Data deluge driving telecoms sector top business risks in 2010
Operators face “Catch-22” as they balance innovation with pricing and regulation
LONDON, 21 JULY 2010 – Telecoms operators across the world are facing an explosive surge in the volume of data traffic across their networks, creating pressures and risks across their operations, according to a new report by Ernst & Young.
The Top ten risks in telecommunications 2010 report finds that this data explosion is occurring at a time when operators face an intensifying cross-sector battle for ownership of their customer relationships, as innovative technology and device providers enter their core market.
This is the driving force behind why for the second consecutive year, “losing ownership of the client” is the biggest risk faced by operators and the “failure to maximize customer value”, new to the table this year, is the second biggest risk.
Vincent de la Bachelerie, Global Telecommunications Leader at Ernst & Young, says:
“This is a challenging environment where technology and device companies such as Apple and Google have been setting the pace in industry innovation, having shown themselves to be attuned to what consumers actually want, and able to innovate to deliver it.
“A demand for faster internet services is driving rising data usage in fixed broadband, and mobile data traffic is growing exponentially, reflecting rapidly-increasing usage of smartphones and mobile internet services.
“Operators are now challenged to monetize the growing volumes of traffic and must shift their business models from the anti-churn ‘all-you-can-eat’ flat-rate packages, which are not optimized for the explosion in data traffic, to a tiered usage policy around free and premium service elements.
“Operators must also recognize their potential as agents of change in other industries. Smart metering initiatives play to operator capabilities while the launch of mobile money transfer services in emerging markets shows how telecommunications infrastructure can be repurposed in a way that transforms societies.”
The challenges of managing this explosion in data traffic are compounded by the rise of “network neutrality” as the dominant regulatory issue globally, with “rising regulatory pressures” cited as the third biggest risk.
La Bachelerie says: “Net neutrality means operators can gain little financial benefits from the rising volumes of data on their networks. The effect is that operators are facing a “Catch-22”, in which they need to invest in building out next generation access to meet customer needs, but cannot be sure of generating sufficient financial return to justify the capital expenditure.”
At the same time, the regulatory burden is rising as we see fixed and mobile broadband markets converging while the internet transforms the supply of content. Ensuring a level playing field for all market actors while also upholding consumer rights in the digital world is far from straightforward.
While telecom operators have benefited during the crisis from their status as a “safe haven” for investors, this defensive posture is no longer sufficient to attract investors’ cash in 2010, thus “Inability to manage investor expectations” is also a new risk this year, at seventh on the table.
Jonathan Dharmapalan, Global Deputy Telecommunications Sector Leader at Ernst & Young, says, “Instead of telling a short-term story of cost reduction and strong cashflow, as markets recover, telcos now need to convince investors that they have a long-term growth and innovation strategy.
“To close this innovation gap with the likes of Apple and Google, operators need to make the most of their assets including their wealth of customer data and tap into the best internal and external talent. To reassert the value of their networks and tell the right story to investors, telcos will need to reprioritize R&D and deliver ongoing innovation for consumers. Building the right partnerships, dialogue with policy makers and strategic hires from technology and media will be critical for reclaiming the industry’s fair share of value among both customers and investors.”
The 2010 top business risks for the telecoms sector are:
- Losing ownership of the client
- Failure to maximize customer value
- Rising regulatory pressures
- Ineffective infrastructure investment
- Inability to reduce costs
- Lack of talent and innovation
- Inability to manage investor expectations
- Inappropriate systems and processes
- Poorly managed M&A partnerships
- Privacy, security and piracy
About the survey
Top ten risks in telecommunications2010 is the latest in a series of annual reports that highlight the most critical issues in the sector. The report was produced via the insights of our sector professionals and practitioners and supplemented by research & analysis from the Global Telecommunications Center
About Ernst & Young
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