Business Strategies for Telecomm Networks Pittsburgh PA

Chapter 1: Business Strategies
Telecoms operators are now employing new strategies to deliver thrilling new services using next generation networks. The full package of services includes line rental and fixed line telephony with a combination of Internet access, IP television, video on demand (VoD), entertainment applications and, eventually, cellular phones. Using the terms adopted by the industry, we are talking about Triple Play and network convergence. In other words this means: multiple services, multiple devices, but one network, one vendor and one bill (see Figure 1-1). This manoeuvre is much more than just a new commercial product. It is a consequence of the important changes the industry is undergoing, such as technological innovations, social changes and new regulations. These changes have persuaded operators to redefine their businesses based around a new unified network that should be able to support any type of telecoms service. Beyond each particular strategy we can identify some of the common drivers, such as a declining voice business (see Figure 1-2), the flat profit perspectives on data access, the new regulations encouraging competition, and the technological achievements that have made network convergence possible. 1.1 Expanding Telco Businesses
Voice is still a profitable business with margins of over 50%; however, in the case of traditional fixed telephony, this is rapidly declining (see Figure 1-3). In many cases the fixed phone service is included in the same flat bill with the Internet access and line rental. On the other hand, the growth rate of the cellular telephony business is now less than it was a few years ago and is nearly at saturation point in developed countries. Unfortunately for fixed line operators, alternative services such as broadband access have become a commodity difficult to differentiate, making it impossible to compensate for declining voice revenues. After several failed attempts the telecoms industry has apparently found a remedy for its continuous headache of offering multiple services as a commercial package that includes fixed line rental and wireless services all in one monthly bill (see Figure 1-4). These multiple services are often referred to as Triple Play. It is too early to know if this is going to be the solution for the telecom crisis that started in 2000 with the 3G licences and the dot.com bubble, or is it just ‘another case of mass hysteria in the telecoms industry’? (The Economist, 12 October, 2006). Bundling video with existing data and voice services goes further than a pure marketing campaign; it is essential to keeping telcos in the residential business. It is, in fact, a very ambitious strategy with well-defined targets:

Reduce churn – gain customer loyalty with one package that includes all services supplied by one vendor.

Minimize costs – integrate infrastructures and human teams using network convergence.

Gain TV customers – telecom operators should use the same weapons as the cable companies to supply television services.

Increase profits – by using legacy and innovative applications to raise the average revenue per user (ARPU) (see Figure 1-5).

Grow the brand name – cultivate the perception of the company as being able to supply any type of telecommunication service.

Improve service provision – use advanced management solutions for quick and easy provisioning.

Network convergence – incorporate new technologies and recycle existing network infrastructures. Triple Play is focused on a combined service rather than on the development of new applications, protocols or architectures (see Figure 1-8).We have already explained this is as a marketing concept concerning Internet access, television and phone services. All of themare provided by one vendor, delivered over a single access network and paid with one bill. To offer Triple Play requires a technologically enabled network that can transport all the three basic communication flows (audio, video, data) through the same pipe. In essence Triple Play is not really a new service, but a concept related to a new business strategy on two planes: 1. Commercial bundle, the concept referred to as a package of services. 2. Technological convergence, the concept referred to as an IP centric network, enriched with the facilities to support and deliver all the services. Triple Play is appealing to customers because it simplifies the subscription and support of several telecoms applications. The problem for providers is that price, quality and contents are very important, especially as most services are not new at all, except in the format and the interfaces that are used to supply them. Efforts to reduce customer bills would also reduce total market revenues, therefore development of new applications is essential for the business (see Figure 1-6).

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