Displaying items by tag: telecom industry
Africa needs regulatory stability for operators to grow
The main challenge facing telecom operators in Africa is competition and regulatory stability, according to Mr. Abdellatif Bouziani, CEO of telecom provider Smart East Africa Group serving Tanzania, Uganda and Burundi. Speaking to Telecom Review, Mr. Bouziani said governments in Africa have sold too many operating licenses which have forced prices down, but operating costs remain the same.
Competition is high in the African telecom market, said Mr. Bouziani. With governments selling up to 6-7 telecom operating licenses, operators are forced to lower their prices, but operating costs remain the same, so they must cut spending to survive. But by reducing spending, operators aren’t able to experience growth. When there’s less cash going into countries, big players suffer, and smaller players suffer even more, he said.
Governments in Africa are the big winners in the equation, Mr. Bouziani explained, because they generate revenue from selling the licenses and collecting taxes and fines from the operators. But that puts pressure on emerging players like Smart East Africa which began operating four years ago. Big operators are suffering because they have big costs, and smaller operators are suffering because they cannot grow.
“We have to do business differently now,” Mr. Bouziani told Telecom Review. “We cannot do it the same way we did 5-10 years ago.” Voice is no longer primary, he explained, therefore the industry needs to get closer to the OTT (over-the-top) players to benefit more from them utilizing operators’ networks. Operators need to be a part of the change rather than taking a back seat and watching it happen, he said.
Smart East Africa launched in Tanzania, Uganda and Burundi in 2014 under Industrial Promotion Services (IPS) Kenya, which in turn is part of the Aga Khan Fund for Economic Development (AKFED). The operator was launched in the three markets to drive innovation in the market and focus more on the youth segment, Mr. Bouziani said.
AKFED is the sole for-profit agency of the Aga Khan Development Network (AKDN) and works in partnership with international organizations and governments to stimulate the private sectors of developing economies, with the aim of generating capital for investment into long-lasting and sustainable development initiatives.
The organization is essentially a development and investment agency, Mr. Bouziani explained. AKDN holds a 51 percent stake in Smart East Africa while Timeturns, the previous owner of Smart, owns a 49 percent stake.
To stand out in the market, the company implemented an “innovation-friendly” environment to foster knowledge and new ideas. Mr. Bouziani said: “We have to take into account how much telecoms has changed with the introduction of OTT, increasing data usage and value added services. We must ask ourselves: how can we play around with all these things to come up with a business model that allows us to survive in this non-conventional industry?”
In 2014, Smart announced plans to invest US$300 million over the course of five years to expand its telecoms networks and services. The company faces stiff competition, with 17 rival operators combined across Tanzania, Uganda and Burundi. The company offers free roaming across the three countries.
Telcos and OTTs shouldn’t be subject to same rules
It’s no secret that telecom operators have struggled against the popularity of over-the-top (OTT) applications like WhatsApp and Skype, who have challenged traditional voice and SMS revenue streams. Some operators have called for regulators to subject OTTs to legacy telecommunications regulations in order to even the playing field. But such suggestions are misguided, according to the ITU.
Telecom operators are stuck in a predicament regarding OTT services who utilize their networks. They have little control over the growth of OTTs because users should be free to use the internet as they please. The network carrier only carries the IP packets from source to destination. They might be aware of the packets and their contents, but cannot do much about it. Carriers have had to roll with the punches and figure out how to adapt.
Ultimately, using VoIP (voice-over-IP) is a cheaper alternative to making expensive phone calls because the user doesn’t have to pay to use the dedicated phone line and instead utilizes an internet connection without any extra costs. As is the case with most VoIP services, calls made using the internet are often free while calls made to a cellular network require a payment. The advanced communication functions of modern smartphones have played a role in the rapid growth of OTT services.
The question is: what can network carriers do about it? Telecom carriers have lost hundreds of millions of dollars of revenue to VoIP services, statistics show. Some network carriers reacted, of course, by imposing restrictions on VoIP services. AT&T did this when Apple released its iPhone and the US telecom operator didn’t want its network being used for VoIP calling. AT&T lifted the block in 2009 after pressure from the Federal Communications Commission (FCC).
AT&T had an agreement with Apple to ban apps that would enable iPhone users to make phone calls using a wireless data connection. The scandal was revealed when the FCC requested that the companies explain why Google’s Voice app was rejected for the iPhone app store. The FCC was led to investigate if AT&T and Apple were colluding to prevent competition, sparking the beginning of a sour relationship between telecom providers and OTTs.
Can telcos come out on top?
For decades, telecom operators had free reign to charge rates for voice, data and SMS largely in excess of their marginal cost, which created a market ripe with innovation. The International Telecommunications Union’s (ITU) recent report ‘The State of Broadband 2017’ highlights the struggle telecom operators have faced since that period began to wane, as online applications became increasingly popular with consumers around the world who wished to interact in ways not possible through traditional communications channels.
Communication has been transformed by the likes of Facebook, Instagram, Skype, WeChat, Google, WhatsApp and Viber. These OTT services have “transformed the way people build communities and search for information, and made valuable contributions to health, education, finance and entertainment,” ITU claims in the report. “Online applications now generate a significant proportion of the socioeconomic impact of digitization and utilization of the internet itself.”
The demand for OTT services has driven the telecom industry to a new era, and some telecom operators – in defense of their traditional revenues – have sought to “handicap” the growth of OTT players, the report suggests. It’s important to note, however, that these OTT services, however disruptive they may be, are driving demand for telecom operators’ broadband services. Without the content and services that OTTs provide, consumers would be less willing to pay operators for internet access, ITU claims.
“The operators’ complaints make as much sense as cable operators that sell access to cable channels complaining that people are watching too much TV, driving up the demand for their own services,” the report says, “Or a restaurant complaining that too many people want to eat its food driving up food costs. Operators sell access – not content – but people only want that access to use online content.”
Telecom operators, according to the report, claim they cannot invest in their networks because online OTT services have limited their ability to generate revenue. The ITU says this is “inaccurate” and “misguided”.
Some telecom operators have called upon regulators to apply the “same rules for the same service” by encouraging authorities to subject all online OTT services to legacy telecommunications regulations. ITU rejects this, emphasizing that OTTs don’t offer the “same service” as telecom operators, and that subjecting them to the same rules would be “entirely inappropriate”.
OTT services like Facebook and Google, for example, don’t provide equivalent services as telecom operators, the report points out. Operators provide access to the internet and some vertically integrated services that take advantage of, and are bundled with, general access. Online OTTs, on the other hand, provide interactive experiences for internet users that go beyond traditional voice and SMS, including payment services, chat services and photo/video sharing.
The fundamental differences between the telecom sector and online OTT services has led to the establishment of different rules, the report highlights. For instance, telecom regulations are intended to ensure that established operators – who own network infrastructure with high barriers to entry and face limited competition – do not use these privileges to the disadvantage of consumers. OTT services, by contrast, don’t control network infrastructure and must compete fiercely to retain customers who could easily be swayed.
There’s also the perception that OTT payers get a “free ride” on telecom network infrastructure which is financed by operators. But in truth, OTT players invest billions of dollars annually in a combination of physical facilities, according to the ITU, including data centers, fiber networks, servers and routers, which form an “essential part of the physical fabric of the internet”. In fact, according to the report, online OTT players invested an average of US$33 billion per year in infrastructure from 2011-2013.
ITU argues that telecom operators should recognize how much online OTT players drive consumers’ willingness to pay for internet access, which then provides more opportunities to generate revenue and finance new infrastructure. According to the report, consumers who demand the most data tend to spend more money on mobile contracts that feature high-speed data – revenue that goes directly to the telecom operators.
“Regulatory authorities do not have to choose directly between the interests of online application providers and telecom operators,” the ITU report concludes with. The most important aspects of internet usage that regulatory authorities should focus on, the report suggests, are adhering to customer needs, ensuring that the internet is widely available, and prioritizing connectivity, competition and innovation.
How can telcos navigate the digital revolution?
Telecom providers face tough times as digitization disrupts traditional business models. In fact, the telecom industry is ranked second after media as most likely to experience major digital disruption, according to a 2015 survey of C-level executives from 15 industries. EITC, the parent company of ‘du’, has responded to the disruption of digitization by embracing it, launching a fully digital mobile service.
Emirates Integrated Telecommunications Company (EITC) officially launched the Virgin Mobile brand in the United Arab Emirates on September 5. It’s the first fully digital mobile service launched in the country. The new service offers “simple and transparent technology” and a “unique customer experience” through what the company describes as a fully app-based service.
The Virgin Mobile UAE app signifies a paradigm shift in the mobile industry, digitally designed to simplify life for customers, and the Virgin Mobile distribution model allows customers to download the app and have the SIM card delivered directly to their homes or office. The digital experience gives customers flexibility and convenience, putting control of mobile services back into the customer’s hands.
EITC’s move to create a fully digital service shows that digitization is not just a threat, but also an opportunity for operators to rebuild their market positions, revamp their business systems, and come up with innovative offerings for both existing and new customers. The growth of digital business and the Internet of Things (IoT), according to Gartner research, will drive large investment in IT operations management through 2020.
If telecom operators were to fully embrace digitization, advisory firm McKinsey calculates that it could improve their profits by as much as 35 percent. One of the ways in which telecom operators can bridge the digital gap, according to a McKinsey report, is to drastically revamp IT services. The firm said: “For most operators, streamlining their application landscape and automating their IT infrastructure will need to be a priority.”
Complex and out-of-date IT applications are a “major hindrance” in competing against digital rivals, McKinsey says. The company conducted a study of 80 telecom companies around the world and found that the most successful ones had “removed redundant platforms, automated core processes, and consolidated overlapping capabilities.” Following this method allowed one South American telecom provider to free up the equivalent of 31 percent of its full-time employees.
Another recommended approach by McKinsey, seemingly adopted by EITC with the launch of its new digital mobile service, is putting customers’ needs first and then working backwards by implementing services to meet those needs. Telecom providers need to focus on the customer’s entire experience of the company, rather than seeing customers as a series of touch-points, the report suggests.
The goal is not to digitize multiple elements of a customer’s experience but to deliver a “superior customer experience” with everything gelled into a seamless journey that flows across functions, channels and devices, and where the biggest pain points are identified and eliminated. It’s important for telecom operators to make use of digital technologies across the whole business to “combat declining growth, shrinking margins, and intensifying competition.”
EITC achieved this in the UAE by allowing customers to pick their mobile number without visiting a store, track their data and minute usage in real time, search and choose their favourite mobile number, and set up monthly spend limits, all via the Virgin Mobile UAE app. The subscription-based model means that there is no need for a contract, giving customers the flexibility to decide how they want to communicate without being constrained by specific time bound terms and conditions.
A $2 trillion opportunity
The digital transformation of telecom companies is so lucrative, that a report by the World Economic Forum says it represents a $2 trillion opportunity for the industry. The next decade of digitization will look markedly different from the past, the report says, and companies across the industry will need to be “well-prepared” to take advantage of the “sweeping transformation taking place in consumer lives, enterprises and the broader economy.”
The 2017 report, titled ‘Digital Transformation Initiative Telecommunications Industry’, looks at the untapped potential for telcos in digital services. The industry has recognized the opportunity that digital services represent, but the players haven’t been able to capture significant value at the scale and speed of digital disruptors, the report says. This is despite the fact that telecom operators have access to several key ingredients, including millions of customer relationships and proprietary data.
Majority of companies have yet to overcome key inhibitors around talent, legacy IT systems and unfavorable regulation, the report adds, in order to compete effectively against digital native companies. Operators’ share of the industry profit pool has declined from 58 percent in 2010 to 47 percent in 2015, and is forecast to drop to 45 percent in 2018. Pressure on traditional revenues, the report claims, means that it’s increasingly important for operators to look at new digital business models.
Another report by AT Kearney says more than 80 percent of telecom executives from South Asia, Middle East and Africa (SAMENA) believe their future success and growth depends on making fundamental changes to their business and operating models. The report, based on a recent survey of C-level executives from the region’s leading telecom companies, highlights the importance of mastering customer retention and customer base value management to sustain returns.
In terms of new consumer revenue sources, less than one quarter of executives believe that content or digital services will be important, according to the report. For the enterprise segment, though, more than 80 percent of executives believe ICT-related revenue will increase, with the largest potential expected in mobility, cloud, and data center services.
Simultaneously, to sustain competitiveness, telecom operators will continue focusing on operational efficiency, in AT Kearney’s view, although commercial-related costs will be less under scrutiny. The key driver, the report says, is the understanding that significant investments are needed to bring commercial operations into the digital age with upgrades to the customer experience, such as support online sales, self-service via apps, etc.
“Telecom operators in the region are considering a wide range of changes to their operating model,” said Marc Biosca, Partner at AT Kearney. “The customer is at the epicenter of this strategy as most operators and executives in the region believe that a differentiated and superior customer experience is a top priority for long-term success. Providing a seamless customer experience across interfaces has never been more key.”
If there’s one consistent element throughout the reports by AT Kearney, McKinsey, and World Economic Forum, it’s that customers come first and demand digital services that are engaging and convenient. Customers today require an interface that’s simple to use across all channels, and desire efficient 24/7 service. Yet many operators struggle to meet these expectations due to slow design processes, ineffective data collection, and out-of-date IT systems.
To overcome these barriers, McKinsey points out, is to invest in effective customer-relationship-management systems to “track customers’ digital footprints, reduce costs, boost customer satisfaction, and improve brand advocacy and differentiation.”