The top 10 business risks in telecommunications
Top 10 business risks for telecommunications in 2012
Our risk radar presents a snapshot of the top 10 business risks in an industry sector, by dividing risks into four quadrants that correspond to the EY Risk Universe™ model:
Top 10 business risks for
telecommunications in 2012
- Strategic threats — related to customers, competitors and investors chain of a business
- Compliance threats — originating in politics, law, regulation or corporate governance
- Operational threats — impacting the processes, systems, people and overall value
- Financial threats — stemming from volatility in markets and the real economy
- Failure to shift the business model from minutes to bytes
As value shifts from minutes of usage to volumes of data, operators need to move away from their legacy strategies focused on customer retention, which have had the effect of commoditizing the value of minutes and bandwidth in customers' eyes.
- Disengagement from the changing customer mindset
With global technology brands now top of mind for consumers, and technology cycles quickening, operators need to understand and respond to fast-changing customer expectations and behaviors if they are to fight off the competitive threat from over-the top providers.
- Lack of confidence in return on investment
While operators have proved adept at managing capital investment and balancing it flexibly with free cash flow and dividends, it is increasingly clear that tight capex control can limit their ability to grow new services quickly. So they need to maintain their commitment to investing in growth opportunities, while tracking technology and consumer developments closely to ensure they target their money at the right areas at the right time.
- Insufficient information to turn demand into value
To drive profitable customer propositions and improve their time-to-market for new services, operators need accurate, timely and comprehensive business intelligence and customer analytics, underpinned by aligned and integrated operational support and billing systems.
- Lack of regulatory certainty on new market structures
It is increasingly crucial for governments and regulators to adopt pro-investment policies to sustain the sector's momentum and for operators to form workable stances on a range of issues, including the increasing relationship between fixed and mobile policies. At the same time, all these groups must work together to achieve greater clarity over regulatory approaches.
- Failure to capitalize on new types of connectivity
New types of connectivity such as machine-to-machine (M2M) are redefining the concept of connectivity, requiring operators to adopt new strategies. Instead of continuing to think of connections in human terms, operators need to develop new understandings of connectivity and target new growth areas.
- Poorly formulated M&A and partnership strategy
Though M&A activity has accelerated through 2010–11, its nature and risks have changed. Footprint control increasingly takes precedence over footprint growth, and political, macroeconomic and regulatory risks are increasing. But acquisitions and partnerships are essential for success in emerging market segments such as mobile advertising and cloud computing.
- Failure to define new business metrics
The metrics and key performance indicators (KPIs) that operators use to manage their operations internally and communicate their performance and prospects externally have not kept pace with the shift in business models from minutes to bytes. Operators urgently need to define a new and different set of metrics that puts the customer first.
- Privacy, security and resilience
Customers place more trust in operators than in social networks, regarding operators as security guarantors across a range of services. Yet they still hold operators responsible for threats from third parties even for mobile malware attacks and rogue apps. Operators should work closely with governments to clarify their responsibilities in areas such as anti-terrorism and content for children, and collaborate with suppliers and partners to tackle privacy and security issues in new service areas such as cloud security and mobile apps.
- Lack of organizational flexibility
With their organizational structures subject to forces such as the shift to data services, the rise of partnering and the rising imperative for speed-to-market, operators have already made significant changes to their organizations. But more are needed. Operators now need to align their business units to maximize the economies of scale and scope in their geographic footprints while reconciling the competing forces of geographic sensitivity and global strength.