Sometime back, I have written on rise of over the top (OTT) companies & its impact on the traditional business model particularly in Banking and Telecom. We discussed about, how these OTT companies making moolah, riding on the underlying core infrastructure of telecom and banking companies. I had concluded my earlier discussion with point that traditional organisations, instead of getting carried away with words like “Digital Disruption” (includes Internet of Things-IoT, Social and Mobile) and venturing out in all the areas without any specific business strategy aligned to the strengths of their company could be futile. I also mentioned about three possibilities for the Telecom companies which will allow them to take maximum benefit with their own SWOT analysis.
- To be “Utility players”: Providing basic voice and data services to customer at lowest cost compare to competitors. Low cost operators.
- To be “Utility players with differentiation”: It’s particularly “Communication Network Infrastructure Company” with focus on Enterprise & Wholesale. (USP: Unique Selling Proposition is “Best in class network quality”) which can lead customers and OTT players to pay premium for network quality. It can also allow these companies to introduce new products & services around underlying network. (Monetizing their network with M2M services etc.).
- To be “Full-fledged service providers”: Presence across the values chain and eco system for retail and enterprise customers. (It’s like combination of earlier 1, 2 + content provider, payment solution with multiple merchant contracts, underlying telecom network, digital apps etc.).
As promised earlier, I would like to discuss on the possibility of being “Utility player with differentiation”, (Above point 2) now onward, I will use the word “Communication Network Infrastructure Company”. We will also see available opportunities for them in today’s scenario.
For any communication service providers, “Network infrastructure” is the most critical and asset heavy area (High Capital & Operational Expenditure). Many telecom incumbents are seating on this infrastructure due to legacy. If these companies are unable to match their excess network capacities with subscriber growth then it makes sense to monetise the network and best way is to become “Communication Network Infrastructure Company”, providing services to Enterprise and Wholesale customers and that too not necessarily own customer’s only. It’s business with high profitability (High EBITDA).e .g.
- Tata Communications
- British Telecom’s openreach (functioning as separate line of business for BT)
- Bharti Infratel
Taking example of Tata communications, reason is they are positioned as ‘Leaders’ in Gartner Magic Quadrant for Global Network Service providers and have rich portfolio of multiple products in terms of Services and platforms for enterprise & wholesale customers with underlying network infrastructure. (Global sub sea and terrestrial network covering around 700,000 KM, fiber ring around the world with 400 point of presence – PoP’s, on five continents and 1 million Sq. ft. of data Centre with 44 locations across the Globe).
Why it’s possible for them? In my view, “Focus” is the main reason.
- All resources are focused on developing services and platform with underlying network. Resource term should not be limited to financial resource but also “Time of top executives”, in terms of strategic thinking and execution to finest level.
- Identifying strength and core area (wholesale and enterprise segment) allowed company NOT to focus on Government policies for spectrum, lobbying for favourable rules & regulations like (Net neutrality etc.). Top executives of full-fledged operators cannot ignore it.
Tata communication also had digressed and moved away from wholesale business by venturing in buying the Neotel (Second largest fixed and broadband operator in SA in 2006 after paying 250 million dollar for initial 56% stake) and later applying all resources in turning around the company, ultimately to sell out as non-core business. These mistakes have caused the company to unperformed for almost last 7-8 years.
I have been mentioning this example just to support the point in earlier post about blindly following the wave. Earlier wave was globalisation, trying to be behemoth present in all segments and now the wave is to go “Digital”, trying to be like OTT companies, or venturing in all areas like payment banks, digital wallets, content providers etc.
In my view Telecom companies can gain a lot by separating out the network infrastructure area and developing the services around it to cater wholesale and enterprise customers. These value added services based on new digital model or technologies (like Big Data Analytics, M2M) can bring in much required high profitability.
- Home Automation: Deutsche Telecom’s – Qivicon platform for providing the home automation solution.
- Automobile: AT & T’s deal with Ford motors, Ford SYNC Connect
- Agriculture M2M:
There are multiple opportunities for the value added services based on underlying network in sectors like Banking, Utility and Agriculture. Let’s hope to have connected and “peaceful” world.