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Published: February 24, 2009

 
 

5. Telecom: Exceeding Expectations

Telecommunications companies are bracing for a long period of slow growth. Indeed, before the financial crisis hit, many telecom operators were already taking steps to streamline their business models; those initiatives are now likely to be accelerated. They will outsource more pro­cesses, pull back infrastructure expenditures, and rethink the pace of rolling out new technologies.

But they should be wary of cutting strategic technological investments that affect their ability to remain competitive — for example, mobile broadband infrastructure, next-generation networks, and fiber rollouts (including fiber-to-the-home, with which Verizon has had success in the U.S.). The industry can learn from the experience of 2001: The companies that stuck with their network infrastructure investments amid a general telecom crisis emerged with unassailable positions.

In general, telecom-service revenue is unlikely to be permanently hurt. The resilience of communications revenue is a function, in part, of the relative youth of the industry, but also of telecom’s position as an essential ser­vice in mature economies. When times are tough, replacement cycles for handsets lengthen and purchases of high-end devices (like the iPhone) slow down. But people still turn to their existing devices to talk on the phone, watch television, and use the Internet.

Even in developing nations, where there may be a drop in subscriptions or revenue at first, most companies will continue to add subscribers, and some will emerge from the crisis stronger — as Turkey’s Turkcell Iletisim Hizmetleri AS and Argentina’s Telefónica de Argentina SA did after 2001. The increasing cost-consciousness of enterprise customers, including their desire to cut back on travel expenses, may finally create enough demand for communications services that support videoconferencing, telecommuting, and teleconferencing. As these customers look to get a better handle on their selling, general, and administrative (SG&A) costs, there may also be increased demand for new services like voice over IP, managed services, and process automation enabled by telecommunications. Although the turmoil puts pressure on costs and will force some vulnerable companies out of business, it will also create many opportunities in this sector for companies that have the requisite financial strength and foresight.

Author Profiles:

Karim Sabbagh, a Booz & Company partner based in Dubai, leads the firm’s work for global communication, media, and technology clients. He is a member of the firm’s Marketing Advisory Council and the chairman of the Ideation Center, the firm’s think tank in the Middle East.

Roman Friedrich, a Booz & Company partner based in Düsseldorf and Stockholm, specializes in strategic transformation in telecommunications. He is an expert in commercial strategies and performance improvement.

Pierre Péladeau, a Booz & Company partner based in Paris, specializes in communications and technology business development.

Also contributing to this essay was Booz & Company Senior Associate Gabriel Catrina.
 
 
 
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