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Threatened by startups, telcos try to think like entrepreneurs

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The Mobile World Congress keynotes on Monday got off to a pessimistic start with the executives of two of the most prominent mobile operators proclaiming that the industry has significant challenges in the form of over the top (OTT) providers commoditizing their revenue streams without those companies putting any significant investment of their own into the network.

Both Franco Bernabe, Chairman and CEO of Telecom Italia and Li Yue, President of China Mobile painted a gloomy picture and how operators need to focus on fundamentals if they were to survive the ever-growing pressure on their margins.

Each of the operators is going through their growing up phase in the OTT era. Some, like KPN and SMART, are seeing deterioration of their business fundamentals because of users choosing to text or talk via services such as Facebook and WhatsApp. Many do realize that they need to do something, perhaps offer competing services, but are having a hard to time organizing themselves to actually make it happen.

However, there are some positive case studies, both of which point to the tight correlation between innovation and the right organization. Orange and Telefonica have been actively experimenting – figuring out both the new services that will generate incremental value-added services revenue as well as the business models that look different from the past. For example, Orange spun off a skunkworks project dubbed ON, which was led by Giles Corbett who works and sounds like an entrepreneur inside the corporate structure. His team looks at ways they can introduce new innovative services like VoiceFeed, prove the business case in various Orange markets and then encourage the parent to adopt these new services to improve customer loyalty and value-added services revenues.

Similarly, at Telefonica, a team led by Carlos Domingo is constantly thinking out of the box. At the show they announced their Mozilla alliance that focuses on the HTML5 draft. Their efforts on Bluevia, which offers a range of APIs to developers that can be monetized, is an interesting model suggests those apps that help generate traffic like SMS, developer gets a share of the revenue generated,has also received good feedback from the developer ecosystem.

Though it is still early, the initial success clearly points to empowering a group of “intrapreneurs” within the operator organization to operate like startups. In the U.S., Glen Lurie’s Emerging Device group at AT&T (s t) has received similar autonomy that has enabled AT&T to become the leading operator in the machine to machine category.

Instead of being fearful, operators should embrace the opportunity to innovate. But they do require a different organizational structure that allows them to fail fast and learn so that every once in while they have a winner.

Chetan Sharma can be found at his website or @chetansharma on Twitter. He is also a member of the GigaOM Pro analyst community.

6 Responses to “Threatened by startups, telcos try to think like entrepreneurs”

  1. The Voice on Telecom

    It’s nice to see the highlight of Telefonica and Orange too – two operators who are really pushing forward even in very challenging market and financial conditions. The whole industry is moving towards a better user experience focus, which is not going to be a fast process, but these two are really on the ball.

  2. It actually takes more than organizational structure for telcos to be on the leading edge of innovative services — it takes a back office infrastructure (rating, billing, data management, etc.) that’s far more dynamic than the traditional systems designed for the simpler era of voice-only service. On another front, energy utilities are facing a similar challenge now, realizing the need for sophisticated back office systems to handle Smart Grid requirements such as real-time rating or usage alerts.

    Consumers tend not to think about this aspect of the business, but when a telco is rolling out a new service — particularly in a fast-paced market that may include start-up competition — it’s no mean feat to build out the level of interactivity customers expect. Among the challenges telcos face: managing huge volumes data on tailored service packages to make sure that the bill is right, that the preferences are noted, that the right packages or bundles are offered — all without disruption to the existing services already supported by the back office. In many ways, having successfully provided services and billing for years, the telcos are well-positioned to provide new services with the same level of reliability. But innovation-minded technology is just as important here as that entrepreneurial spirit.

  3. Thinks about a Telcos DNA. They are regulated unionized monopolies not exposed to the forces of competition. So then, is it realistic to expect them to change their spots and become agile innovators?

    Real examples of corporate entrepreneurship successes are rare. Yes, everybody is doing it to be pretend VCs but don’t have the right DNA (see above).

    As an investor I’ve made money off of Telco startup’s in Core Services, but I would not touch their OTT or D2C attempts with a ten foot pole.

  4. Telcos certainly are suffering due to lack of innovation in a market they seem to have become complacent in – even with the latest shift in smart phone technology. It’s simply accepted by typical users that you can’t perform simple tasks like manage my personal calls in a time based fashion or add telephony features to enhance my business’ revenue. Why?

    A compelling case is your average SME. The phone call is their most valuable lead, delivering greater conversion and higher value through upselling. Online models have taken a forefront in both user interaction and business analysis yet the phone call itself is being foolishly ignored. As proven by our technology here at IOVOX, providing invaluable features to standard telephony and analytics tools to track essential KPIs can increase revenue ten-fold and be of as much value to an SME as online technology. If the telcos themselves deliver the feature-rich potential of telephony and harness the power of call analytics in the SME market alone they can reinvigorate a market that has turned into a race-to-zero, bridge the technological divide between telephony and online and bring priceless features to SMEs.

  5. Funny…I remember many people encouraging operators to do M2M in 2001. Then a variety of us pushed (and personally invested) major bucks in operator centric services that might have avoided or delayed the OTT problem – only to be crushed by the operators’ own approach to dealing with “partners”.

    In all likelihood it’s too late now. The VC community widely regards investing in any company that must sell to operators as unsupportable. Many entrepreneurs regard the operators as incorrigible and inflexible.

    Good luck to them. I won’t hold my breath.