sascom voices - The sascom magazine blog

“We’re acting as the post office for Netflix, so why don’t they pay us for movie delivery?”

Think about that quote from a telecom industry exec for a minute. Netflix pays the post office to deliver DVDs to consumers. If the same movie reaches the consumer as streaming video over the Internet, Netflix doesn’t pay the communications service provider for the broadband connection. Executives of leading communications service providers claim this is not fair.

Over barbeque at the CTO Telecom Summit in Scottsdale, AZ, these executives shared a variety of revenue-generating ideas and their frustrations with the status quo that is stifling innovation and revenue growth. Among the innovation killers discussed at dinner and throughout the summit, I will recount only the top five:

1. Network constraints: demand outpacing supply. The most obvious of all strangleholds: We know that the demand for ubiquitous wireless broadband is rising and will continue to increase. Spectrum availability, network capacity and 4G technologies won’t be available to consumers soon enough to meet the insatiable demand. Once these constraints are diminished, convergence can take on new forms – from three screens to one. The growth and complexity of applications and variety of data traffic (including pictures and video) can progress at the will of the consumer unimpeded.

2. Absence of the new revenue model. The uncertainty of future revenue growth can restrain innovation as service providers struggle to cut costs to stay competitive. This Yankee Group chart shown at 4Gworld sent a simple message, with a chilling implication. Data volumes will increase, but associated revenues will not. Voice has the higher profit margin, but the volume of that traffic is not expected to rise (nor is its revenue, I imagine).

How and for what will service providers charge in order to make money? Take a look at the table: Should carriers begin charging “download postage”? No one wants to be the first to begin charging for new and enhanced services, but few options remain. The challenge for providers will be to differentiate on unique value, not price.

3. Business transformations that erode core and distinct competencies. Capital investments often dictate the terms of innovation. Business transformation (outsourcing, mergers, acquisitions, partnerships) is another way to differentiate and compete successfully. Done well, outsourcing can help an organization focus on core competencies and discover opportunities for innovation. Similarly, strategic partnerships and mergers can help build on the strengths of the providers to expand the value proposition for their customer base. But changing the business can negatively affect the value proposition. Selecting only the most appropriate operations to outsource, companies to acquire, etc. is critical. Changes may save money in the short term, but if outsourcing involves releasing control of a core competency, it could undermine the most important provider asset: the customer’s loyalty.

4. Lost leadership and vision amid short-term cost cutting. It’s a critical time for service providers. At the CTO Telecom Summit, we heard many stories of consolidation, virtualization and outsourcing as a means to reduce costs. After attaining a short-term goal of reduced costs and overhead, what is the plan for top-line revenue growth? Leadership is the source creativity and innovation. Leaders articulate and evangelize the company’s vision, spark needed cultural shift and unify amid changes. Lack of leadership can lead to dissatisfaction and uncertainty for all stakeholders. Stability concerns could shift strategies to defensive and commodity positions versus a value-based position designed to differentiate and excel among competitors.

5. Silo-driven approach leading to lack of customer intelligence. Which customers and services yield the most or least profit? Which products and services should I cross-sell to which customer segments? In the peer-led roundtable discussion facilitated by SAS CIO Suzanne Gordon, Kathy Romano, Executive Director of Revenue Assurance and Billing from Verizon Services Operations, shared her vision of a holistic customer view and the challenge of data quality. Other participants lamented the inability to obtain a customer view across departments and service lines (such as between wireless and wireline divisions). Another wished for a view of service use by customer segment. But multiple customer data warehouses, silos of information and competing strategies across service lines and divisions prevent a more strategic, holistic approach to delivering customer value. Without understanding the customer, how can service providers develop and deliver innovative products and services?

Next year around the barbeque, I wonder how much will have changed. Will the promise of ubiquitous broadband be closer to reality? Will there be more market consolidation? Will new leaders have emerged? Will divisions collaborate and share customer information? Will Netflix pay for delivery? Let’s see …