Dialing Up New Markets
Mobile broadband, IP technology, and the desire to become full-service providers are increasingly driving telecom carrier strategies. However, as telecoms confront these industry upheavals, carriers face risks building noncore telecom business units and overinvesting in immature technologies, according to new research by Gartner. Telecom carriers will have to strive to be profitable on much lower margins than today.
Historically, carriers have been able to depend on high revenue growth from broadband or mobile services, but now face the prospect of rapidly declining revenue growth. Gartner predicts that year-on-year growth of total revenue from telecom services (80 percent of total global telecom market size) will shrink to just 1.7 percent in 2010. Gartner expects total telecom service revenues to rise only modestly over the next four years, from $1.3 trillion in 2006 to $1.5 trillion in 2010.
As a result, over the next few years more carriers will invest in new markets, such as media or IT, to compensate for revenue losses in traditional telecom services like public switched telephone network voice. However, more than half of these new approaches will fail because many carriers have a limited knowledge of their existing subscriber base and often don't understand the new business models, says Martin Gutberlet, research vice president at Gartner. "The synergies between the different business models and markets are very limited," Gutberlet says. "This type of diversification carries a high risk of losing focus on today's core business priorities, such as customer retention and cost cutting, with no guarantee of increased revenue growth in the long term." Gutberlet says that due to the high risk of failure, carriers should carefully define risk mitigation and potential exit strategies before entering into new markets. "It will take more than just hiring a few media or IT executives for carriers to succeed in these new markets."
Gutberlet says there are a number of companies that have experienced challenges venturing into noncore areas. ESPN, the sports cable channel owned by Disney, abandoned its mobile service after less than a year due to disappointing subscriber uptake. E-Plus in Germany had to face up to failure three years after launching the content portal iMode. "These are certainly tough times for carriers, but the answer isn't necessarily to invest huge sums of money in new business models," Gutberlet says. "Carriers should consider how they might improve on the services that they already provide in order to exploit their existing client base better."
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