Failure to Move Away from a Defensive Business Strategy Is Top Business Risk for Telecoms Operators in 2012

Michelle Remo, “Big 4″ observer
February 14, 2012 /

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, the latest in a series of annual reports based on the insights of Ernst & Young’s sector practitioners, show 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.

Jonathan Dharmapalan, global 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 become 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 Dharmapalan.

“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.

Lack of regulatory certainty

Regulatory pressures remain a key concern in the sector.

Adrian Baschnonga, Senior Telecommunications Analyst at Ernst & Young says: “Regulation of legacy parts of the business is well understood yet policies are evolving quickly in areas such as mobile spectrum release and super-fast broadband deployment. Engaging with a range of stakeholders is needed to help incentivize industry investment.”

Meanwhile, rules around online privacy and security remain contentious.

“Failure to formulate clear viewpoints on privacy, in terms of responsibilities to end-users and other industry players, could undermine operators’ roles in the digital age” concludes Baschnonga,” said Baschnonga.


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