The Future of Telecommunications

The Future of Telecommunications

          
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The Future of Telecommunications

As Wireless Earnings Wane, Carriers Confront Hard Choices
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  • Since deregulation in the 1980s and the emergence of the commercial Internet in the 1990s, the telecommunications industry has faced disruptions and premature reports of its untimely demise. But the challenges have never been greater than now.

    The stock market has punished most large carriers while richly rewarding companies that compete with telcos. Since Google’s IPO in 2004, its market capitalization has risen to about $150 billion, while the value of most operators in developed markets has fallen. The U.S. telecom industry has lost more than 100,000 jobs in the past five years and more than 400,000 in the last decade. The decline in wireless average revenue per user (ARPU), which began in the United States in 2006, has since spread to most major operators.

    Carriers are not standing still. They are rapidly reducing costs and trying to streamline operations. These moves are necessary but not sufficient. The world is spinning too rapidly for restructuring as usual—no matter how deep—to keep working. Game-changing forces, such as cloud computing and “voice for free” services, are warping the industry. (See Exhibit 1.) Cloud computing, for example, exposes operators to competition from major IT players, while free voice services—led by Google, Skype, and others—threaten operators’ main source of revenue.

    exhibit

    These trends are unforgiving. But, as Friedrich Nietzsche famously said, “That which does not kill us makes us stronger.”

    As the successes of Google, Apple, and others demonstrate, tremendous opportunities abound in the broader technology and telecom space. But in order to capture them, carriers need to make hard choices about strategy and business models. Most of them, however, are suffering from the “curse of the conglomerate”: when their wireline business went into decline, they were able to turn first to wireless voice and then to wireless data; but now they have run out of businesses that can generate adequate returns. With no more cash cows left to milk, carriers must build new sources of competitive advantage.

    There are several options. Some operators may choose to compete in global rather than national markets. Others may tap into global talent pools through offshoring, partnering, and outsourcing. A few may decide to create compelling new services and compete with some of the most innovative companies in the world. Others may limit themselves to best-in-class connectivity—becoming “smart pipes.” Many will have to make strategic acquisitions and divestments in order to adjust their footprint and their portfolio of skills and services, especially in Europe and India.

    Making these choices requires more than tweaking yesterday’s strategy in favor of tomorrow’s opportunity. The days of five-year strategic plans have gone the way of the rotary phone. Carriers need the ability to react quickly to new patterns of customer behavior and new technological opportunities. They need adaptive strategies.

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