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NewsGlobe: Commentary
The shifting value chain: adapt or face the consequences
Service providers strive for agility
by Martin Creaner, President, TM Forum
It’s no secret that the traditional telecommunications value chain has
been turned on its head and may never again look the way it did just a
couple of years ago. The traditional players in the old value chain—
namely the incumbent operators and service providers—are finding that
they have to completely readjust themselves to the fact that their
position on the value chain might change six times before breakfast on
any given day.
The static value chain is dead, and we now have a dynamic value chain
where for every single service, a provider may well adopt a different
value chain position depending on the customers’ preferences as to
whether they want to use the service provider as their main supplier, or
whether the provider happens to be just one of the links in the chain
leading ultimately to the end user.
Transparency for the End User
A good example of this is in the world of mobile content where end users
might decide to buy their downloadable content from their service
provider, or they can choose to buy it from one of the many portals out
there. In one case, the service provider owns the relationship with the
customer, delivering something directly to the end user. In the other
case, the provider is simply providing a transport and very often a billing
mechanism as part of the overall service delivery chain, with the
customer relationship being owned by some third party.
Today, service providers are talking about extending this model into a
much more complex example. They are planning ways to purposely
expose their core capabilities to anyone who wants to use them—
including billing, location and authentication capabilities. In these
instances, you may have a major operator like AT&T, BT or France
Telecom providing many of the important parts of a service that an end
user might buy, but the customer may never be aware of the fact that
these functions are being provided by the operator. Instead, they may
believe they have a relationship with an independent third party such as
a music download service.
And that’s the vision of where the market should be headed. Complex
service delivery needs to appear seamless to the end user, but more
importantly, unless service providers are willing to reassess their position
in the value chain, they may end up getting cut out of the value chain
completely. The emergence of over-the-top services, where the content
owners work directly with end users or with the device supplier to the
end users, is becoming more and more prevalent. When this happens,
the provider ends up just delivering the broadband for the services to
run over.
Naturally, service providers are frightened of this scenario, and they are
doing everything they can to remain relevant, which might involve taking
a co-starring role in new service delivery and no longer expecting to own
the customer for each and every interaction.
The times they are a-changin’
Underlying all of this jockeying for position in the value chain is the
broader issue of change as a necessity. When you look at the
emergence of any new industry, you’ll find that they generally emerge
from a combination of two or more previous industries or areas of
knowledge.
We saw the emergence of the computer age, which created companies
like IBM, and then the software age, which was a mingling of the
previous computer age with services that led to the creation of giants
like Microsoft and Oracle. And now we’re in the information age, which is
a mix of computers, software and also information management and has
spawned such successes as Google.
And we see new industries coming up all the time that are being formed
from the combination of previous industries. I’ve mentioned four
companies that are very powerful and successful, and one in particular—
IBM—has survived the transition from the computer age of the 1960s
right through to the present information age. But there are also so many,
many companies that have failed to survive the transition and have
fallen to the side over these past decades.
What we tend to see at the birth of a new industry is the appearance of
one or two companies that never existed before and which rapidly
become incredibly powerful and successful. A further handful of the old
world players succeed in making the transition from one age to another,
and the rest tend to disappear entirely.
The core difference between companies that are able to make the
transition versus ones who can’t is understanding and accepting the fact
that the rules of the old industry no longer apply to the new industry.
It’s a critical point that companies simply have to accept. You can’t just
sit there crying in your beer because things are changing. The people
who spot the new rules first and adapt to them are the ones who are
going to survive.
New rules for a new age
I think one of the biggest rules that will change is how services are paid
for. For 100 years, we’ve had this paradigm of the consumers of
communications services paying for the services. It’s hard-wired into the
minds of both consumers and service providers that this is how the
business model works.
But in today’s information age, it doesn’t quite happen that way all the
time. Look at Google for instance. The consumer doesn’t pay to use
Google’s search engine or get directions using Google Maps. It’s the
advertiser that pays. So we have a third party coming in from the side
that provides cash to complete the service delivery to the end user.
One of the rules that I’m pretty sure is going to change in this new
converged world is that advertising is going to start becoming more
important to communications services. It won’t suddenly be every single
phone call gets paid for by an advertiser; that’s simply not realistic. But
there is going to be some portion of that, and it’s probably going to be
initially lower-income users who will be targeted for this. They may be
happy to put up with a 15 second ad in exchange for a free call. And
imagine how popular this model will be among teenagers!
Information is king
The value chain will change based on what these new rules might be,
but the ace up the sleeves of the operators is all the information they
have about the end user—something companies like Google would love to
get their hands on.
So besides changing rules about who pays for services and who owns
the relationship with the end users, the third core area of change will
involve information. For the past 100 years in telecom, whoever owns
the access network has dominated the marketplace. And now that
networks have become commoditized, information has trumped access as
the critical piece of the puzzle.
Today, carriers can no longer point to their network infrastructure as the
key way to distinguish themselves from the competition. The
differentiation now is all about the back office and how providers handle
their back office processes.
At TM Forum, we’ve been working very hard on creating the
management standards and guidelines for everything from efficient
operations in today’s telecom environment, to how to survive the
transition to tomorrow’s environment. So the mantra has to be
maintaining efficiency today while creating flexibility for tomorrow. If not,
they’ll end up on the trash heap like so many companies over the past
40 years that could not adapt, survive and make the leap to the next
stage of communications evolution.
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