On May 26, Digital News Asia (DNA) released its first Deep Dive report, which looked at the telecommunications space in Malaysia. To download the Telco Deep Dive, click here. In this online exclusive that is not available in the PDF version DNA presents an edited version of a report commissioned by Ericsson, on whether there is a real link between investing in networks, improved network performance and satisfied customers.
Positive impact of investment on network quality, performance
Once performance exceeds certain point, users learn to rely on network
SINCE the start of the smartphone era, a number of operators have outperformed their peers in terms of revenue growth and financial returns. These operators lead in terms of both network performance and innovation in their market offering.
This raises the question of what behaviours they have in common, as well as how they manage to maintain or even increase growth in today’s challenging market and economic conditions.
Ericsson recently commissioned a study to investigate the issue in more depth. It was carried out by Dr Raul Katz, president of Telecom Advisory Services and director of Business Strategy Research at Columbia Business School.
The study explored the relationship between capital investments in mobile telecom networks and the commercial and financial performance of their operators.
Dr Katz performed extensive statistical analysis across a large set of metrics, on three years of quarterly data from three different markets: Brazil, Mexico and the United States.
Getting the competitive advantage
Investment-driven strategies change the market and create a new competitive landscape. Four operators with publicly stated strategies of investing in network quality were analysed. Three key factors were identified that create competitive advantages.
They can be seen in the figure below:
Through quantitative analysis and case studies, the research demonstrates that increased investment in network quality and performance creates competitive advantages. These also translate into improved financial returns.
Furthermore, the increase in subscribers and ARPU (Average Revenue Per User) also indicates that some network investments produce more benefits than others. This is especially the case for those investments that change user perceptions of what can be achieved using the network.
For instance, investments in network quality can capture new markets and build differentiation. The current growth in people using their mobile devices to watch video exemplifies the importance of such strategic spending.
Many users like to watch video on mobile devices, but the quality of their experience depends on the network they use.
A network without sufficient capacity provides an unsatisfactory experience – the video takes too long to play and the quality is low or playback gets interrupted while buffering. In these circumstances users learn that they cannot rely on the network to watch video and so look for alternatives.
Instead they tend to rely on pre-loaded content, limiting their use of connectivity to other services, many of which generate less revenue than video.
Investing in performance
Strategic investment in specific areas of network performance can change user behaviour. Once performance exceeds a certain point, users learn to rely on the network – e.g. for activities such as watching video.
They stop pre-loading content and stream it instead, generating more revenue for the operator.
Passing the streaming threshold also differentiates operators. This creates a competitive advantage that attracts new subscribers and reduces churn.
Performance cannot be generalised. This is because in reality, every new device, application and user comes with unique needs.
Certain levels of network performance and combinations of performance variables enable more powerful applications to be used more reliably on the network. Ensuring appropriate app coverage can lead to tipping points in user behaviour.
Investments for video streaming
It is necessary to invest in the provision of a good downlink throughput in the radio network to achieve app coverage for video streaming. App coverage also places demand on uplink, latency and capacity to support sufficient user numbers.
Take video for example, where adaptive streams and solutions for caching are also needed to achieve efficient video delivery. Through well-proportioned investments in all of these areas, operators can cross the streaming threshold with maximum profitability.
The right investments therefore, help reduce costs, create new opportunities, attract new subscribers, open new revenue streams and improve financial performance.
To download the Value Performance Report by Ericsson, click here.
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