Author: Marcel Noordman, Mobile Broadband Engagement Manager, Ericsson Latin America and Caribbean

Talking about the shift from voice-centric to data-centricmodels in telecommunications

Straight from the CMO:Marketing perspectives on an industry in transition

contentsIntroduction Value on the moveA tale of top and bottom lineDo you speak data?Innovictimized

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Jobs claimed that day to “reinvent the phone,” and nothing has been the same in the telecommunications industry since. The iPhone was arguably the true start of a long move from a voice-centric world toward one that is data-centric. Some countries are further ahead in this transition than others, but the signs of change are everywhere, from San Francisco to Sao Paulo; from Johannesburg to Jakarta.

The iPhone was followed by a wave of other smartphones that shifted the power in the phone industry from previously dominant players (such as Nokia and Motorola) to new players. Today, Apple and Samsung combined take the majority of all profits in the mobile phone industry. Global smartphone penetration is currently around 20%, but in some markets as many as eight in 10 phones sold are smartphones.

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Introduction

The telecommunication market is shifting from a voice-centric to a data-centric model. This has an impact on all aspects of the business.

As the telecommunication industry moves from a voice-centric to a data-centric model, operators are adapting all aspects of their business to address the new opportunities. In our interviews with 18 marketing and strategy executives, we found their main challenges centered on sustaining profitable growth, redefining value, delivering customer experience, innovating, competing successfully, and aligning their internal organizations and cultures. Operators who can make this voice-centric to data-centric transition successfully show a superior financial performance compared to their peers in the market.

On January 9, 2007, a thin man in a black turtleneck stood alone on a podium in San Francisco. He announced three new devices: “a widescreen iPod with touch controls,” “a revolutionary mobile phone” and “a breakthrough internet communication device.” The man was, of course, Steve Jobs, and the three devices he was talking about were actually just one: the iPhone.

As consumers find out how these devices—and the apps that run on them—make life simpler and more enjoyable, value perception starts to rise. One in five people today would rather give up their voice subscription than data. In some large markets, this number is as high as one in three.

Operators respond to this by adjusting their offerings. Whereas the traditional, voice-centric model starts by asking how many minutes of voice and how many SMS the customer wants, and then telling him how much data he can use, some operators start with the question of how much data a person is using and what devices he would like to use with his subscription. In many cases, these plans come with unlimited voice and messaging.

Money follows value perception, and this is reflected in the revenues of mobile operators. In all but a few countries in the world, revenues from data services have been the main or even only driver for topline growth. Without mobile data services, revenues for mobile operators would have declined over the past two years.

The nature of competition has changed as well, with different assets becoming strategic (spectrum, for example) and new players entering the market. Device manufacturers and “over-the-top” internet players have become more influential.

As consumer usage patterns move from voice to data, telecom companies are shifting their investments accordingly. In the second quarter of 2013, shipment of equipment for the three most popular technologies (GSM, 3G and LTE) was more or less equal (about one-third each). In 2014, this mix is expected to shift further toward data-enabling technologies (3G and LTE), accounting for 80% of shipments.

As operators are driving these changes as well as adapting to new market realities, the strategy and marketing functions in those companies are leading the way. To serve their customers, network technology vendors need to understand the challenges this transition from voice to data brings and the strategies that operators deploy to address them. For this reason, Ericsson interviewed 18 strategy and marketing executives from operators across the globe to get their perspectives.This resulted in a collection of 92 documented challenges and strategies (Fig. 1).

Value on the move

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Challenges mentioned by interviewees

The first observation from these interviews is that operators acknowledge the transition from a voice-centric to a data-centric mobile communication business model as well as the challenges this shift brings. In the words of one executive: “Voice will die. Who is going to step forward first and sell it fastest? Who will be first to build the base and receive the benefits before anyone else?”

It is clear to these executives that the changes needed are profound and touch on all aspects of their business. As one CMO put it, “The market changes so frequently, and because of that, we have to adapt. And in order to adapt, we have to change the way we do things. In part, that means how we organize ourselves.”

The challenge that was mentioned most often is related to financial performance: how to sustain profitable growth as we move from a voice- to a data-centric world? The short-term opportunity to sell more data services to a broader audience of smartphone owners is obvious. As one CMO mentioned, “I disagree with anyone who says that it’s difficult to make money from data. I have seen proof that consumers will pay a premium with only one service provider that will deliver the best quality of service.”

There is, however, a lot of uncertainty about the impact of traffic growth on the network, new competition and the consumers’ value perception. As a vice-president of consumer business from a mature mobile market explained, “From a connections perspective, we see the economics of net additions is much different from what we previously saw when we were still capturing a lot of new growth.”

A tale of top and bottom line

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“I have seen proof that consumers will pay a premium with only one service provider that will deliver the best quality of service”.

CMO, Latin America

I clearly see many operators being great machines for mobile data monetization for OTT players”.CMO, Latin America

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Another group of new competitors identified by the executives interviewed are companies that provide internet-based content and services without the involvement of the operator. Operators seem to be split on the best response to these “over-the-top” (OTT) players: fight, flight or cooperate. One CMO, with his eyes firmly on the money, was quite confident: “OTTs are now actively engaged in discussions with the operators about what they can do to leverage the mobile data opportunity. I clearly see many operators being great machines for mobile data monetization for OTT players. We already bill people every month, so it is something that people accept from us. This could become important for OTT players who want to monetize their services.”

To grow profitably with mobile data services, the interviewees in the project believe they need to rethink their product and value propositions, and communicate this to the market in a clear way. Talking about Gigabytes and Megabits per second might not do the job, as one CMO from Latin America explained: “Mobile data does not mean anything to our customers. Megabytes and Gigabytes; this is like a foreign language to them. There is a disconnect between what we want, what we offer and what our customers get in the end.”

The question is, how do operators make the mobile data proposition warm and friendly, and relevant to the daily lives of ordinary people?

A cornerstone in any competitive mobile data strategy is the need to create a great customer experience. Network performance is important in creating this experience. As one executive explained: “None of the operators in this market have stood up and claimed that they have the best data network. I do think that whoever delivers consistent data performance and is bold enough to stand up and lead this market will probably capture this market.”

Good network performance is not enough. How would the world be if shopping at your local operator were the same as any best-in-class retail experience? People taking an interest in your specific needs, explaining how to use the phone and the service, and tailoring their offer to what you really need—no more, no less. Unfortunately, we are not living in such world, but some CMOs do see the opportunity.

The shift from a voice-centric to a data-centric world has also created new competition and players in the market. Smartphone companies have become more powerful, as they can promote or block new technologies, put quality requirements on networks for their devices, and even steer traffic away from the mobile networks (to Wi-Fi, for example).

Apple, especially, is seen as a potential adversary. As one executive explained: “If Apple decides they are going to steer traffic based on where they want customer to be, then that could hamper the operators in being able to fully monetize the data opportunity. If the operator has a plan to offer mobile money services based on NFC, and Apple decides not to put that technology in their next model (as they have done), that is a barrier to full monetization.”

Do you speak data?

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Whoever delivers consistent data performance and is bold enough to stand up and lead this market will probably capture this market”.

CMO, Latin America

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Innovictimized

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Growing smartphone numbers, offering good data subscriptions and improving the experience of customers are good strategies to support growth in the coming years. However, to secure long-term financial performance, CMOs see the necessity of innovating beyond good internet connectivity. This might pose a problem; as most CMOs acknowledge, operators have not been very good at this. As one executive put it: “When is this industry going to take the lead when it comes to innovation? I think we are far away from that; we are victims of innovation.”

To address the growth challenges in the short and longer terms, operators see the need to transform not only their offerings and networks, but also their organizations, cultures, competencies, and processes. This internal change might prove to be one of the toughest to manage. In the words of one head of marketing, “We have to change the way we do things. This partly means changing the way the company organizes itself. We need to be nimble to adapt.”

From Ericsson’s own research, it is clear that some operators are better then others in monetizing mobile data opportunities. These “frontrunners,” as we call them, show double-digit revenue growth with best-in-class profitability, whereas their market peers show zero growth or even decline. Listening to what these leading operators are thinking and doing might point others in the right direction.

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