Telcos get many things right on innovation

Emeka Obiodu/Ovum
29 May 2013

Contrary to popular opinion, most telcos are innovative when it comes to their businesses. While their core products of voice and data have not changed much over the past 30 years, telcos have innovated in their network infrastructure, business models, tariff strategies, and approach to marketing.

Sadly, these are typically ignored when compared to the innovation activities of the major over-the-top (OTT) players (e.g. Google). In our recently published report, Understanding How Telcos Innovate, we criticized this misunderstanding and called on telcos to embrace a holistic approach to innovation that recognizes and integrates their different activities.

To help telcos adopt this holistic approach, we introduced the notion of the “net innovation benefit” metric, which we believes is a more appropriate way of evaluating telco innovation activities.

Net innovation benefit: a new metric to evaluate innovation

The continued narrow interpretation of telco innovation is exacerbated by the absence of a metric to evaluate or measure innovation activities. Since 2009, Ovum has collated more than 3,500 telco service innovations and analyzed the innovation activities of nine leading global telcos.

What is clear from this research is that most telcos use metrics that focus disproportionately on direct new revenues earned. This is not necessarily bad, but it is dangerous. Every innovation – whether it is a new product, service, tariff, or business model – can generate new revenues, but it can also cannibalize existing revenues.

For example, when telcos design innovative tariff plans that offer unlimited or “abundance” voice minutes, they hope that it will generate new revenues. However, this is accompanied by the fear that the new tariff will cannibalize the telco’s voice and SMS revenues. While this may be the case, failure to offer the tariff plan at all will expose the telco to even more dramatic revenue cannibalization by OTT players.

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