The high stakes of investing in convergence

Richard Ireland/Ernst & Young
04 Jan 2008
00:00

Technological advancement through digitization is driving convergence in communications, transforming the broadcasting and telecoms industries. For consumers, the true convergence of technologies will mean the availability of a completely new customer experience, where a range of services can be delivered anywhere at any time. For the operators, the ultimate impact of convergence will prove nothing less than dramatic.

There is a very real danger of telecom operators not heeding the advice to adapt to convergence. Indeed, there is an urgent need for operators to transform their business to enable multiple and integrated service delivery, which will require investment. However, in terms of deliverable services, the industry still has a long way to go, with convergence tending to mean the bundling of traditional communications services.

In fact, research shows that discount pricing remains the primary reason for consumer adoption of bundled services and that many customers remain unconvinced of the true value of bundling.

What traditional operators need to do is to develop integrated or converged services to bring innovation and transform the customer experience rather than repackage existing services.

Prioritizing investment

Underlying the investment challenge facing incumbents is how to best meet the increasing demands and expectations of customers in the most cost-effective manner. That means a quality network plays a critical role in shaping service offerings. While the regulatory environment affects the level of infrastructure investment, the immaturity of emerging convergent technologies - and uncertainty toward the most effective business models to deliver such services - has helped erode some of the traditional certainties firmly held in the industry.

The capital intensity of the telecom industry, where network operators have already spent billions of dollars on their core and access network infrastructure, adds another dimension as to how operators should prioritize future investment. The growing demand for bandwidth-hungry services, together with competitive pressures from content owners and alternative service providers, is pressuring the incumbents to invest in new technologies to explore new revenue streams and compete for a larger share in these new market segments.

On the technological front, convergence technology is still evolving. The next-generation network (NGN) migration to an IP multimedia subsystem as the core of the network remains a long-term play despite expectations that it will generate new revenue streams and bring about a reduction in operating costs. On another level, the access network is changing dramatically, with new technologies such as broadband wireless access and femtocells emerging as a driver to fixed-mobile convergence. Investing in the right technology at the right time is, therefore, a crucial investment decision for operators and right now, operators are having difficulties in distinguishing the benefits and making the choice between potentially competing or overlapping technologies.

As operators move up the convergence chain, the investment required will increase substantially. Telecom operators believe that the industry is becoming increasingly complex and convergence - both conceptually and practically - can be just as difficult for the industry to comprehend as it is for the consumer. With the uncertainty of the viability of new services such as mobile TV, a genuine business case still eludes operators.

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