At the same time, many carriers have tried to be all things to all people, delivering a wide variety of services to their customers. But as a group, they have not managed to excel at any of those services. So now they are vulnerable to competition. And the competition has arrived. Over-the-top OTT players, which offer apps and streaming content directly to consumers through the Internet, have increased their dominance, even in core communication services such as messaging and voice. As a result, many telecom carriers are facing significant decreases in their basic communication service revenues: drop-offs of as much as 30 percent in SMS messaging, 20 percent in international voice, and 15 percent in roaming.
Combined with intense competition due to lagging industry consolidation, this pattern has led to steep declines in average revenue per user; at best, minimal revenue growth; and tightening margins. If you are a telecom executive at this critical juncture, you need to make two different moves at the same time. First, begin the task of modernizing operations. Second, redefine your strategic identity your value proposition for the future — specifically, what you can expect to offer customers five or 10 years from now. Telecom companies have been so frugal in recent years that their basic operational structure has foundered.
To revitalize your operations, focus on the following fundamental goals. At most telecom companies, reducing complexity in commercial offerings and market-facing activities is a haphazard and ill-conceived effort, chiefly reliant on targeted cost-cutting campaigns designed to support or improve profit margins. But although slashing expenditures is often vital, especially when traditional telecom products and services are commoditized, it is certainly not the endgame.
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Twitter LinkedIn. Instead of going after costs, take a more dynamic approach to simplification, one that could serve as a basic foundation for growth. The purpose of this drive should be to pare basic offerings down to a limited portfolio of products and digital services. But they should be essential enough to your customers that you can maintain a deep and loyal customer base, and they should allow your company to transition to the cloud for infrastructure needs.
For this simplification program to work, however, you may have to address your organizational and structural complexity, flattening some aspects of your hierarchy and learning to move fast to experiment with innovative service offerings.
That may require some culture change. The company launched in with a no-frills business model — including customer service kiosks placed in retail locations to avoid management and overhead of a large store network; primarily Internet-based marketing and customer service; and a bring-your-own-device policy designed to eliminate administrative costs for handset sales — and its flagship low-priced all-you-can-use domestic service plan has caught on with consumers.
Since its launch, Free has boosted its subscriber base to more than 12 million; it now has an 18 percent share of the mobile market in France. You should be on the vanguard of adopting digital technologies, both in services and in the back office. For example, all customer contact and sales channels online, mobile, and physical should be linked digitally so that consumer activities are maintained in a single database, making interactions with customers in all channels less costly in terms of expended time and resources and enhancing customer convenience and satisfaction.
Ideally, customer communications should be migrated toward messaging systems and well-designed mobile apps, with minimal human intervention. To reach this stage, you may need new capabilities, including data analytics expertise, to accurately segment and generate maximum value from each customer. Separate your traditional corporate IT functions from your customer-focused digital efforts, and appoint a chief digital officer who can facilitate business unit digitization efforts. Network upgrades. The single most compelling thing you have to offer is network speed and throughput; every customer is hungry for it.
Investments in telecom network improvements — fiber and 5G upgrades or other networking technologies — are critical to preparing for more dynamic, competitive environments. Every successful telecom company will be armed with a state-of-the-art infrastructure, sufficiently flexible to handle new and profitable monetization opportunities. Network enhancements could also position your company to take back the technological advantage from OTT providers. After developing a modernization program — and even while implementing it — work on adopting one or more new strategic identities that are relevant to customers, offering them distinctive services and experiences with real value.
You may choose your core connectivity business to be your strategic identity. This is essentially the approach Free Mobile has taken, betting everything on offering basic wireless services at the lowest possible cost. And it would obviate the investments needed to compete in the current telecom environment. A more extreme business model makeover is another option, but tread carefully.
Carriers have at various times tried to market their own devices, build portals for apps and entertainment, and provide outsourced IT services. The results, however, have been mostly disappointing, due largely to corporate cultures and capabilities gaps that put telecom companies at a disadvantage in broad, commercial markets, and to the structural challenges of selling global products in geographically bounded physical networks.
In the ecosystem of digital content, operators hold a critical card: a direct line to customers. It is an expensive business; contenders need to be large enough and produce sufficient cash flow to absorb the costs of expanding networks and services that become obsolete seemingly overnight. Transmission systems need to be replaced as frequently as every two years. Big companies that own extensive networks—especially local networks that stretch directly into customers' homes and businesses—are less reliant on interconnecting with other companies to get calls and data to their final destinations.
By contrast, smaller players must pay for interconnection more often in order to finish the job. For little operators hoping to grow big one day, the financial challenges of keeping up with rapid technological change and depreciation of equipment can be monumental. Earnings can be a tricky issue when analyzing telecom companies.
Many companies have little or no earnings to speak of.
To gauge a company's value, telecom industry analysts might turn to the price-to-sales ratio stock price divided by sales. They also look at average revenue per user ARPU , which offers a useful measure of growth performance, and the churn rate , the rate at which customers leave presumably for a competitor. The Telecommunications Act, signed into law by President Bill Clinton in , was passed to stimulate competition in the U.
Current industry leaders worldwide can change from year to year. Determining which are the largest depends on whether one looks in terms of total sales numbers or in terms of market capitalization value as well. As of , the top five telecom companies ranked by market capitalization are as follows:. The rankings shift noticeably if you judge in terms of total sales revenue. Spain's Telefonica TEF rounds out the top five rankings based on revenue.
Current ones at that level that show promise include the following:. Several exchange-traded funds ETFs serve as alternatives to directly investing in individual telecom firms. Telecom ETFs have varying focuses on geography or industry specialization. Some of the most popular include:. Analysts foresee that product innovation and an increase in mergers and acquisitions will only facilitate the continued growth and success of the telecommunications industry.
There are many opportunities for investors, and an increase in investors will only serve to benefit the sector further.
Technology, Media & Telecommunications | McKinsey & Company
The stability of the sector's growth, even during periods of recession , means that it is considered to be a solid defensive investment while maintaining its appeal to growth investors. Even during uncertain and volatile economic times, the steady demand for voice and data services, along with extensive subscription plans, assures a stable source of revenues for major telecom firms.
Telecommunications has become an increasingly important basic industry, which bodes well for its future prospects and continued growth. The continuing advances in high-speed mobile services and Internet connectivity between devices keep driving innovation and competition within the sector. Much of the industry focus is on providing faster data services, especially in the area of high-resolution video. Essentially, the driving forces are toward quicker and clearer services, increased connectivity and multi-application usage.
Emerging market economies continue to be a boon for the industry, with the growth rate of the cell phone industry in countries such as China and India pushing the abilities of hardware producers to keep up with the level of demand. In the U. There is still a strong demand for wireless spectrum rights, as indicated by the FCC's Incentive Auction that took place in April , not to mention an increasing trend toward consolidation through mergers and acquisitions.
Telecommunication companies, like other forms of utilities, often operate with stable customer bases that are protected from competition by government mandate. These pseudo- monopolies allow for consistent dividends. However, the dynamic nature of communications has led to mobile and Internet-based phone systems, undermining the demand for traditional landlines. When this happens, telecommunication companies either suffer or adapt, incorporate the new technology and grow rapidly as consumers buy the latest equipment.
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