine service quality. levels of capital intensity remain largely stable worldwide and are now relatively consistent in all regions. Service quality is not just about the device or application. There is also a trend toward moving capex spend into opex through outsourcing. in order to smooth capex spend over time. competitiveness and the growth prospects of new services. The scalability. With this imperative in mind. If operators worldwide can get this message across to customers. This year. Nevertheless. 12 Top 10 risks in telecommunications 2012 . operators should clearly define and communicate their core added value in areas of new service provision — such as their security credentials in network-based enterprise services. and their role as a trusted provider of new and emerging services. As Figure 9 shows. such as m-payments. it is also about the network infrastructure without which these elements would never work. “Network infrastructure report. In our 2010 report. have underlined their strong capex control and reinforced their defensive status. These factors. competitor actions and government industrial policies. operators have been quite successful in tackling the challenge of the data deluge on their networks. while also evolving into a lack of confidence about the level of returns. quality and convenience — and to work the proven levers of brand strength in telecommunications. Telecoms capital intensity by region 2008–Q2 20119 Fixed and mobile capex/sales (%) 30 25 20 15 10 5 0 2008 2009 2010 Europe Q1 2011 Asia Paciﬁc Q2 2011 MEA North America 3 Lack of confidence in return on investment The importance of timing With the number of high-speed mobile connections globally continuing to grow rapidly (see Figure 10). Growth-driven capex in emerging markets is falling back from its previous highs.Adapting to the new customer mindset As these changes in customers’ mindset — and behavior continue and seemingly accelerate — operators have an absolute need to adapt their service offerings and customer experience to reflect these shifts in order to sustain and build customer engagement. Network quality is often taken as a given. and the release of new spectrum is lagging in some developed markets. Ambivalent outcomes However. Figure 9. In the past two years. including high trust and credibility. These responses should be supported by clear communication with customers on the value of the network and on the effort and investment required to provide high-quality services. operators need to understand clearly how infrastructure upgrades relate to customer demand.” 19 September 2011. but it shouldn’t be. To do this. thanks to a combination of smart investment and growing use of alternatives such as WiFi and offloading to backhaul. flexibility and low costs of cloud computing not only help operators address the number one risk of failing to shift the business model from minutes to bytes — they can also help operators better engage with the customer mindset. As a host of players from the technology and telecoms sectors seek to deliver new services — either individually or via partnerships — the need to differentiate is paramount. tight capex control has ambivalent outcomes — and increasingly risks sidelining operators from future growth. This can be supported through better leveraging and optimization of legacy networks to complement network/service availability. 9Ovum. the risks around investment have risen to third. then they will be able to improve perceptions of added value — including price. together with operators’ readiness to flex capex to maintain free cash flows and dividends. their ability to deliver new types of bundle packages for consumers.
000 2.500. As technology and product life cycles shorten. due largely to patchworks of legacy systems that hold fragmented customer and network information. timely and comprehensive business intelligence and customer analytics.000 2. industrial policies in many markets will require substantial increases in super-fast broadband coverage over the years to 2020. “Amdocs survey: time to market grows in importance. they agree that time-to-market is increasingly important. All too often. operators are struggling to repurpose their information assets.000 1. thus limiting the future revenue and margin potential of new services.000 3. 2011 70 2008 50 55 59 60 65 70 75 4 Insufficient information to turn demand into value % service providers that can bring a product to market within 6 months As operators undertake the shift from minutes to bytes and seek to justify continued investment in new infrastructure and services. this represents a growing risk — especially since disruptive market entrants are repurposing customer data dynamically for new services. underpinned by the right operational support and billing systems. Time-to-market — telco perceptions and performance11 % service providers that say time-to-market is very important to remaining competitive WCDMA HSPA TD-SCDMA (incl.Figure 10. companies need accurate. 11Amdocs. and a lack of real-time analytics to build a single view of the customer across multiple devices and territories. Global high-speed mobile connections10 Connections split by technology (000) 4. However. and the percentage of operators that can bring products to market quickly has actually fallen since 2008. 13 Top 10 risks in telecommunications 2012 . soaring usage of high-bandwidth applications and shifting market structures as network sharing and consolidation continue to gain ground.000 4.” July 2011. Added urgency The requirement to ensure the right systems and processes are in place is being given added urgency by a widening gap between what operators know they need to do and what they are achieving.000 0 2009 2010 2011 2012 2013 2014 2015 2016 Not having all these elements in place threatens operators’ efforts to increase time-to-market and build customer-centricity.500. TD-HSPA) LTE CDMA 1XEV-DO This is a complex task. To drive profitable customer propositions. It can also undermine the potential returns on their ongoing investments. Also. for several reasons. These drivers for capex planning should change.000 1. many operators have multi-technology strategies and fail to fully understand the complementarities and optimization factors between them. In contrast. their capex planning is driven by a focus on protecting cash flow or by pressure to build out greater bandwidth capacity even though the business case remains ambiguous.000 500.000.500.000.000 3.” 14 April 2011 (125 senior sector executives). information becomes increasingly vital to their ability to create value. This risk relates to the “inappropriate systems and processes” that ranked eighth on our list in 2010.000. Yet operators’ time-to-market for new services has not improved in the last two years. customers in all segments and markets are increasingly concerned about network quality. 2011 65 2008 50 55 60 65 67 70 75 10Ovum. Figure 11. It requires confronting challenges such as uncertainties in supply and demand amid factors such as spectrum releases. As Figure 11 shows. Operators need to tackle all these challenges while continuing to invest in network infrastructure.500. For example.000. the issue now is both more holistic and more pressing. Also. “Mobile Regional and Country Forecast: 2011–16.
Consequently. Going forward. Operators that upgrade their capabilities in understanding and applying customer data also open up opportunities to reduce operational costs. Figure 12. Figure 13. This means that 2010’s third-placed risk of “rising regulatory pressure” has now narrowed into this year’s more specific risk factor — and that it is increasingly crucial for governments and regulators to adopt pro-investment policies to sustain the sector’s momentum. operators know that telecoms can be a rich source of government taxation as well as a focus for government investment. What is the key issue facing ISPs over the next ﬁve years? Regulatory frameworks Return on investment Launching new services Access to capital 0 15 20 40 60 % respondents 24 20 41 Dynamic charging capability Improved time-to-market Better distribution of network load Better targeted marketing initiatives Deeper relationships with third parties and partner ecosystems Improved monetization of new customer demands 12Ernst & Young/ITU Telecom World poll. Repurposing customer data in new ways can enable operators to improve their market positioning. policy challenges are undermining operators’ willingness to invest. And in tough fiscal conditions. such as MTRs and roaming. On top of these uncertainties. Advantages of repurposing data inside the business 5 Lack of regulatory certainty on new market structures As new market structures emerge. the regulatory approach to these evolving sector ecosystems remains unclear. new spectrum releases will shape 4G market structures — and the rules vary from market to market in areas such as spectrum caps and trading. 14 Top 10 risks in telecommunications 2012 .Realizing the power and value of information Operators are collecting more information about the customer than ever before. while simultaneously improving the speed of delivery of new data services and making it easier and cheaper to ensure regulatory compliance. Shifting standpoints The challenges and uncertainties around the policy approaches to new market structures include shifting regulatory standpoints on wholesale broadband access pricing. Furthermore. there is continued regulatory pressure on legacy parts of the business. In new and emerging areas such as mobile money. these issues have pushed regulatory frameworks to the top of the list of challenges facing ISPs (see Figure 13). In combination. Those who overcome the barriers we’ve highlighted and leverage their information assets as successfully as the over-the-top providers stand to reap significant benefits (see Figure 12). November 2011 (85 online respondents). anticipating market and customer changes before competitors — and reusing network data for collaborative partners and sector verticals. through advantages such as better business intelligence — for example. Survey: challenges facing ISPs12 Q. the value of customer and network data extends beyond the organization itself and will continue to rise as the sector becomes increasingly partnership. and the trend toward imposing network separation as a pro-competition tool in super-fast broadband. regulatory jurisdictions and policies continue to lag behind the technology — a challenge compounded by the “broadband as a human right” lobby.and data-centric.
lower ARPU per SIM card in the M2M environment. 1% 0. The business models for monetizing connectivity are also proliferating. higher customer centricity and valueenhancing repurposing of existing infrastructure. These include the increasing relationship between fixed and mobile policies — for example..32. Figure 14.” January 2011.962 0. The new connectivity-based services now emerging promise increased efficiency. through technologies and links including not just M2M but also NFC and multi-screen content. retail and ﬁnancial services 1. There is clear value in the “interconnectedness” of devices. 62% 14 Sep 11 2.Seeking certainty These factors are creating an urgent need for greater regulatory certainty — and. springs from the fact that new types of connectivity — notably M2M links — require new types of strategies.g.600 0. and the need to fund next generation access and spectrum releases (see Figure 14 for European examples) will require broad market consensus on the regulatory position.28.07. Consolidation in markets worldwide will continue to impact pricing and investment. 14Analysys Mason. media and telecoms ecosystem. But operators’ moves into emerging market segments such as mobile money are often defensive and piecemeal they also raise various challenges that include high upfront costs. in the regulatory approaches in adjacent markets (e.1 billion connected things.42 Global M2M connections: 2. achieving this will require operators to engage with a wider set of stakeholders. 13% Utilities Security Automotive and transport Health care Government. European 800 MHz spectrum auctions13 Date Country MHz Total price (€m) Italy 60 Price/ Notes MHz/ pop Spectrum won by two of three existing network owners.to machine-based While operators continue to think of connections in primarily human terms. And overarching questions remain about the impact of the net neutrality agenda across the whole of the technology. further 900MHz spectrum to be released in Q4 2012E All three network owners won spectrum.47 Mar 11 Sweden 60 228 0. sector growth increasingly relies on new understandings of connectivity. the very concept of connectivity is rapidly being fundamentally redefined.45. financial services) — traffic management of data services and the drive to increase broadband coverage in rural areas. 21% May 10 Germany 60 3.82 Jul 11 Spain 60 1. alongside greater clarity and consistency from regulators. 1800MHz auction took place in Oct 11 — two of three network owners won spectrum in first round Three of four network owners won spectrum.1 billion 0. which has come straight into our top 10. From human. “Imagine an M2M world with 2. 15 Top 10 risks in telecommunications 2012 . 1800/2600MHz spectrum awarded at same time to all network owners (total price €445m) 6 Failure to capitalize on new forms of connectivity This new risk.03. Figure 15.205 0. spreading across the spectrum of B2B. B2C and B2B2C. 3% 0. operators need to form workable sector stances on a range of issues. To engage effectively on these areas of uncertainty.73 13Ernst & Young research. simultaneous 1800MHz and 2600MHz auction 900/1800/2600MHz auctions also took place in mid-2011. and exposure to new regulatory and reputational risks. Global M2M connections in 2020 by vertical M2M connections (billions) 0. As M2M takes off in various vertical markets (see Figure 15).
Figure 16. automated provisioning M2M service portal since 2010 — can be integrated into customer environment via API Target segments Utilities. the role and dynamics of M&A are changing. Figure 16 shows various operators’ approaches to the M2M opportunity. 16Ovum. Quarterly global telecoms M&A 2008–1016 US$m 14.Unlocking incremental revenues As companies seek to tackle these challenges. notably Vietnam and Indonesia. metering. retail Environmental monitoring. health care. telematics.000 4.000 6. This will generally mean deciding on their core competencies for use in increasingly composite value chains. operators need to work out how best to align themselves to new growth areas. smart metering and grid. resource management. 14 November 2011. 16 Top 10 risks in telecommunications 2012 . the rationale for consolidation remains strong and partnership structures are gaining ground by offering new routes to growth. to avoid placing the wrong bets. B2B M2M is part of Advanced Mobility Solutions Group International M2M competence center in Bonn. health care. consumer electronics Home security.000 0 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 # of deals 80 70 60 50 40 30 20 10 0 Service delivery platform Jasper-powered Control Center — provides analytics reports. new strategies can unlock incremental revenues.000 12.000 10. Issues around technological complexity must be assessed on a continual basis if multi-operator and cross-sector partnerships are to succeed in overcoming the current technological fragmentation. Joining forces in an uncertain world There was actually a pickup in M&A deal activity in 2010–11 compared to 2008–09 (see Figure 17). acute macroeconomic risks in Southern Europe and uncertainty over shifting regulatory attitudes toward competition. automotive telematics and fleet management Deutsche Telekom Vodafone Dedicated M2M organization launched in 2010 Automated SIM pre. fleet management. Local and market-specific factors such as regulation.and post-paid provisioning. the vertical industry landscape and existing network coverage will play a pivotal role in emerging service areas. Experience shows that majoring on specific industries can help to differentiate propositions and that the current stage of service maturity varies widely between different vertical markets. At the same time. So. logistics. policy management. However. US M2M outsourced to RACO Wireless 7 Poorly formulated M&A and partnership strategy Across the global telecoms sector. To realize these. Figure 17. including high levels of political risk in the Middle East/ North Africa.000 8. remote maintenance and control. security. competition and ownership issues have emerged as hot topics in the region.000 2. and operators are adapting their strategies to reflect these shifts. and delineating clearly between the need to build capability and the need to partner or outsource. operators should take great care in evaluating emerging use cases. plenty of risks remain. tracking. With operators eager to tap into the growth potential in emerging Asia. Selected operator approaches to M2M15 Operator M2M organization AT&T Emerging Devices Org as dedicated BU. By way of example. API integration with customer systems Deal value # of deals 15Ernst & Young research. in light of their existing network and customer footprints. These developments have seen this risk rise two places from ninth in 2010.
Also. these trends make it important that operators build the ability to work with new types of partner — application developers. operators need to discriminate clearly between situations that call for acquisitions and those more suited to partnering. Meanwhile. Going forward. November 2011 (interviews with 31 senior telecoms executives). These factors include a continued focus on realizing cost efficiencies through approaches such as network and procurement joint ventures. partnerships and investments. and a growing reliance on cross-sector collaboration for new product development. Figure 18. Valuation uncertainty/complexity -3% 17Ernst & Young Capital Confidence Barometer survey. the ability to create and sustain partnerships will emerge as a strategic differentiator. technology companies and more — and continually reassess their relationships with partners outside the sector.The changing risk landscape creates increasing uncertainty over deal valuations and prompts greater board scrutiny and stakeholder caution (see Figure 18). Deal factors in telecoms17 Q. In the cloud space. as their scope and usage widen due to a number of factors. However. In combination. Which of the following factors have increased/decreased over the last six months? Price expectation gaps Regulatory pressures Board/audit committee scrutiny Competition for assets Stakeholder caution Decreased -7% -4% -4% -7% -7% Increased 39% 69% 46% 61% 45% 46% Partnering abilities come to the fore To capitalize on such opportunities. 2011 saw the launch of a raft of new services supported and enabled by a diverse range of acquisitions. acquisitions and partnerships in emerging market segments remain important. issues over revenue shares within partnerships remain a stumbling block. 17 Top 10 risks in telecommunications 2012 . Under these circumstances. the changing nature of M&A deals reflects the fact that footprint control is now more important than footprint growth for some players. power utilities. such as the creation of joint tower management entities. shifts in the value chain are heralding new M&A trends.
18 Top 10 risks in telecommunications 2012 . One critical issue is that analysts are not generally focusing on or gaining access to the types of cost- and investment-related metrics that can point to how operators can become more effective at converting investment dollars into profitability. operators’ internal requirement for information to turn demand into value. This will enable the sector’s metrics to catch up with the way its products and services are progressing from mobile voice growth to mobile data maturity (see Figure 20). Evolution of KPIs in mobile data Mobile voice growth Voice maturity. mobile Mobile data maturity data growth Rationale Measures efficiency to utilize the capital invested to generate returns Indicates the efficiency and profitability of the telcos capital investments RGU per sub describes the average number of services taken subscribers. Figure 19. operators should evolve metrics that put the customer first. “Third Quarter Results 2011. and create more granular external KPIs that highlight network usage and related costs or new service take-up. Legacy penetration rates fail to give a clear view of the addressable market for new services. and their need to sustain confidence among investors and other external stakeholders.and post-paid split • Revenue market share • M2M connections • Mobile payment users • Smartphone take-up • App store revenue • 3G handset take-up • On-portal visitors and traffic 18KPN. Metrics are inadequate internally … In terms of internal measurement. In particular. customer-level usage metrics such as minutes-ofuse are failing to delineate the impact and effect of bundled and flat-rate packages. reflecting bundle take-up Share of the TV market helps communicate IPTV strategies • Network coverage • SAC/SRC • Subscribers • Penetration • Customer market share • Cost per bit • Churn • Data share of revenue • Mobile internet page hits transmitted utilization • 3G/4G network • Data usage per subscriber • MoU • ARPU • Pre. In combination.8 Failure to define new business metrics … and externally External stakeholders such as investment analysts are currently trying to gauge the value of telecoms companies by reviewing revenue. Figure 20. Many internal metrics are service. KPIs for consumer fixed-line services18 Key performance indicator Return on invested capital (ROIC) Return on capital employed (ROCE) Revenue generating unit per subscriber TV market share Metrics to put the customer first To address these shortcomings in their internal management information and external communications and reporting. and reliable metrics for new growth segments such as mobile apps and advertising are lacking. the problem is that operators’ current metrics fall short of providing the new and timely insights and business intelligence they need to maximize value in the evolving ecosystem. ARPU and basic subscriber growth numbers that fail to provide a full picture of a sector moving from a high-growth to a pure investment-yield story.and network-oriented and do not provide enough granularity to improve the customer experience.” 25 October 2011. and tend to hit a plateau once users’ consumption behavior becomes established. are driving a further sector imperative: an urgent demand for fresh ways to measure and communicate financial progress through a new and different set of KPIs. For this reason. operators are developing and applying a growing array of operational metrics (see Figure 19). Financial metrics such as return on invested capital (ROIC) offer greater insight than EBITDA as a way to measure and communicate intrinsic value. But data service metrics such as megabytes per user are failing to fill the gap and are generally lacking at the customer level.
At the same time. On the one hand.0 and mobile apps. “Mobile Trust & Security Barometer — US. 19 Top 10 risks in telecommunications 2012 . The survey showed that a large majority of mobile users in developed markets feel uncomfortable with personal data being collected and repurposed by applications or shared with third parties for promotional purposes. cloud. Web 2. operators are widely regarded by customers and business partners as security guarantors across a range of services. they have to try to fulfill this role while coping with an array of threats that are expanding rapidly in number and severity. Additional internal operational metrics will also help operators improve the customer experience. location-based services and third-party information-sharing.000 smartphone users). provide deeper insights into network utilization patterns such as urban versus non-urban traffic. end users are facing privacy and security dangers that are escalating and multiplying.The new KPIs for this environment will need to include metrics such as revenue generating units (RGUs) per customer and segment market shares and track the penetration of new services into the installed base. It also found that four out of five end users believe safeguarding their personal information is very important. As a result. since they are regarded as more trustworthy than other service providers. Mobile handset manufacturers Me/the individual A recent survey by Futuresight for the GSMA highlighted privacy issues. with customers voicing concern about areas such as targeted advertising. Yet customers hold operators responsible for threats or attacks from third parties and suppliers even including mobile malware and rogue apps. Trusted to be secure but blamed for breaches Carriers should be well placed to help users address these threats. with more insights into quality of experience. such as service configuration. location-sensitive data can support advertising-based revenue models but may raise concerns around customers’ privacy. reflecting the conflicting pressures that operators face. including SMS. and KPIs built on aggregated data drawn from a variety of systems and processes. customers are now as concerned about data integrity as call quality (see Figure 21). Figure 21. billing and customer care. User perception of responsibility for mobile security19 9 Privacy. privacy concerns hamper service innovation. As mobile phones evolve into personal data hubs. On the other. as threats converge from a range of environments. security and resilience Unexpected items on bill SMS text phishing Unsolicited messages/spam Malware/viruses Rogue apps that can steal data/spy 0% Carriers Content/app provider 55 54 46 36 74 8 7 11 10 50% 6 9 11 15 18 23 37 22 21 20 17 100% This risk area has risen by one place since 2010. They will also have greater sensitivity to households and existing coverage areas. such as social networks. 19Adaptive Mobile. For example. and delve deeper into customers’ smartphone behaviors.” September 2011 (survey consists of online interviews with 2. The challenges are compounded by rising concerns among customers.
. with 2. Operators should adopt a similarly collaborative approach with suppliers and partners. changing definitions of privacy and security are creating new responsibilities for the sector. New business units have also been created to investigate and exploit new growth areas (see Figure 23). e. The picture is further complicated by the fact that the nature and scale of security concerns vary for different customers and stakeholders. including the shift to data services. With their organizational structures now subject to various forces. such as consumer. driven by the need for operators to develop more agile organizations that can execute their new strategies. fastchanging levels of market maturity across different regions. At the same time. These forces include intensifying regulation of many incumbents’ domestic businesses. the forces affecting organizational structures continue to change and strengthen. Data retention is a particularly sensitive issue. Includes existing businesses such as Telenor Next and Comoyo Sep 11 Telenor Period of data retention Timing of implementation Regulatory issues Cost reimbursement of service provider compliance Group New unit established to drive Industrial operational efficiency.g. 20 Top 10 risks in telecommunications 2012 . end users. smart services and fixed/mobile bundles. Carrier organizations — sample new business units20 Date Operator New Unit Digital Services Notes Driving growth in internet-based ecosystems. Key issues in data retention regulation Conditions of access to and use of retained data 10 Lack of organizational flexibility This risk is new to our top 10 this year. Figure 23.New definitions — new responsibilities To manage the resulting risks effectively. Emerging service types such as mobile money and M2M connectivity will require new approaches to ensure solutions are secure. operators have already made significant changes to their organizations. But more are needed. with a wide range of related effects (see Figure 22). operators need to work closely with governments to define clearly their responsibilities regarding content and data.500 employees from Global Services unit. Jajah. such as anti-terrorism measures and content for children. However. In response. enterprise and government. Figure 22. The changes to date include a concerted sector-wide move away from product-based structures and toward segment-orientated organizations. privacy groups Global Resources Jul 11 Telstra Customer Sales and Service Applications Created to spearhead investment and Ventures in new and emerging broadband businesses 20Operators. Ernst & Young research. Telefonica R + D among others New operating unit designed to leverage economies of scale and drive transformation into fully global company Merger of existing sales and retail customer service Delineating data types according to type of operator External attitudes to data retention. crossDevelopment market streamlining and other synergies Sep 11 Telefonica Telefonica Digital Headquartered in London. the rise of partnering and the growing imperative for speed-tomarket. and the need for in-market and cross-border efficiencies in fastchanging areas of demand. mobile apps). operators should bear in mind that concepts of digital rights are an emotive issue for customers and that national security considerations are rising in importance. working with them to tackle privacy and security issues in new service areas (cloud security. such as enterprise ICT.
In achieving the right structure. and the outcome for most operators is likely to reflect a balance between all of these. Figure 24. Options for operators’ organizational structures Segment-based Consumer Enterprise Wholesale Fixed Product-based Mobile Other Function-based Finance HR Operations Geography-based Domestic Regional Int’l 21 Top 10 risks in telecommunications 2012 . they must revisit their combinations of regional and globally integrated structures and devise new organizational constructs that reconcile global strength with important local market factors — such as a unified customer view and collective purchasing power. Four options for operators’ organizational structures are shown in Figure 24. while regular large-scale restructuring is impractical and prohibitively expensive. operators have to work out how they can best align their business units to maximize the economies of scale and scope in their geographic footprints. Segmentation strategies should recognize that the boundaries between customer types will remain blurred. To do this.Further refinements needed for new market dynamics Given these forces. flexibility and pragmatism will be essential.
8 Failure to define new business metrics 9 Privacy. 10 Lack of organizational flexibility 11 Evolving service cannibalization scenarios 12 A more pressing green agenda 13 Concentration of equipment vendors 14 Difficulties in managing debt and cash 14 Difficulties in managing debt and cash Operators entered the economic crisis in better shape than other sectors due to their balance sheet repair efforts in 2002–03. with the European average currently around 2. 3 Lack of confidence in return on investment 4 Insufficient information to turn demand into value 5 6 7 Lack of regulatory certainty on new market structures Failure to capitalize on new types of connectivity Poorly formulated M&A and partnership strategy 12 A more pressing green agenda The green agenda is now top of the sector’s below-the-radar risks. Operators should move beyond regulatory compliance and ensure that they begin to differentiate themselves in customers’ eyes through greater sustainability. The four risks they highlighted are split evenly between the categories of compliance. New types of cannibalization are appearing. But a more constrained environment is now putting new financial demands on the sector. Below the radar — the next four risks 11 Evolving service cannibalization scenarios This represents a new below-the-radar risk for 2012.” and which may rise up the agenda in years to come. we also asked our telecoms commentators to identify risks that sit directly “below the radar. Operators need to ensure they are not overly reliant on any single equipment manufacturer.0x. security and resilience 13 Concentration of equipment vendors Consolidation is an ongoing feature of the telecoms equipment market and M&A activity in the device and equipment market remains high in 2012. financial and strategic. such as the rapid rise of mobile instant messaging as an alternative to SMS. and current net debt/EBITDA levels remain strong. More defensive capex programs are helping to maximize operating cash flow. Operators need to anticipate and manage such trends by moving beyond legacy assumptions about users’ behavior. 22 Top 10 risks in telecommunications 2012 . operations.What’s below the radar? The top 10 1 2 Failure to shift the business model from minutes to bytes Disengagement from the changing customer mindset In addition to identifying the top risks.
Difﬁculties in managing debt and cash A more pressing green agenda Fi n l cia an Lack of regulatory certainty on new market structures Lack of confidence in return on investment Failure to shift the business model from minutes to bytes Co m pl Failure to define new business metrics Privacy. security and resilience e nc ia Disengagement from the changing customer mindset Failure to capitalize on new types of connectivity Insufficient information to turn demand into value Poorly formulated M&A and strategic partnerships eg ic Lack of organizational flexibility e Op Evolving service cannibalization scenarios Concentration of equipment vendors 23 Top 10 risks in telecommunications 2012 ra tio ns t ra St .
24 Top 10 risks in telecommunications 2012 .
firstname.lastname@example.org Luis Monti Telecommunications Leader — Americas +55 11257 33550 email@example.com Prashant Singhal Global Telecommunications Markets Leader +91 124 671 4746 prashant.com 25 Top 10 risks in telecommunications 2012 .com Holger Forst Global Telecommunications Markets Leader +49 221 2779 20171 firstname.lastname@example.org David McGregor Telecommunications Leader — Asia-Pacific +61 3 9288 8491 email@example.com@in.Global Telecommunications Center contacts Jonathan Dharmapalan Global Telecommunications Leader +1 415 894 8787 jonathan.com Olivier Lemaire Telecommunications Leader — EMEIA +352 42 124 8356 firstname.lastname@example.org.
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