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Could overtaxing harm telecom—an industry essential to economic growth and progress?
Increasing taxes on mobile phones is a short-term solution at best and a potential long-term inhibitor of economic growth, according to A.T. Kearney’s latest analysis of mobile sector taxation in Europe.
Indeed, the European Commission identifies telecommunications as a driver of economic progress. Countries that increase taxes and regulatory fees on this industry—as they have with tobacco and alcohol—not only discourage use of these products but also restrict investment and threaten growth in GDP, productivity, and jobs. This is as true for telecoms as it is for adjacent sectors such as banking and energy, where growth and innovation rank high on strategic agendas.
Telecom operators in Europe already contribute significant tax revenue to European governments—on average, 24 percent of the average price per minute (APPM). These contributions include the value-added tax (VAT), social security tax, corporate tax, regulatory fees, and telecom sector-specific taxes. Despite Europe’s fiscal crisis and the understandable search for more sources of funding, most countries have resisted sector-specific taxation on the mobile industry—just five have increased taxes on the mobile industry.
Our findings suggest that while the telecom industry should pay appropriate taxation and regulatory fees, a balance is needed between short-term revenue schemes and long-term strategies to support industry innovation and growth.Close
New revenues in Europe's telecom sector will only arrive with a significant commitment to deregulation to encourage success.
Telecommunications is one of Europe's most important economic sectors. Its largest companies have invested in building businesses in every continent. The services it provides—in particular the broadband and wireless infrastructure underpinning the Internet—are central to many other sectors of the economy and to the daily lives of almost every citizen. Its history of innovation and growth has been trumpeted as a major achievement of the European Single Market.
Yet financial performance has lagged of late, because of an imbalance between those investing in the Internet and those benefiting from its impressive growth; an erosion of the industry's pricing structures as over-the-top (OTT) substitutes bypass existing tariff structures that charge for voice and messaging bypassed by over-the-top (OTT) substitutes; a fragmented sector that restricts innovation and increases costs; and an adverse climate of regulatory price cuts, restrictions on commercial strategy, and high taxation of essential spectrum. On the positive side, demand for the industry's core offering—communications—is growing dramatically. The adoption of new services—from videoconferencing to social media—is accelerating in all demographic segments, powered by rapid technology evolution in network infrastructure, services, and devices.
Against this backdrop, A.T. Kearney has researched the health of the European industry, its plans and prospects to return to growth, and the contribution that the policy framework can make. We cooperated with the industry association ETNO, interviewing many of its members (and some operators that are not members) and discussing our findings with ETNO's leadership, but this report is an independent report that does not necessarily represent the views of ETNO or its members. In this report, we offer these findings as a contribution to an important debate on the future of the industry. This discussion is active in the policy arena: the European Commission has recently demonstrated an important realignment in its thinking on fibre investment and the related wholesale price regulation, and it will shortly review key market definitions and issue recommendations on non-discrimination and costing methodologies. All governments have been debating revisions to the treaty governing international communications via the International Telecommunications Union (ITU).
Many industry players are considering how their businesses must evolve to remain competitive in the marketplace and attractive to investors. Each company will pursue its own strategy, and inevitably some will do so more successfully than others, but each of them, we believe, must address three broad strategic imperatives:
- Break out of the deflationary price spiral and move to pricing models that better reflect the value for the customer
- Raise the effectiveness of innovation and launch new services that can compete with global champions
- Move beyond the pursuit of incremental efficiency gains and pursue the path of consolidation and transformation common to maturing, capital-intensive industries
For each of these, the policy framework in Europe must evolve—not to disappear nor to substitute the work of management and investors, but to eliminate roadblocks and create a level playing field.Close
As emerging economies seek to influence global standards, Europe's role as a shaper becomes a priority.
Standards are the rules, guidelines, and definitions that describe repeatable ways of doing things. Standards are a crucial element in the EU's industrial strategy as Europe seeks to remain a shaper of global standards rather than a follower.
The European Round Table of Industrialists worked with A.T. Kearney to study the issue of developing and implementing standards. We found six recommendations for establishing standards in European industry:
- Establish performance targets to foster innovation. Standards spread collective knowledge, bringing together industry players in a working environment of sharing and collaboration. The use of standardized parts and business processes can reduce early investment costs and risks, and provide a platform from which industries can innovate.
- Consult with experts. Involving technical and industrial experts, even when standards are initiated by governments, can help build standards on solid foundations.
- Coordinate industry players. European standardization bodies can play a larger role in facilitating standard-setting along the value chain and across industries.
- Balance speed and consensus. Standards must be put in place quickly in the face of accelerating technological change and market competition, and they must be built on a foundation of consensus to broadly address the requirements of all players.
- Encourage a global approach. European companies that adopt and participate in setting global standards increase their market access to other countries.
- Encourage SME participation. Despite their importance to the European economy, few small and medium-sized enterprises (SMEs) are actively involved in setting standards.
As film production budgets shrink, visual effects and 2D-to-3D conversion services are poised to become stars.
The post-production services industry is at an interesting juncture. Driven by the squeeze in film production budgets in the United States, it has long faced low margins, slow growth, and operational complexity. Traditional post-production services such as audio and video editing, sound recording, and telecine have stagnated, causing overall market growth to stall in the low single digits. In the past few years, however, the industry has been thrown two lifelines: visual effects (VFX) and 2D-to-3D conversion. While the overall U.S. post-production industry is expected to grow only slightly, VFX and 2D-to-3D conversion services are poised to gain momentum.
Investors, movie production houses, service providers, and other post-production stakeholders would be wise to pay attention to VFX and 2D-to-3D conversion as services that could make or break their fortunes. In this paper, we explore the challenges—two big names in VFX recently filed for bankruptcy—and opportunities for these services from an investment and management perspective and discuss the success factors that will define each service's future market leaders, or failures.Close
- The right way to think about network optimization
Networks are complicated, and managing them requires an expansive strategic imagination.
The conventional way of looking at a network is through the direct-value lens: How much does it cost to run the network? Networks are a great deal more complicated than that, and managing them—or, more fittingly, optimizing them—requires an expansive strategic imagination.
No matter what kind of network one manages—hospitality, retailing, banking, leisure, telecommunications whatever it might be—once the network is built, it immediately begins its evolution. Even within a single local market, the network is evolving all the time. As the network goes through its life cycle, perspectives on sustaining it must change as well. The means for doing this are distilled in A.T. Kearney’s Network Optimization Tools, or KNOTs, comprised of eight elements, each focused on a strategic element of the network.
The English word knots translates as les nœuds in French, or nodes. This is an apt image for thinking about the symbiosis of the local and the networked—the balance of savoir-faire métier and savoir-faire local, of the collective intelligence of the network and the specific intelligence of the individual.
Think of KNOTs not as a laundry list of best practices used to build an optimal network but as electrons—each one discrete and at the same time interacting around the nucleus. A national bank develops financial products centrally, but the local branch manager manages the relationship with customers. The national bank maintains good relations with the regulators while the branch manager cultivates the good will of the town mayor. A manufacturer’s leverage with suppliers may be directly proportionate to its number of plants, yet procurement is not only about concentrated volume. It is also about expertise the manufacturer owns in a multitude of categories and brings to bear in the local nodes of its network.
A sobering counterexample is the flameout of video retailer Blockbuster, which channeled its energies into adding thousands of stores and tens of thousands of employees in North America and Western Europe only to be caught off guard by competitors such as Netflix and the rapid adoption of streaming video. In hindsight, Blockbuster’s history suggests an unbalanced emphasis on its real estate network and not enough on the customer experience. The result was catastrophic.
We organize our network nomenclature into three types: production networks, service networks, and distribution networks. La Poste, for example, is a production network in that it operates like a factory producing a product: collecting and distributing mail. Taxi companies, railroads, and airlines are other good examples of production networks. The nodes in these networks are more than just infrastructure. One must own the nodes or there is no business to manage. Closely related to the production network is the service network, typified by telecommunications and hospitality. A hotel network, for instance, cannot deliver a night’s sleep over the Internet. The consumption of its product is done at the local level even though each node in the network is supported by the expertise of the whole. The service is the network.
A distribution network is retail in all senses of the word, especially in its tailoring of products to meet the needs of local customers. Distribution networks are high touch and in certain ways are the easiest networks to think about in terms of nodes. The most familiar example, literally the most concrete, is a brick-and-mortar retail chain. Find a Wal-Mart, and its distribution center will not be very far away.Close
As mobile operators spin off their towers, is this strategy creating real, sustainable value for shareholders?
Captive or independent tower companies are emerging like never before as more telecommunications companies sell or spin off their tower holdings. Because towers make up the bulk of their capital investments and most of their operating costs, mobile operators are opting to share towers—renting them from other telcos or tower companies instead of making ongoing financial investments in infrastructure. In the process, these operators are searching to drastically cut costs and maximize profits.
But has it really been a success? Are tower companies creating value for their shareholders and their mobile operator clients? In this paper, we answer these questions and examine what tower companies and mobile operators can do to create a sustainable business and increase shareholder value.Close
While digital marketing is still in its infancy—at somewhat of a trial-and-error stage—consumers are way ahead.
The amount of time we spend online is enormous, equal to or more than the time chalked up to watching television or reading newspapers. Indeed, while watching television, up to 60 percent of us are multitasking—using computers, tablets, or smartphones to browse the Web, check email, or visit social networking sites. While television's total advertising market share is still healthy, the attention we pay to traditional channels such as television, and especially to traditional advertising on television, has shrunk dramatically. To keep up with these trends, companies are reaching out to consumers on more modern channels. We call this digital marketing.
The paradox is that while digital marketing is still in its infancy, consumers are way ahead, expecting real and relevant interactions. While much is being written about aspects of digital marketing such as location-based social networking apps, not much is being said about a marketing transformation. Transforming the marketing forest to blend in with today's digital world is a challenging but necessary undertaking for companies that want immediate impact and long-term growth.Close
Blanca Treviño, CEO of Softtek, discusses the future of global IT outsourcing and how Mexico can improve its competitive advantage.
A passionate advocate of service over labor arbitrage, Blanca Treviño has focused Softtek on adeptly undertaking complex projects and providing value, not just low costs. She is also a vocal proponent of sponsorship as a means of helping small- and medium-sized Mexican companies in the sector gain a toehold. At a recent A.T. Kearney conference on global competitiveness, Ricardo Haneine and Rodrigo Slelatt interviewed Mrs. Treviño for Executive Agenda to discuss the future of global IT outsourcing, the means by which Mexico can improve its competitiveness, and her aspirations for Softtek.Close
How do the leaders stay consistently ahead of their markets while formerly thriving businesses fail?
What causes one leading company to stay consistently ahead of the market while another formerly thriving company flounders? The question is intriguing—and pressing, too, during these times of volatility. To explore the reasons and possible solutions, we conducted a study of industry champions. The result was a matrix that measures market success—a combination of growth in sales relative to market growth, and market share relative to the next largest competitor. Where BCG's matrix was created to help companies plan their portfolios, this matrix is used to chart a company's evolution and derive insights about its strategies. We call it the four seasons matrix:
- Spring. Companies that have outgrown their market but are not (yet) market leaders
- Summer. World leaders that have outgrown their markets
- Autumn. World leaders with below-average growth, gradually losing their positions
- Winter. Market followers that are growing more slowly than their market
We chose the axes of growth and market share because both metrics have a strong, proven relationship to long-term profitability and shareholder value. Combining those measures provides a solid basis for picking long-term winners.Close
It is not at all difficult to turn customer dissatisfaction or even mere indifference into pure delight.
Creating a unique customer experience is one of the best ways to achieve sustainable growth, particularly in industries that are stagnating. If a telco, a utility, or an insurance company can create a highly differentiated customer experience that turns dissatisfaction or indifference into delight, it will recruit an army of vocal advocates online and offline, gain market share, and generate revenue growth.
Sound simple? It isn't, especially in sectors where the core product or service is difficult to differentiate. But it is doable, as Disney, IKEA, and ArcelorMittal have demonstrated. These firms are among the 15 Summer Champions identified by A.T. Kearney from an initial list of 500 as companies that outgrew their markets consistently over a five-year period despite being the largest players in their sectors.Close
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