Top 10 Business Risks for Telecommunications in 2012

June 28, 2012 /

Ernst & Young issues Top 10 risks in telecommunications 2012.

“ Failure to move away from a defensive business strategy is the top business risk for telecoms operators. Shifting business models from minutes to bytes is now mission-critical. ” says Paul Cheung, Partner at Ernst & Young, China.

Questions over new business models, levels of capital expenditure and regulatory uncertainty represent the biggest threats and opportunities in a rapidly transforming telecommunications sector, according to a new report by Ernst & Young.

Top 10 risks in telecommunications 2012 report, the latest in a series of annual reports based on the insights of Ernst & Young’s sector practitioners, shows that, for the first time, failure to control costs is no longer in the top ten. While robust defensive positioning reinforced by strong cash flows has helped operators contend with economic uncertainties, new business models are required to unlock growth.

David McGregor, Asia Pacific Telecommunications Leader at Ernst & Young says:
“Telecoms operators across the world face changing demands from customers, competitors and regulators, creating new pressures across their organizations. Failure to shift their business models to cater to data services is mission-critical for all and is this year’s leading sector risk.

“New approaches to pricing are crucial and operators have an important role to play as telecoms infrastructure becomes central to the development of other sectors, such as healthcare and utilities.”

As operators widen their range of services, partnerships are no longer just a “nice to have” – strong industry ecosystems are required to support new propositions. At the same time, new business metrics are needed – to more effectively communicate financial and operational performance to the investor community.

Finally, organizational structures also have to adapt to a changing industry landscape so that new capabilities can be repurposed across the business. This represents the final new entry in this year’s rankings.

Lagging behind on the customer experience

“Disengagement from the changing customer mindset” ranks number two this year, reflecting how operators need to keep pace with changing user expectations.

“While losing customer ownership is an ongoing industry concern, operators recognize that they also share ownership of their customers with a number of players, from device manufacturers to banks,” continues McGregor. “Understanding the fast-changing customer mindset is more vital than ever if industry players are to add value in a rapidly evolving marketplace. Operators remain uniquely well placed to achieve this.”

The report also highlights that operators have to make the most of their customer information assets to optimize network performance and drive the development of new services. Failure to do so would mean that demand cannot be turned into value.

Lack of confidence in return on investment

Risks around infrastructure investment are more important than in previous years, given that Long Term Evolution (LTE) rollouts are underway and aggressive national broadband targets are also in place. Operators have shown themselves capable of controlling capital expenditure as they support high levels of cash flow – but a lack of confidence in return on investment means that by trimming capex they may be sidelining themselves from future growth stories.

China realities

To counter the top risk faced by global telecoms operators, Paul comments, “Chinese operators are in need of 1) an efficient data traffic control to accommodate the fast-growing data era, 2) improving customer experience to boost revenue in the data generation, 3) retaining the high-end market to maintain a stable and high ARPU, 4) investing in new and compelling data services to compensate the decline in traditional businesses, 5) service innovation, and 6) a minimization of the cannibalization from fixed-to-mobile substitution.”

The 2012 top business risks for the telecoms sector are:

  1. Failure to shift the business model from minutes to bytes
  2. Disengagement from the changing customer mindset
  3. Lack of confidence in return on investment
  4. Insufficient information to turn demand into value
  5. Lack of regulatory certainty on new market structures
  6. Failure to capitalize on new types of connectivity
  7. Poorly formulated M&A and partnership strategy
  8. Failure to define new business metrics
  9. Privacy, security and resilience
  10. Lack of organizational flexibility

 

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