Strategic fulcrums

According to Karim Sabbagh, global practice leader CMT of Booz & Co., the telecom industry is facing a number of inflection points that, depending on the strategic options taken, will result in the character of service providers in the future altering drastically

Sabbagh identifies five strategic fulcrums that the modern telecom sector is faced with, which could tip the direction of the industry in any number of directions based on the development paths taken. These triggers are identified as the nature of industry itself, operator strategy, innovation, optimisation, and investment outlook.

With respect to the development of the telecom industry, service providers are faced with the choice of pursuing organic growth or inorganic development based on the prevailing circumstances and opportunities. In the Middle East at least, the global economic recession that began in late 2008/early 2009 stemmed a period of rapid inorganic growth, which had seen operators from the region enter global markets across Africa and Asia. Many of the deals undertaken in the period preceding the recession were considered to have been undertaken at significant premiums, which in many respects were not viewed as offering sustainable business cases.

Since the onset of the recession, service providers in the Middle East have become more focussed on organic growth and cost rationalisation, which many industry commentators describe as a return to common sense business. However, with margins being squeezed by the commoditisation of voice and in-market competition intensifying all the time, there may soon be a case for the rekindling of inorganic growth options in order to drive value creation.

Service providers are also facing the option of embracing a foundational strategy compared to pursuing an adaptive one; though given the pace of change the industry has faced in the past decade, adaptability appears to be a requisite to survival. The new business paradigms that have been thrust on the telecom sector by the onset of mobile broadband and digital services has meant service operators have had to adapt to the presence of many more players in the value chain, and a requirement to consider new business models.

The over-arching presence of over-the-top (OTT) players remains an area of the modern telecom landscape that service providers are still ill at ease with, with many of them unsure as to whether to partner or challenge directly the Internet-based upstarts in their midst.

According to Sabbagh, service providers are also having to decide between operational or market innovation in order to stay relevant and ahead of competitors. Much operational innovation is viewed as the boring aspects of telecom service delivery, encompassing key performance indicators and efficiency drives, and which in many cases is the least innovative, though crucial, activity service providers undertake.

Market innovation is being used to a large degree to differentiate service providers from one another, and the use of bundled services is becoming a tool of choice within the industry. However, it remains fundamental that in whatever innovations that are developed, the retention of value is key and service providers stand to gain from the implementation of such.

Related to the efficiency drive described with respect to innovation above, service providers are actively considering cost optimisation versus capabilities building, making this the fourth strategic fulcrum. Service providers appear to appreciate that while cost containment is required, investment in research and development has the potential of uncovering a whole new world of potential new revenue streams.

The last of Sabbagh’s five industry fulcrums deals with the pursuit of a return-led investment strategy compared to a growth-led one; with the former being an alternative that would be more favoured by shareholders and investors, and the latter by executive management. The culmination of all these triggers points to the dynamism that exists within the modern telecom industry and its plethora of strategic alternatives. In the future these choices will no doubt come to be regarded as the factors that led to the sustainable success of certain service providers and the failure of others.