If telecoms operators want to continue to play in the Applications, Content and Experiences business, they need strategies for richness and reach that don’t play into the hands of their online competitors. But the telco sweet spot has moved without them necessarily realising it!
As I explained, success in the ACE layer revolves around building richness and/or reach. Richness is the product functionality, and reach is the ability to interact with other products, services, devices and users. There is a missed opportunity to lead the way on richness, and telcos have dropped the ball on reach.
A framework for strategic service segmentation
Anyone who has worked in telecoms for more than a few years has seen many examples of failed service launches: products that failed to survive amongst high-competitive and focused online alternatives. It always surprised me how often little serious thought was given to real competitive advantage that telcos might have in different sorts of services. As a starting point, I want to propose a simple segmentation along the lines of richness and reach requirements.
- For network operators, differentiation in richness is going to come from technical delivery requirements. Low-latency, high-quality real time video communications plays to an operator’s sweet spot more than, say, email. This is because the Space layer attributes of effectively and efficiently delivering information over geographical distance are required at a more strenuous level in the case of video.
- The importance of reach is really about whether connecting a user of the service to other users or end points brings extra value. Voice is clearly a service where reach is an important characteristic. File-back-up, less so.
With these two dimensions in mind, we can start to segment different services and understand a telco’s likely strength. See the diagram above:
- In the bottom-left, we have services with low technical delivery requirements and little reach requirement, like remote back-ups. Network operators have little in the way of innate competitive advantage here.
- In the bottom-right, we have services with low technical delivery requirements but with a high value coming from connectedness. In other words, the number of users matters. Services like email, social networking, messaging. These are natural fits for an online (‘OTT’) approach.
- In the top-left, we have services with more strenuous network requirements (in terms of bandwidth, latency, availability, security,…) but with relatively low reach effects. Video consumption tends to fall into this zone – you want a great experience and need a strong network to deliver that, but don’t care if you are the only user of the service or whether the whole world is a customer.
- In the top-right, we have services whether technical delivery requirements are advanced and reach is essential. Various forms of video communication are the obvious candidates for this zone.
The telco sweet spot has moved
It should be clear that telecoms players should be focusing on services in the upper part of the matrix. What is interesting is to note that the telco sweet spot has moved from the top-right to the top-left quadrant! Telcos, who once were the “masters of reach” through global PSTN interconnectivity, have now been outflanked by global online players with a much larger worldwide customer base than that which a national telecoms operator could possibly develop. Whilst the industry got together and waited for standardisation effects to permit global interconnection for new service types, online players consistently jumped in with a global approach and proprietary technology and won the market.
So now we see an increasing focus by telcos on top-left quadrant activities: video services, for example, where global interconnectivity is not so important.
Two actions for telecoms service providers
- Move users upwards. Develop and promote services with stringent technical delivery requirements. Telecom operators should be the biggest advocates and advertisers of 4K television – with a 4K VOD offer to match! Push multi-screen, encourage users to expect “HD quality” video conferencing (and offer the service to make it reality).
- Develop a reach strategy. Online players have no physical footprint to worry about and focus on a global customer base. Telecom players wanting to play in the ACE space are still often constrained by their “Place and Space” businesses to think nationally and focus on their physical footprint. Telcos need to ask themselves:
- Do we focus on “low reach” businesses?
- Do we develop “over the top” services and target a global customer base?
- Do we partner with our traditional competitors to interconnect, expand reach and grow the overall market for all?
- Do we wait for a standardisation body to figure it all out? [<— ANSWER: NO!]
What do you think are the right strategies for telcos to improve their success in the A/C/E business? Leave a comment below!
Other posts you might like:
- What drives the economics of networks?
- Why telecoms will never be dumb pipes
- Are telecoms diversification strategies anaemic?