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Innovative Business Model is the Key to Telecommunication Survival
Posted: 22-Jan-2009 [Source: Frost & Sullivan]

[Frost & Sullivan reports telecomm sector to be hit by recession in two main ways - investments will fall due to lack of credit in the global economy, and consumption will fall as users tighten their belts.]

London -- The economic crisis is inevitably affecting the telecommunications sector. Continuous strain in the credit market has a big effect on investments. The reduction in consumption is changing the adoption and acceptance of new services. During these difficult times the key to staying afloat is to implement an open and shared innovation model focusing on enhancing the effectiveness of processes and innovative business.

According to Saverio Romeo, Frost & Sullivan industry analyst, "The telecommunications sector will likely be hit by the recession in two main ways. First, due to the lack of credit in the global economy, investments will fall in the beginning of 2009. Particularly, investments related to incredibly costly projects such as acquisitions, will feel this drop intensely. Second, consumption will fall as people move away from wants and focus on their needs. This will reduce the uptake of innovative services."

These two effects have already taken a toll causing service providers to trim down. Since November 2008, Vodafone and Telecom Italia announced mid term cost reductions of 1billion pounds sterling and euro 2billion respectively while BT and Virgin Media announced job cuts; the former relieving 10,000 employees, while the latter reduces its workforce by 2200.

Saverio Romeo observes that key success factors for the telecommunications sector are the "Optimization of organizational resources and processes as well as promoting business innovation; which means being able to design lower cost and disruptive business models as an effective way to attract consumers. Disruptive business models here refer to combining existing technologies with new business models to create low cost products and services (i.e. the combination of mobile content with forms of marketing and advertising)".

Lowering costs and disruptive business models will require partnering with players of different expertise. This type of collaboration can reduce costs, advance the quality of service, and offer more attractive packages to the customer. An example of optimizing resources in a positive way is best seen through mobile network management sharing. The innovation process, as it is opened to different players including consumers, could prove to be the lynchpin to surviving the crisis.

From a public sector perspective, national governments and super-national organizations have come to view the telecommunications sector as a critical route to overcome the crisis. For example, the European Economic Recovery Plan places a huge amount of importance on broadband infrastructure, ICT services and sustainable telecommunications. Even the European Union has committed to an immediate investment of euro 200bn to implement 'public-friendly' legislation. From 2009-2010, the EU plans to invest euro 1bn for the development of "high-speed Internet for all" with the aim of achieving 100% broadband coverage across the EU by the end of 2010. These types of actions, from a governmental perspective, prove not only the importance of telecommunications to the economy but also help protect this sector from drastic decline.

Yet even with this support, last month major mobile network operators declared processes of strategic and operational adjustments in order to face 2009, arguably the toughest economic year since 1992. Of the plethora of rescue plans presented, two trends stood out. One clear strategy is to pull the purse strings tight through cut costs, reduce investments, monitor consumption through pricing and certainly reign in cash flows. Supporters of this strategy hope to minimize the short term damages of the recession. The other major trend is to identify and act upon the need to use this time to build opportunities out of the recession. "We believe that innovation should remain at the core of economic and industrial policies. We also believe that the same networks that are spreading the crisis can also be the ones to promote innovation in a collaborative and open manner; stimulating economic growth," states Saverio Romeo.

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