Dave Labuda Issue: Europe 2005
Article no.: 16
Topic: Creating value in a hypercompetitive telecommunications market
Author: Dave Labuda
Title: President and CEO
Organisation: Portal Software
PDF size: 196KB

About author

Dave Labuda is the CEO, President and co-founder of Portal Software, Inc. Mr Labuda previously served as Portal’s CTO and acted as its Vice President of Engineering. During that time, Mr Labuda was responsible for defining the architectural vision of the company and managing the design and integration of new technologies into Portal’s platform-based solution. Previously, Mr Labuda worked for Sun Microsystems in the UNIX Operating System group. Mr Labuda was one of the first recipients of the Sun Presidential Award. Mr Labuda holds Bachelor of Science and Master of Science degrees in Computer Engineering from Case Western Reserve University. Mr Labuda also holds seven patents on software technologies ranging from optimised caching algorithms to object query technology.


Article abstract

Today’s telecommunications market is hypercompetitive. Companies develop new advantages rapidly to try to destroy competitors’ advantages. A hyper-competitive market leads to perfect competition, where no competitor has an advantage–market challengers want to disrupt the leader and market leaders must challenge themselves before the competitor does. Revenue management systems generate, capture and collect customer revenues whilst analysing and optimising these activities to maximise performance and provide enough insight into the customer’s needs to rapidly launch services in response to competitive pressures.


Full Article

Telecommunications customers today enjoy an ever-increasing array of choices. There are a variety of service providers to choose from, multiple payment options and an endless supply of content. For the service provider, simply managing the complex relationships with the customer is challenging enough. To achieve growth and maintain profitability, though, service providers must ask: “How can I create and sustain value in this highly competitive and dynamic market?” Today’s telecommunications market has reached the stage of hypercompetition, explained by Richard A. D’aveni in his book Hypercompetition: Managing the Dynamics of Strategic Maneuvering. Hypercompetition is described as a situation where “companies begin to develop new advantages rapidly and attempt to destroy competitors’ advantages”. Hypercompetition creates a cycle of events where companies’ launch a series of offers to customers with the specific goal of undermining the competition. The competition, then, responds in kind, creating an endless cycle of cutthroat competition that drives profits out of the market. This benefits the consumer as prices go down and quality goes up, but service providers suffer and brands that used to be industry stalwarts can wither or die. While it is possible to make short-term profits in a hypercompetitive market, the model leads to perfect competition–equilibrium–where no competitor has an advantage. How can a service provider deliver value and rise above the competitive herd to achieve sustainable profits in a hypercompetitive market? According to Richard A. D’aveni, the key is not to focus on achieving a single long-term sustainable advantage, but rather to develop a series of short-term temporary advantages. The goal is not to create stability in the market but to disrupt the status quo. This may feel a bit counter-intuitive at first. If you are a market challenger, you want to disrupt the market leader and challenge their position. If you are the market leader, you want to challenge your own position because, if you do not, your competitor will. This may mean scrapping your own price plans, but this is preferable to having your competitor dominate the market by cutting its prices before you do. You must identify customer value and sustain it just long enough to move on to the next offer, thereby staying ahead of your competition. Intel, for example, is constantly introducing new microprocessors, each one slightly faster or with some new feature, to put it ahead of the previous generation of microprocessor. This makes it difficult for Intel’s challengers since Intel obsoletes its own products before the competition can. The times have changed Because we operate in a hypercompetitive market, the business models and systems that worked yesterday will not work today. In the past, it took decades for technologies to change. Think about how long it took just to move from dial phones to touch-tone phones and compare this to the time it took to move to cell phones. Legacy, fixed-phone, systems had little need to handle sophisticated functions or change. The pace of change continues to accelerate at a frenetic rate. Today, customers’ choices involve multiple accounts for the office and the home. They may have relationships with multiple service providers for multiple services or multiple relationships with the same provider. To complicate the mix, today’s systems must consider cellular, Internet, cable, satellite, broadband, Wi-Fi and new applications such as push-to-talk, video streaming, e-commerce and VoIP. Add new business models like Mobile Virtual Network Operators (MVNOs) and an endless variety of content. Finally, getting paid is not as simple as it used to be with post-paid fading in the face of prepaid and ‘nowpaid’. This potpourri of choices has led to a proliferation of multiple, fragmented, billing systems that exist in separate ‘silos,’ coupled with highly customised special purpose applications. This legacy approach limits a service provider’s ability to understand its customers. With so many independent and unconnected customer touch points, it is impossible to get an accurate view of your customer. As a result, you cannot quickly respond to new opportunities and roll out new services. In a hypercompetitive market, this poses a serious problem. Simply minding the store will not work. So, what is the answer? The first step is deceptively simple. It is ‘to know your customer’. Service providers today must understand everything they can about their customers, including all the potential revenue generators. Differentiation, creating true brand value, is the second step; it lifts a service provider out of the morass of cutthroat price competition and costly churn. Service providers need business systems that make it possible to understand their customers and what they want and then use this information to differentiate the services they market. With this knowledge, they can enter new markets quickly and effectively respond to competitive threats and market opportunities. As business advantages fade quickly, speed and surprise are essential to take advantage of business opportunities and respond to competition. This, in turn, requires aggressive revenue management, the ability to see and evaluate the entire customer revenue relationship and the capacity to utilise these to create competitive differentiation in the market. Revenue management, building competitive advantages Revenue management is emerging as the service provider’s key asset, the competitive differentiator, because it unifies revenue information to provide a complete view of the customer. Revenue management gives service providers the information they need to develop effective customer programs and to stay ahead of the competition. It gives businesses the agility to rapidly launch products and services in response to competitive pressures. A revenue management approach helps service providers ‘future proof’ their business with a foundation for continuously supporting new products, services and technologies. A true revenue management solution is not just another island in the enterprise; it integrates and unifies revenue processes across the business. Revenue management is a cycle of unified processes that generate, capture and collect revenue for each customer. The cycle includes an ongoing process of analysing, evaluating and optimising each phase to maximise performance and deliver comprehensive insight and intelligence into the customer revenue relationships. There are four phases to revenue management. In the revenue generation phase, services are optimally priced for the user, service provider and any partners. With real-time access to customer data, the business processes associated with this phase maximise customer and partner value. The revenue capture phase uses competitive pricing models and flexible balance and credit control, to enable any service for any subscriber. As services are authorised and consumed, transactions are captured, rated, discounted and charged while managing balances. Real-time interactions help reduce the risk of revenue leakage, improve customer satisfaction and encourage usage. During revenue collection, service providers ensure that all invoices are generated and appropriate monies are collected from the correct debtors. A real-time, accurate view of revenue provides insight to customer profitability, enabling the provider to respond quickly to changing market dynamics. Revenue analysis spans the entire revenue management lifecycle. Understanding the revenue relationships with customers and partners improves their satisfaction. It provides real-time verification, reporting and analysis of all events and actions, which maximises revenue and minimises losses associated with fraud and revenue leakage. Revenue management then, includes the full generation, capture, collection and analysis cycle; it gathers the information needed to create the disruptive market strategies that can keep service providers ahead of the competition. Two providers that got it right Several leading service providers have already embarked on the revenue management path. A leading European group provides an easy-to-use consumer service that offers customers a wide variety of colour, sound and pictures. This service aimed to increase subscriber revenues by establishing a global brand and a consistent user experience by leveraging the customer billing relationships of the group’s operating companies. This was accomplished using a model whereby the content that is in highest demand can be quickly and efficiently offered to the operator’s user community. This established a value chain driven by customer demand rather than by technological advancements. The results have been excellent; service usage and ARPU are both higher. The strategy? Be agile, discover what the customer wants, work closely with business partners, respond quickly and offer simplified pricing to encourage service adoption. End-users are offered multiple pricing options, thus attracting more people to try the services. Once a customer understands the value, they can move to different levels of commitment in the form of subscriptions and bundles. This model enables the group to stay ahead of their competition with a stream of value-added services that differentiate it until the next service offer is available. In the UK, another leading wireless provider wanted to launch new data and content services quickly and offer next generation multi-media services. Their legacy system would not support these capabilities. By utilising a revenue management approach, they were able to quickly bring new prepaid and post-paid GPRS services to market. At the same time, they maximised their network investment by integrating their new system with their legacy-billing infrastructure. In the process they were able to future-proof their platform so that it could support future product offerings. Moving forward For service providers in a hypercompetitive market, revenue management offers a compelling strategy for creating new customer opportunities while dramatically reducing legacy-billing costs. Revenue management systems can be phased-in so that service providers can realise the benefits of revenue management while ensuring continuity during a gradual transition. Revenue management platforms can gradually replace legacy systems while continuing to enable new service deployments.