Commercial lessons that still haven't been learnt

Smell the change? There's an ill commercial wind blowing in the telecoms market. Chief Strategist Teresa Cottam looks at the weather forecast.

 

http://upload.wikimedia.org/wikipedia/commons/a/a3/Carlo_Bonavia%27s_oil_painting_%27Storm_off_Rocky_Coast%27.jpg

Carlo Bonavia, Storm off Rocky Coast, 1757


 

 

In telecoms we're usually focused on the latest shiny new technology. It doesn't really matter what it is - LTE, WiFi, the latest smartphone, 5G, hetnets or policy-controlled M2M - because the odds are that at least in the short to mid term it's going to both cost us and lose us a lot of money.

 

The sums of money involved are staggering - more than the GDP of many small countries. And yet, we talk about billions as though they were small change - easily recoverable and just part of the cost of doing business.

 

Yet the industry is also littered with examples of poor investment strategy:

  • Initiatives where enormous amounts of money were spent but which never took off.
  • 'Build it and they will come' strategies that left shiny new investments high and dry for years.
  • Failure to optimise the commercial potential of services that customers do want and are willing to pay for.
  • Investment in complex solutions that take years to come to market, when more agile competitors find cheaper, faster ways to market.

The 'me-too' approach to investment that is epidemic in telecoms, sees CSPs plunging head-first into massive billion-dollar investments - often with only a vague sense of how this will be recovered or add value. More often than not, the investment is simply justified as being necessary to maintain the status quo. Meanwhile competitors with a keener commercial eye come in and print billions off the telcos' backs. Rather than learn the lessons, the telcos blame their more agile competitors, claim that it's not fair, and try and manipulate the environment in their favour.

 

But another lesson the telcos have failed to learn is that holding back the tide doesn't work - as Canute demonstrated over a thousand years ago.

 

The whole telecoms ecosystem is guilty of the same thing: hyping up technology as a panacea. We're told there are no 'problems', only 'challenges'. And, more often than not, technology is the answer to those 'challenges'. Or is it? This approach totally devalues and brushes over every other contributor to success. Even where innovation is technology-based, failing to get the commercials right means the opportunity is lost or not sufficiently optimised - haemorrhaging billions.

 

Yet look at the press (including analyst output), look at vendor marketing, and at industry 'advice' to investors. More often than not the emphasis is on how cool the tech is and how investment will continue the status quo. The hypnotic effect of all that shiny technology deludes sane and intelligent people into believing that the telecoms status quo can be preserved simply by heavy investment to maintain barriers to entry. But while telcos build their connectivity castles, competitors are not interested in taking down the walls; they simply move around the castle and undermine the foundations with more successful commercialisation. 

 

I'd like to ask those of you that read EY's 'Top Ten Risks in Telecommunications' - now a couple of years old - whether you think that the risks have been addressed successfully? In its follow up, EY suggested that senior executives had everything under control - though they hinted at a gap between answers and execution.

 

So have CSPs successfully shifted their business models? Are they engaged with customers? Do we have confidence in ROI? Are we better at turning demand into value? 

 

Personally, I see a lot of great PowerPoint along these lines - we're certainly good at talking the talk - but I'm not convinced that most CSPs are in the right place to take advantage of the huge commercial potential coming into (and above) the market. There's obviously variation - some are cleverer than others - but it's hard to avoid the conclusion that the communications market is fundamentally and rapidly shifting and that there will be a lot of casualties in the next few years on all sides of the market.

 

I'm reminded of the old investment caveat that past performance is no indicator of future performance. Never a truer word was said about the telecoms market. And the shift is already evident across the entire supply chain. What's curious is that so many cling to the old way of doing business and refuse to see that the connectivity market is fundamentally changing.

 

I don't mean to infer that there won't be a healthy business in the future; or that companies will not make very good returns. The question is whether past stellar performers will be future stellar performers. (Clearly this is not guaranteed.)

 

We need to take a long hard look at the characteristics, strategies, technologies and approaches that *will* mark out the winners from the losers. We cannot assume that just because an opportunity is telecoms-based, that telecoms companies will be the ones to benefit from it. Many established names are going to disappear. But neither can we assume that johnny-come-lately newcomers with shiny new(er) technology will do any better. As Shakespeare said: all that glisters is not gold. And finding the gold amongst all the pyrite has never been harder or more important.

Omnisperience: experts in digital experience

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Thank you Paul and Snowden

 

There is certainly a lot of money to be made - but in a different place now to where it was before. If operators just sell SIMs and connectivity there's going to be little revenue growth for many of them - so how do they justify investments?

 

Snowden is right we do need faster innovation cycles. And, as Paul says, there is an option of buying smaller companies for innovation when you're cash rich. However, some thoughts on that latter point.

 

Successful acquisition depends on you having a strategy and the ability to spot the likely targets before either they grow too big or get snapped up by someone else. Few telcos are agile enough to snap up innovators cheaply or identify the right targets. And, while a few telcos are cash rich, most will not be able to compete with FB, Google, Amazon and other players like them who have a lot of money in the bank, can more easily raise funds because they're not so indebted, and have a plan. Buying your way out of trouble only works if you know where the safe place is. Once you start dragging the legacy with you, then you can easily sink the lifeboat - certainly slow it down.

 

If it was as simple as buying then I'm sure we would have bought our way out of trouble by now. The problem is that most M&A is not successful.

 

My point is to start having a conversation about not another me-too strategy of maintaining the status quo, but recognising the very real dangers ahead. Let's spend money in the right way to drive up business results. Let's not just follow the me-too strategy advocated by self-interest groups (those invested in keeping this in place) without any scrutiny.

Teresa I think your words of warning are very valid, the industry is ignoring the blinding obvious and that is that their future employee and customer base is about to significantly change, the old guard of "Baby Boomers" who built the current corporate CSPs will be leaving employment in the next 2/3 years with a new wave of "Generation Y & Z" entering to replace them. These new employees and customers are digital natives, who embrace change and expect innovation! Most large organization including CSPs are built around stability and operational efficiency, two things that signal the demise of an organization in my view.

 

On top of this you have the rapidly changing world of Technology, which now provides customers with simple tools that lift the lid on the digital supply chains being delivered by CSPs and it's not a pretty picture! CSPs should be embracing these tools rather that burying their heads in the sand and ignoring them.

 

So the next 12 to 24 months is going to see a lot of changes within the Telecommunications world, lets face it, we now have an online bookshop delivering Cloud solutions far better than any CSP, You name me one CSP that could move into selling books online and succeed.

Oh Teresa,  that's the $64,000 question - with the much bigger value answer. It reminds me of the "Walled-garden" vs. "open" internet discussion we all so enjoyed 15-20 years ago. In the end, few telcos gained significant content revenues (that market crashed, anyway), but did pretty well out of the broadband "pipe" revenue.

I suppose, in the UK the purchase of sport content by BT is a potential game-changer and one of the most interesting moves. There are also many interesting business information ideas and solutions, but as you say, most CSP change is focused on the next technology introduction/roll-out and canabalising revenues from within the industry. 

But isn't this normal large corporation activity: i) grow what you do, to be as big as possible, making mistakes along the way and ii)  keep an eye on new companies and ideas where the risk has been taken out and then buy the company or business. Those who spot the right time to buy or jump-in are the ones who reap the reward. With all that cash swilling around in Vodafone, for example, the time for another interesting market move could be imminent.

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