No 1 risk for telcos is failure to adapt to new technologies: EY study

  • New growth opportunities require new value chain positioning
  • Attitudes to consolidation and cross-sector relationships in flux

No 1 risk for telcos is failure to adapt to new technologies: EY studyTELECOMMUNICATIONS operators (telcos) must reposition their business models and adapt to new roles across a growing number of new technologies or risk losing major growth opportunities, warns a new report by EY (formerly Ernst & Young).
This challenge, along with questions surrounding regulatory uncertainty, privacy and organisational flexibility, represent the latest risks and opportunities facing telcos, the analyst firm said in a statement.
Top 10 risks in telecommunications 2014, the annual study based on the insights of EY’s Global Telecommunications Centre and other leading sector practitioners, underscores that although the industry is starting to benefit from the global economic recovery, many structural challenges still exist.
While operators stayed largely competitive during the downturn through defensive positioning, there is now an expectation for the industry to push new business models in the face of new technologies to unlock new growth.
“Telcos’ legacy status as high dividend yield stocks is under scrutiny, and while there are a number of ICT growth opportunities, profitability remains under significant pressure,” said Jonathan Dharmapalan, global telecommunications leader at EY.
“Many leading players have announced long-term strategic visions, but turning vision into reality brings a number of challenges,” he added.
New roles in evolving industry
The biggest threat facing operators lies in the industry’s ability to embrace new digital technologies and the new competition this landscape creates.
This environment, while both volatile and rapidly changing, requires new value chain positioning in areas as diverse as cloud computing and over-the-top (OTT) smartphone applications, EY said.
In many instances, telcos will share ownership of customers with a host of players, whether partners or more disruptive competitors. Isolating new roles in complex and fast-changing ecosystems has never been more important, EY added.
“The constant evolution of value chains is forcing the industry to work more closely with OTT players,” said Dharmapalan.
“In many cases, OTT providers have created more appealing alternatives to traditional offerings, like mobile instant messaging with greater interactive features compared to standard SMS services.
“The challenge for telcos is whether to replicate these competitor offerings by developing their own apps, or do they partner with these newer players to deliver a richer customer experience. The longer operators wait to enter a particular segment, the potential for lost growth only escalates,” he said.
Regulatory uncertainty
Regulatory pressures climb the list in this year’s study as the second highest risk as global operators seek greater scale efficiencies through more rational market structures.
For example, European operators see consolidation as a route towards ultimately committing to higher levels of network investment in 4G. At the same time, ongoing uncertainty in both the United States and Europe over net-neutrality regulation continues to undermine the industry’s ability to solidify long-term business plans.
“Operators and regulators both need to focus on how to create and sustain incentives for long-term network investment,” said Adrian Baschnonga, lead telecommunications analyst at EY.
“But in order to drive progress, operators need to prioritise shared industry positions and reevaluate the relative merits of in-market consolidation – including conditions attached to mergers – compared with network sharing and other synergy drivers,” he said.
Privacy and security issues
Consumer trust in service providers has declined sharply this past year in the wake of the global political fallout over mobile data privacy and security. Operators must ensure that they cope with a changing compliance landscape while redefining their relationships with consumers and businesses alike, according to EY.
“Proactive stances are required on privacy and security issues with partners and policymakers so that new demands for data sovereignty, personal data privacy and cyber-security – which may vary according to geography – can be reconciled in the long term,” said Baschnonga.
Improving flexibility and efficiency
Like adapting to new technologies, organisational flexibility is paramount as telcos compete with smaller, more agile competitors and expand their service propositions in new directions.
Meanwhile, operators also need to improve inter-departmental communications and overcome the fragmentation of customer information assets if they are to make the most of big data opportunities.
“Simplifying and streamlining internal structures, while driving new forms of interaction within organisations will be vital if telcos are to make the most of new demand scenarios,” said Dharmapalan.
“Moreover, operators will need to develop fresh competencies and skills within their organisations to maximise and capitalise on their new strategies,” he added.
The 2014 top business risks for the telecoms sector are:

  1. Failure to realise new roles in evolving industry ecosystems
  2. Lack of regulatory certainty on new market structures
  3. Ignoring new imperatives in privacy and security
  4. Failure to improve organisational agility
  5. Lack of data integrity to drive growth and efficiency
  6. Lack of performance measurement to drive execution
  7. Failure to understand what customers value
  8. Inability to extract value from network assets
  9. Poorly defined inorganic growth agenda
  10. Failure to adopt routes to innovation

Related Stories:
The world needs to unite on privacy and trust: EU official
Telenor’s Asia CEO Brekke on OTT and spectrum re-farming
Celcos beware: Voice-over-data players gunning for you
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