Focus turns to structural adjustments

Zoran Vasiljev, Value Partners
11 Aug 2010

Telcos forced to make organizational changes to cope with declining voice revenues and intense competition

With the global recession of 2008-09 having apparently run its natural course, operators appear to have escaped the worst of its effects. Nevertheless, telcos are being challenged to re-think conventional business models and look for new sources of value.
Mobile network operators are making organizational changes to ensure greater flexibility and responsiveness to the changing business environment.

In India, a regional operator with a largely voice-centric offer has made several fundamental changes to its business strategy, aimed at positioning itself more effectively for the highly competitive market environment. Faced with declining voice ARPU, the operator has launched a revamped VAS offer targeting the growing segment of mobile broadband and social networking users.

In addition, recognizing that network coverage no longer represents a source of differentiation, an MNO in that market sold its tower portfolio to an independent tower company, preferring to deploy an aggressive passive network sharing model.

In Russia, operators responded to a highly penetrated SIM market by investing heavily in own-branded retail stores as a tool to improve customer retention and secure a greater lifetime value from customers.

MNOs are increasingly recognizing the importance of defending their position in the content area of the value chain. Larger operators like Vodafone, AT&T and even Airtel have launched their own proprietary app stores. However, global handset manufacturers such as Apple, Nokia and RIM hold the edge over even the largest operators in terms of scale, while the entry of high-tech giants like Google and Microsoft further heightens the competition.

In response, MNOs are choosing from the following positioning strategies: open network access, tiered network access and owned platforms.

In an "open network access" model, the MNO offers network access but has a limited role to play in either content development or in provisioning/billing of external applications. There is a revenue upside from increased usage of data services, but significant control of the content value chain is passed over to online players and third-party developers.

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