Contradictions of the modern telecom sector

There is no doubt that the telecom industry is one of the few that has revolutionised the way people live. Maybe the airline or automotive industries have had a similarly profound impact, and it would be very hard to imagine life without Internet, business without emails, and such. In today’s connected world, telecommunications has become a lifeline that we simply cannot do without.

Mohamed Jamoussi, Senior Advisor, Saudi Telecom Group

Over the past two decades, the telecom industry has been swept up in rapid deregulation. Traditional markets have been turned upside down as mobile services outpaced landline services and the Internet started to replace voice as the staple communications tool. Here are some of my impressions of this changing industry and its contradictions and inconsistencies.

The more stupid the network, the more effective and efficient it is

Typically, the best telecom networks are those delivering the largest volumes of bits and at the highest speeds. Also, they are typically the most ready for new/innovative services, with the fewest features and functions. Paradoxically, such networks are nothing but stupid bit-moving networks. As a matter of fact, the more stupid the network, the more effective and efficient it operates. A typical example is the Internet which owes its robustness and scalability to its “stupidity”.

Greatly recognised, poorly adopted

A significant telecom development is broadband technology – unanimously recognised as a powerful propellant to the growth of any economy. However, while it can offer unprecedented business opportunities, operators keep thinking narrowband services, typically voice, which remains their largest revenue generator. Moreover, even when thinking broadband, most operators are more focused on bandwidth and speed improvement, with less effort invested in technology awareness and “needs creation” on the consumer side. More importantly operators keep offering discounted or free Internet usage in order to stimulate broadband adoption. Ironically, the network operators are called to continuously invest in their network capacity in order to meet rapid data traffic growth.

Starting where competition is high

A new entrant typically incurs heavy investments (licence fee, network lease, site building) and has to pay back the expenditure as quickly as possible, as the technology is rapidly evolving. Typically the new entrant starts operating at the highest penetrated areas of the market, expanding to less penetrated cities and towns. Such a business approach raises a multitude of questions regarding how new players look to grow.

Pricing peculiarity

From a business perspective, the telecom industry does not follow any “offer vs. demand” pricing logic. In fact, service/product rates and tariffs are independent of demand. Unlike other services such transportation, accommodation, and car rentals, telecom services do not have a high season or low season. Even worse, rates decrease with demand and operators excel at offering free minutes/SMS, discounts, and reduced rates when people are expected to consume more than usual, for example during public holidays, and at weekends. On the other hand, and from a quality perspective, telecom services are charged disproportionally to their quality when one compares the rates of an off-net call and an on-net one, a landline call and a mobile one, a fixed Internet connection and a mobile one.

Serviced by one, paying another

Today, telecom operators are excelling at providing ubiquitous connectivity over their fixed and wireless assets, which cost them huge amounts to develop and maintain. Meanwhile, over-the-top (OTT) providers, accelerated by the flood of smart devices, are the greatest beneficiaries of such infrastructure investments. The OTTs deliver free cross-network, cross-geography messaging, audio, video, and other more complex services, to the exclusion of network operators.

Cooperating with telecom players, competing with non-telecom players

As a result of telecom liberalisation, most markets settled with one to two landline operators and several mobile players. Today, landline subscribers are gradually shifting to the mobile segment, forcing landline operators to embrace new technologies like DSL, VoIP, and Wi-Fi in an effort to reclaim their lost revenues. However, wireless operators are taking advantage of these less expensive connectivity options to drive their competitiveness. Landline operators are also competing with non-telecom players to provide mobile operators higher bandwidth and better connectivity. Today, landline operators are in a head-to-head fight with companies such as railway operators and energy utility companies that are laying miles of high-capacity telecom network alongside their own track and pipeline assets.

More care for less loyal customers

Telecom operators appear to be caring more about temperamental customers than stable and loyal ones. They are striving to retain their prepaid subscribers by offering countless sale promotions. They keep flooding the market with attracting prepaid packages, inciting consumers to switch between operators. More importantly in many markets prepaid SIM cards can be purchased without any ID requirement. However, loyal subscribers who have been using the service for some time benefit less from promotional offers. In some markets, devices for prepaid customers are subsidised.

Telecom evolution with non-telecom services

In an effort to compensate for the erosion to their service revenues, telecom operators began selling handsets in a bid to secure future service revenues. Even more interestingly, today the telecom industry is incorporating others types of services and coming across more like a humanitarian or a welfare industry. In fact, partnering with specialised parties, telecom operators are offering services like media and entertainment, safety and security, energy and home management, health and well-being, and so forth.

More telecom services for more disconnections

From a social perspective, the telecom industry has failed in respect to connecting people anywhere and everywhere. In fact, though it has had a profound impact on our modern lifestyle, the telecom industry is widely perceived as also being a damaging influence, with respect to reduced physical interaction between people, and loss of privacy in some instances.

Contributed by Mohamed Jamoussi, Senior Advisor, Saudi Telecom Group