Telcos need to move at 'speed of Internet' to stay relevant

SINGAPORE-- Telcos will need to change faster to evolve their business models to prevent customers from substituting their traditional communication packages with those offered by social networking sites, which are functioning as a one-stop shop for users to keep in touch with others, an analyst noted.

In a Tuesday briefing conducted via teleconference, Jayesh Easwaramony, vice president at Frost & Sullivan's ICT Practice, said telecom operators need to be mindful of social networking sites as viable communication platform alternatives. He then urged telcos to "work at the speed of [the] Internet" to better compete with social network operators and arrest their decline in ARPU (average revenue per user).

Using Facebook as an example, he said its features such as address book, instant chat--whether 1-to-1 or 1-to-many messaging--entertainment and social currency have made it a unified platform for users to interact on.

The analyst noted that many of these services, such as mobile games and payment services, are already provided by telcos. However, the operators are losing out to social networking sites because they tend to release such services separately whereas social networking players create a single platform for users to consume their services, he explained.

Easwaramony also pointed out that user behavior is changing with the proliferation of social networking sites. People have moved away from being dictated in how they communicate base on services made available by telcos to deciding the mode of interaction based on the urgency of the message, the number of people they need to communicate to and the security needed to convey the message, he said.

So now, when people want to let others know where they are, they will update their status on the social networking site instead of informing them through SMS, thus decreasing the operator's SMS (short message service) volume, the analyst noted.

Telcos' voice calling revenue could also suffer if social networks integrate mobile voice-over-Internet-Protocol (VoIP) into their systems, he added. While mobile VoIP has yet to take off, Easwaramony said a "substitution effect" could take place should the technology gain traction.

This effect, he explained, refers to the loss of revenue due to the drop in voice and SMS usage as people turn to IP-based voice and messaging services. Furthermore, telcos would need to invest heavily in wireless infrastructure to retain customers as their data usage spike, which represents additional outlay.

Thus, by 2015, he predicted that while data usage will generate 5 percent to 6 percent in overall revenue, operators will witness a 5.4 percent to 8.5 percent loss due to the "substitution effect" and negate the benefits from wireless services.

Relook business models
Easwaramony pointed out that operators would not be able to compete directly with social networking sites. Partnerships are unlikely to happen, too, as these Internet service providers such as Facebook or Google see telcos possibly as more of an infrastructure provider rather than a partner, he said.

As such, he suggested telcos offer more bucket voice plans so subscribers will be more willing to make their calls through the regular mobile network as well as greater flexibility in bundling SMS, voice and data services together to drive up ARPU.

The analyst also said telcos have been pricing their mobile data plans too low due to competition, and will need to raise prices by about 30 percent to achieve EBITDA (earnings before interest, taxes, depreciation, and amortization)-neutral status.

In addition to these measures, telcos should also look at tapping the growing mobile apps market to better benefit from the rising mobile Internet usage, Easwaramony stated.

One option operators can consider is move to a new services model, which he noted represented a "paradigm shift".

The new model should have elements of service discovery that Web services such as Spotify provide. It would also involve partnering over-the-top players and content providers to provide compelling services that users would enjoy using and allow them to promote the platform through social media, he added.

"In the past, every operator views services as a value-added service but you need to create a platform that has a variety of 'appified' services," he added.

Other elements to factor in are creating a unified experience so that the services will have the same look and feel even when on different platform such as mobile devices or TV, Easwaramony noted.