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IBM Study Shows Telco CEOs Struggling to Adapt

[qi:086] The people running the world’s telecommunications carriers are facing a threat to their core businesses due to convergence and a perception of their networks as dumb pipes, according to a report from IBM (s IBM). As a result, 70 percent of telecom CEOs are concentrating on defending their core business, compared with just 25 percent of the total survey population, which comprises executives from a variety of industries.

IBM’s Global CEO Study, published last week, is based on interviews with 1,130 executives, and includes a report devoted to 47 CEOs of telecommunications providers. Eric Riddleberger, IBM’s global business strategy leader, who heads up the company’s corporate social responsibility consulting efforts, said rather than competition or regulatory changes, the biggest issue haunting the executives at major carriers is how to keep their businesses from becoming a dumb pipe.

“That’s the thing that keeps them up at night on the innovation front,” Riddleberger said. “They aren’t worrying about competing with the cable guys. They worry about someone like a Google (s Goog) or Apple (s aapl) coming in and totally disintermediating them from the consumer.”

Seventy-seven percent of telecom executives plan to change their business models extensively over the next three years, while the remaining 23 percent plan to make more modest alterations. However, instead of tackling the issue of being a dumb pipe through wholesale innovation, 40 percent of the survey respondents are looking to alter their revenue model through changes in pricing plans, such as metering, or new services such as figuring out an acceptable way to leverage their customer knowledge for advertisers.

Another 30 percent are looking at ways to change their operational model such as by outsourcing their network, as Sprint ( s) may do with Ericsson (s ercy) or MVNOs have done. Fifteen percent are looking to change their industry model by thinking of ways to enter new industries or change the current one drastically. Riddleberger said that the closest thing telcos have seen to an industry change so far has been Apple’s success with the iPhone and how the device maker has positioned itself in the middle of the relationship a customer has with a carrier. The remaining 15 percent are looking to try multiple options in changing their operational model.

16 Responses to “IBM Study Shows Telco CEOs Struggling to Adapt”

  1. Mani Subramanian

    I definitely will not associate the work DUMB, with telcos. They are definitely infrastructure PIPES(Data and Voice) and the network innovation continues in COVERAGE,SPEED,RELIABILITY,COST etc. These innovations are not directly felt by the consumer(s). If you make a wireless call say from FLORIDA to SEATTLE, the infrastructure at work is tremendous. Innovations in infrastructure take time and patience (which the younger crowd may not appreciate). However these days, they are forced to compete in DEVICES/DEVICE USER DESIGN and APPLICATIONS that run on them and so they have to “sponsor” or “collaborate” with the those teams. It is human nature that the younger generation will take more risks and bring out new ideas (Devices and Applications arena). So Telcos have to get the newer employees into a fresher department (maybe spawn separate sister companies). You currently APPLE as a DEVICE sister company for AT&T. The other telcos need their powerful alliance for competing.They can innovate on the applications and how fast they can get them on their network (how good/fast is the network integration toolkit). As a bonus experienced employees from these “sister” companies can then be slowly integrated into infrastructure maintenance depts as time passes by (where the experience will appreciate the rigor that infrastructure maintenance needs).

  2. Telcos need to adopt web ways of thinking, acting, employing and adjusting. In real time, not 2 year lag combined with a cellophane marketing agency story. Real stuff. Real web2mobile stuff. The time is now. Combine it with tested business models and you have a winning horse.

  3. IBM’s global business strategy leader, who heads up the company’s corporate social responsibility consulting efforts, said rather than competition or regulatory changes, the biggest issue haunting the executives at major carriers is how to keep their businesses from becoming a dumb pipe. “That’s the thing that keeps them up at night on the innovation front


    A telco needs the following 4 elements: (1) spectrum (2) active and passive infrastructure (i.e., towers) (3) mobile phones (4) marketing/distribution. Of these, the only area where they can innovate is in the marketing/distribution area. They cannot create content (e.g., VAS) etc.

  5. Ya can’t blame the telcos for not doing much– First of all, like any mature industry, their workforces are older. And they truly don’t have to innovate much. They have those fabulous exclusive territories, and built infrastructures. The steady revenue has enabled them to become better and better at… regulatory capture.

    Contrary to the impression from IBM here, the telcos know what business they’re in: pipes. and they know, in the long run, they will live or die by network performance. Any exec. who doesn’t pay attention to business should be forced out of the company by middle managers before they kill the company (for the sake of a good quarterly bonus)

    • Jesse Kopelman

      In what company have middle managers ever forced out an exec? It is the other way around. You fall in line with the lead dog, even if he doesn’t know where he’s going, or you get cut from the pack. You don’t even rise to middle management in a large company without knowing whose teat to suckle.

      This seems to be a continuing misconception. The CEO doesn’t serve his employees and he doesn’t serve the shareholders, he serves the Board of Directors. As long as they are happy with him, it doesn’t matter how much runs the company into the ground. Now consider that the BoD hires the CEO and look stupid if they fire him too quickly . . . Really it is just like Pro Sports. The coach is the CEO, the players are business plans, and the owners are the BoD. Just like bad teams are constantly shuffling players or coaches trying to find the right mix, companies do the same with CEO and business plans. Often they let one or the other linger because they don’t want to admit that their major investment was a huge mistake. Just like really successful teams keep together a good core of players together with the same coach for long periods, successful companies have stable management and business plans. Lots of reactivity on either front is a good sign your company is in trouble/your team won’t make the postseason.

  6. Funtomas

    PXLated, I dare to differ. I don’t see telcos not smart enough. They are just late in the game, not having invested in cloud apps and everything related. Fist of all, they have to invest heavily in the infrastructure for cloud computing to succeed. Doing so they’ll just become a mere link in the cloud computing chain, that’s it. No chance to expand their business into app field. Too late. Cloud computing differs from retail as it’s centralized. So only a limited number of players will survive. There’s no space for mediators either. So the fate of telcos has been set. Period.

    • I used to work for an innovative information security services firm that was bought by a major telco. The problems huge telcos face became immediately and painfully obvious. It’s not that smart people don’t work in the telco labyrinth, they most certainly do – and there are quite a lot of them, to be honest. The problem (one of them anyway) is that the typical telco is encumbered by its massive bureaucracy and renders itself, by virtue of decades of process stacking (with very little auditing of said processes) barely able even to explain its procedures to its employees who struggle to understand their environment. Changes happen in half-represented stove-piped meetings and are very often poorly communicated, often ineffective. It’s not an isolated ailment. What you end up with is a culture of buck passing, problem routing, where it’s OK not to solve an internal issue as long as it looks like it’s actively being worked (aka, the endless email loop of lingering death). When it comes to employees of newly acquired ventures, the change can be a jaw-droppingly unwelcome one. Unfortunately, a lot of the talent in those acquired firms ends up walking out the door, usually sooner than later. When it comes to customers, they fail to understand why seemingly simple tasks can take ions to accomplish unless sufficient noise is made on their end. When it comes to innovation, well, if it’s that hard to get your core business done I’m sure you can imagine what the process would be for getting approval for a new idea. I’m sure one exists, though I doubt any one person could explain it.

  7. Hmmmm… Good Luck – They’re competing against a world of brains (Apple, Google, The World). They’re not dumb, just not smart enough to compete with the world. Dumb pipes they’ll eventually become.