Bangkok--20 Dec--Weber Shandwick
“No man is an island,” said English poet John Donne a few hundred years ago. He was speaking about humanity, of course, but his words apply to service providers and the telecommunications market in 2014.
In the past few years, service providers have felt vulnerable, standing alone against new competitors coming to eat their lunch. As a result, manyoperatorsare searching for ways to realize the value of mergers and acquisitions to rationalize their business, consolidate their networks, integrate their offerings and better prepare for the competition.
Even many industry giants are finding that in coping with the expected trends in 2014 – such as omni-channel, big data, virtualization, small-to-medium businesses, video and TV, and connected devices –two is better than one.
“Now is the right time” for consolidation, said Deutsche Telekom AG Chief Executive Officer Rene Obermann in late November 2013, according to Bloomberg News.
He was also quoted as saying that Deutsche Telekom, one of Europe’s largest service providers, is “too small in the long run for competing internationally.”
Deutsche Telekom certainly isn’t alone. In terms of mergers andacquisitions, 2013 was a record breaker. According to TeleGeography’s M&A tracker, the total value of deals grew from U.S. $59.5 billion in 2011 to $209.7 billion in 2013. In North America, 24 million wireless subscribers migrated to a different carrier due to M&A activity.
Why do I think this wave of consolidation will continue into 2014 across regions? Service providers will continue to merge to rationalize their businesses and to ensure growth and efficiency.They’ll need to addressmarket saturation and hyper competition, lack of resource such as spectrum and regulators pressure. Which will lead to M&A and expansion beyond their current geographies (Vodafone, America Movil and Liberty Global are just a few good examples ).
Integrate Channels Before Customers Switch Channel
In 2013, service providers joined the retail industry in making omni-channel a top priority. With millions of smart devices, billions of applications and unprecedented growth in data consumption, the world of omni-convergence has become all-encompassing.
Service providers have identified omni-channel (successfully integrating multiple channels) as crucial for their customer relations and management strategy, together with encouraging customers to embrace online channels (such as self service and mobile apps).
Even greater numbers of service providers will integrate their channels and online tools in 2014 to deliver a consistent, continuous experience, enhanced by data-driven analytics. Gartner(September, 2013) predicts that by 2015, businesses without an all-channel customer engagement strategy will lose 15 -20 percent of their best customers to competitors.
It’s important to note that successful omni-channel integration can’t exist without a proactive relationship with customers. Service providers will incorporate a greater number of tools that will allow them to proactively notify and interact with their customers in 2014. An Amdocs consumer survey in 2013 found that subscribers are 84 percent more likely to recommend their service provider if customer care issues that impact them are proactively identified and resolved.
Big Data Will Be Even Bigger
Proactive customer care neatly brings me to my second prediction: big data is going to be even bigger in 2014. What is the connection?
It doesn’t take a psychic to predict that big data – the data accumulated from customer touch-points, both structured and unstructured – will present a massive opportunity for service providers in 2014. Informa (August 2013) notes that big data currently represents 10 percent of the total IT budget of service providers who are implementing it, but that this figure is expected to increase to approximately 23 percent in five years.
What may surprise service providers is how quickly they will have to transition from merely managing big data to realizing its valuein the coming year. Another surprise may be that the secret to realizing that value will be internal initiatives.
Gartner estimates that “there is about $240 million of additional revenue and $60 million in cost savings to be made from new internal use cases by the ‘average’ CSP.” These internal use cases include data that provides more insight into customer segments (especially high-value customers) and using new types of data to create improved KPIs.
Going back to my earlier comment about the connection between proactive customer care and big data, internal data monetizationwill lead to improved personalization, including proactive customer care and marketing, as well as network optimization and planning.
For the moment, though, external data monetization is probably still the hotter topic, and we can expect to see many service providers leveraging existing data assets to create new revenue sources, such as mobile ads. For instance, Sprint offers a service where hotels, restaurants and casinos are able to identify the different profiles of people around their businesses and target advertising/promotions accordingly.
Additionally, big data has amazing potentialto open up opportunities for new business models and partnerships.
Virtualization – It’s More Than Efficiency
In the last two years, the cloud was a hot topic. In 2014, we expect the virtualization trend to grow wider to include network function virtualization(NFV) and software-defined networks (SDN)– which refers to implementing a network function on a virtual machine that can run on industry-standard server hardware.
Virtualizationwas initially promoted as an efficiency play for service providers. By re-architecting data centers and networks, service providers would be able to save huge amounts of CAPEX by replacing costly proprietary hardware with standardized, less expensive servers. In addition, OPEX will be reduced, perhaps even more dramatically, because software defined networks (SDN) and NFV will make services and infrastructure more agile and scalable , due to the centralization of the management , and thereby less costly to maintain, reconfigure and upgrade.
In 2014, we will see a greater focus and more implementations of NFV and SDNs. Both concepts create a virtual control layer for the network, allowing service providers to save costs and to manage their networks more efficiently. But that’s not all they can do…
A consensus is growing that the more significant impact of virtualization going forward is helpingservice providersto drive new revenue streams and improve the profitability of old streams. SDN and NFV will enable services that require guaranteed, optimized, end-to-end quality of service(QoS), along with high and elastic bandwidth.
Enterprise and Small-to-Medium Business (SMB)Won’t Be Small
Don’t look now, but the enterprise and small-to-medium business (SMB) sector is becoming indispensable. The worldwide market for enterprise cloud-based services will grow to $31.9 billion USD in 2017, according to Analysys Mason, and by then service providers will be responsible for 18 percent of that worldwide revenue, via services like fixed-mobile convergence, enterprise communications and advanced video services.
In 2014, service providers will increasingly merge network and IT to provide their SMB and enterprise customers with complex, cloud-enabled services, moving from being a network solution provider to a true ICT palyer providing more cloud based, M2M and software service on top of network and mobile access., where the service provider takes on the role of one-stop-shop for all telecom and IT needs.
Informa estimates that connectivity alone might already account for 15 percent of an enterprise’s total information and communication technologies (ICT) budget. But with cloud-managed applications and device and computing services, up to 80 percent of the enterprise ICT budget will soon be in play, and it will happen sooner rather than later.
Many service providers – such as Telefonica, Vodafone, SingTel, Telstra and AT&T – are restructuring and engaging in acquisitions to capture an increased share of this emerging opportunity.
5G is the New 4G
4G/LTE was successfully rolled out in many countries in 2013 and will continue apace in 2014. Service providers are focusing on optimization and monetization of their new networks,meanwhile the development of a standard for 5G is heating up – trials have already started!
All for One, and One for All
Hopefully, these predictions encouraged you – there will certainly be some great opportunities in 2014.
But taking advantage of all these opportunities, and succeeding in the realms of omni-channel, big data, virtualization and enterprise, isn’t going to be a walk in the park. Expect to see plenty of mergers and acquisitions in 2014 as the industry continues to evolve and service providers consolidate to embrace new challenges.