The Differentiation Dilemma
In the digital economy, the big online service providers - Apple, Amazon, Google, Netflix and Facebook - are soaking up consumers’ time and attention. Despite providing the connectivity that delivers digital services, telecoms operators have been relegated to a background role.
In many developed markets, YouTube, Google, Facebook and Netflix are all in the top ten of the YouGov BrandIndex's list of brands that generated the most positive buzz in 2017. YouTube, for example, is in the top ten in 18 markets, including France, Spain and the US, whereas telecoms operators are noticeable by their absence.
And it is not just relevance that is at stake: The popularity of Facebook, WhatsApp, Skype, Instagram, Snap and other online communications services mean that operators’ revenues from voice calls and text messages are in decline.
As most telecoms operators offer comparable services, differentiation is a challenge. In the minds of consumers, connectivity has become a commodity. Only a small fraction of operators do research and development. New mobile and fixed technologies are generally immediately available to competitors, so opportunities to monetise pass quickly. Moreover, few telecoms operators have managed to create a distinctive customer experience.
Operators can simply focus on providing reliable connectivity and accept being overshadowed by online service providers, or respond in kind and expand into adjacent markets, such as entertainment, financial services and the Internet of Things.
Entertainment Takes Centre Stage
As online services, particularly entertainment, overtake connectivity
in importance, telecoms operators need to move up the value chain.
Operators can use consumers’ enthusiasm for entertainment to raise their profile. By providing content alongside connectivity, they could better monetise the growing network traffic.
Entertainment, in particular, could be a central part of a consumer telecoms proposition: Video, music, TV and games are increasingly streamed into the home, on-demand, over broadband and in high definition.
In future, new entertainment formats, such as virtual reality and holograms, will consume even more network capacity, creating further challenges for telecoms operators.
If they can combine the right connectivity with the right content in one convenient package, operators will give consumers a compelling end-to-end experience.
The global Internet video market overtook the physical video home market in 2017, and will grow by an average of 11.6% per year between now and 2021.
Five Strategic Options
To establish themselves in the entertainment sector, telecoms operators have to first decide on the right strategy: Some operators are developing their own content, others are buying content producers and licensing sports rights, while others are aggregating third party content. Telecoms operators have to decide whether they have the capabilities and assets to compete head-on with the major Internet players or whether they should form partnerships with these global giants. Some operator groups are now major entertainment players: In the US, AT&T’s Entertainment Group generated revenues of almost $51 billion in 2017.
There are essentially five strategic options:
1. Build your own entertainment offering: The operator creates its own programming, buying sports rights and/or establishing its own studios. In this case, the operator might establish its own production unit staffed by people with expertise in television and/or films. In Europe, Telefónica and BT Group have both chosen this option. Madrid-based Telefónica is investing €70 million a year in original content for its drama channel Movistar Series.
2. Partner with the best brands in entertainment:The telecoms operator partners with Netflix, Spotify, Amazon Video and others to provide customers with a differentiated offering. In most cases, the operator will bundle the online entertainment service with an appropriate connectivity package. For example, Vodafone UK’s offers entertainment packs, which bundle in branded content with mobile connectivity.
3. Buy entertainment specialists: The telecoms operator buys companies in the entertainment value chain that own desirable content, have important expertise and/or specialise in new fields. The operator has to figure out how to keep the talent it has acquired, while creating synergies between its core business and the content business. In the US, AT&T has bought DirecTV and is now trying to acquire Time Warner, while Verizon has acquired AOL and most of the consumer assets of Yahoo!
4. Become an aggregator: The telecoms operator builds an entertainment portal that aggregates content from a wide range of providers. The operator adds value by providing customers with an intuitive interface and personalised recommendations. MTN, for example, says it is the largest distributor of digital music in Africa, while Deutsche Telekom’s EntertainTV claims to be “Germany's most complete offering of HD broadcasters.”
5. Provide cost-effective and reliable connectivity: The operator focuses on ensuring its connectivity is cheap enough, fast enough, reliable enough and responsive enough to enable its customers to enjoy their preferred entertainment services. Three UK is following this strategy, offering customers “all-you-can-eat data plans.”
The right choice will depend on the telecom operator’s market share, brand positioning and existing assets. Each option has major implications for the operator’s IT, marketing, finance and human resources functions.
The Biggest Challenges: Brand Weakness and Inadequate Skillsets
In many emerging markets, telecoms operators are still among the strongest consumer brands, making them trusted service providers and attractive employers. But in developed markets, many telecoms’ brands have been tarnished by bill shock and weak customer service, leaving them trailing far behind those of the major Internet players, making it tough to recruit top talent and expand into new markets. Globally, telecoms operators’ average net promoter score is below zero, compared with almost 70 for Amazon and more than 40 for Apple, according to research firm IDC .
Although some operators are now focused on improving their reputations, their net promoter scores continue to lag behind those of many other companies providing services to consumers. Most telecoms operators have yet to produce a transparent, straightforward customer proposition, underpinned by intuitive self-help tools and excellent customer service.
Most telecoms operators have little expertise in entertainment or digital services.
They are generally staffed by engineers, rather than content buyers and producers. Moreover, the hierarchical and rigid culture of telecoms companies can be off-putting to creative people used to working in collaborative and fluid teams. Many operators also lack the data analytical skills required to create a compelling video-on-demand solution. They need the number-crunching expertise to identify viewing patterns and provide customers with compelling and personalised recommendations.
Amazon, Netflix, YouTube and other online service providers have demonstrated how data analytics can be used to make targeted suggestions that keep consumers engaged and satisfied.
How To Execute
There are several key steps that most telecoms operators will need to take to carve out a robust position
in the entertainment or broader digital services market. These are:
Build a strong brand in the consumer and job markets
Operators need to prioritise customer experience and long-term loyalty over short-term profitability - they should measure net promoter scores and other brand metrics to incentivise staff.
Aim for IT excellence
Operators need to have an IT infrastructure that can capture and analyse data in near real-time, and provide both consumers and content partners with a smooth and seamless experience. That IT infrastructure needs to take advantage of the flexibility and scalability of cloud services.
Harness extensive data analytics
Both to identify what content to buy or build and to help customers quickly find the right content for them: Operators need the data analytics solutions and expertise to provide consumers with personalised recommendations and tailored packages in a timely manner.
Organise for agility
Operators need the internal agility to react to market or behavioural shifts, and rapidly adjust their entertainment proposition to changes in demand. Taking 12 months to develop a new service package is no longer feasible.
Develop productive partnerships
Operators need to collaborate with third-party vendors both large and small to create combined offerings in entertainment, financial services, the Internet of Things and other domains.
Integrate acquisitions with as little pain as possible
For those operators that buy entertainment businesses, the next challenge is to integrate the acquisition into the mothership, while retaining the talent and maximising the synergies. Poorly conceived and badly implemented integration processes are behind the failure of many cross-sector acquisitions.
A push into the fast-growing digital entertainment market can help telecoms operators break out of the commodity trap.
Although there are several different ways for operators to source and deliver the content consumers want, in almost every case, success will require:
COMPELLING DIGITAL SERVICES
Powerful Data Analytics
Agile IT Architecture
Discover more on how digital is affecting the communications industry
To find out more about the steps you need to take to implement an effective entertainment strategy or rollout other digital services,
please read our eBook “How to Deliver Upon Digital”.
Get in touch with us today to see how we can help you.Contact us