Telcos face challenges

08 March 2012

MUNICH: Telecoms companies in Europe must adapt their strategies to avoid being overtaken by technology firms like Facebook, Google and Microsoft, a study has argued.

In a new report, Roland Berger Strategy Consultants argued that "traditional" telcos, serving 5bn customers worldwide, need to ready themselves for battle with "internet-focused" rivals.

The company also named a "fabulous five" of Amazon, Apple, Facebook, Google and Microsoft, together boasting some 3bn customers, as constituting the main threat to the firms' future growth.

More specifically, Roland Berger suggested this group of firms have daily "branded contact" with consumers and boast close bonds with netizens who enjoy their easy-to-use and personalised "ecosystems", for which the willingness to pay is rising.

By contrast, pureplay broadband access, while vital to communications, is commoditised and hard to monetise. Moreover, no European firm is on the list of the most valuable internet brands, Roland Berger said.

If telcos rely on existing models and strategies, their revenues will decline by 20% and earnings before interest, taxes, depreciation and amortization by 40% by 2020, it added, by which time they will also have to invest €600bn on infrastructure.

As an example of the challenge, Google+, the social network, offers free video-telephony. For its part, Microsoft has bought Skype, which offers internet phone calls without charge.

"Future data tariffs will only compensate for part of these losses," the study said. "Worse still, young, tech-savvy customers are getting used to interacting from within the service ecosystems set up by over-the-top players ... So why should they leave their familiar "home" environment just to communicate?"

Apple also owns a network of retail outlets and is increasingly able to dictate terms to carriers, while Google has purchased Motorola Mobility and Microsoft is working with Nokia to boost its position.

In response, telcos must leverage the fact they own 45% of Europe's distribution channels, subsidise regional handset purchases by €20bn a year and dominate the retail arena, the study said.

"To reach the mass consumer market, over-the-counter prices have to be below €100," it added. "And up to now, Amazon alone has dared to venture into this territory, with the Kindle."

More broadly, Roland Berger's analysis indicated that telcos will thrive by pursuing greater personalisation and forging tighter bonds with customers.

Data sourced from Roland Berger Strategy Consultants; additional content by Warc staff