To deliver managed telecom service, telcos must consolidate businesses

Jessica Scarpati
06 Nov 2009

In this era of shrinking profit margins for basic connectivity, network operators must evolve into managed telecom service providers that can offer enterprises and consumers all of their connectivity needs in one place and sell other services as well. Verizon Communications admitted to this inevitability when it recently merged its two wireline businesses into one unified operation, but Verizon and other telcos will have to evolve even further if they want to compete as anything other than providers of dumb pipes.

"If you're in the business of providing connectivity, you can't even talk about things like fixed-mobile convergence if you have different groups that are focusing on different parts of the customer," said Mike Jude, program manager in consumer communications services at market research company Frost & Sullivan. "The future of service delivery is in integrated services. It's not enough to bring 'I'm going to provide you with broadband functions' to the table.'"

If a network carrier truly wants to own a business telecom service like fixed-mobile convergence (FMC), it needs to simplify the engagement for enterprises. It must be ready to deliver FMC as a managed telecom service, where wired and wireless connectivity and the deployment of any third-party FMC technologies are integrated and delivered through one organization within the telco.

Telecom operators can no longer wait for customers to come to them with ideas on how each of the operators' services can work together to deliver value, according to Tom Nolle, president of CIMI Corp.

"We have viewed services in the telephone industry with a 'build it and they will come' Field of Dreams kind of mindset," Nolle said. "That's the way telephony used to work … but in this new world, basic connectivity services margins are already substandard and going down, so the real money and the real hope for profit growth is in specialized services [such as] cloud computing, VPN services or managed services."

Mindful of this shift, Verizon announced earlier this month that it would merge two historically separate wireline business groups -- Verizon Telecom and Verizon Business -- into one organization, Verizon Wireline. The global telecom giant has kept its wireless division, Verizon Wireless, as a separate unit. Following a merger with Vodafone in 2000, the British mobile operator still owns 45% of the Verizon Wireless business, so further consolidation would be complicated.

"As Verizon expands, we will resist the natural inclination to add complexity to deal with an increasing number of issues and interfaces. We will simplify how we work," wrote Verizon CEO Ivan Seidenberg in an email to employees. "These steps are attuned to where the market is today and is headed. The key is flexibility, and we are prepared to continually assess our structure and our ability to move into and create new markets."

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