Home EuropeEurope I 2008 Customer need or technology mania?

Customer need or technology mania?

by david.nunes
Thorsten Dirks Issue: Europe I 2008
Article no.: 13
Topic: Customer need or technology mania?
Author: Thorsten Dirks
Title: CEO
Organisation: E-Plus Mobilfunk GmbH & Co. at E-Plus, Germany
PDF size: 232KB

About author

Thorsten Dirks is the CEO of E-Plus Mobilfunk GmbH & Co, at E-Plus. Mr Dirks has held the posts of Chief Operating Officer of KPN Mobile International, General Manager Business Support & Innovation Management, Executive Director Product & Process Innovation, General Manager of Innovation, IT and Operations, and Deputy CEO. Mr Dirks previously held management positions with Orbitel Mobile Communication (Vodafone/Ericsson) and Vebacom. He began his career working as a project manager for various mobile and fixed network projects. Thorsten Dirks graduated from the University of Hamburg with a degree in electrical engineering /communications engineering.

Article abstract

Technology has traditionally driven growth and markets in the telecommunications sector. Nevertheless, many of the technologies that have recently reached the market have not attracted as many users as expected. The cost of these technologies is responsible, at least in part, for the rejection, but consumers have become wary of flashy technologies that offer very little of substance. New, competitive service providers can often thrive by concentrating upon the basics – good service with proven demand and low costs – to succeed.

Full Article

There is always an intensification of technological euphoria when the major European telecommunications technology fairs are on. The exhibitors at the Mobile World Congress in Barcelona or at CeBIT in Hanover are providing fantastic food for discussion for the mobile telecoms industry, as they do every spring. The innovations on show here are the ultimate in telecoms technology. Convergence, data accelerators, mobile communications hubs and all kinds of 4-letter (and longer) abbreviations dominate the exhibitions and the press coverage, but who is asking the customers whether they actually want these innovations? For years we have seen shimmering visions of the future arrive at the market only to be shattered in the hands of users – in Germany and in other countries. Everyone marvels at the innovations, but only a small group of early adopters is ever interested in buying many of these new technological marvels. Playing with leading-edge technology is an impressive, but expensive, game and has so far hardly proved profitable, especially for the smaller operators. These challengers on national mobile telecoms markets have important decisions to make. Should they keep on following the tracks of the market leaders and continue to participate in this innovation paranoia, or start to focus their operations and move forward on another track. One appropriate and successfully proven option for third or fourth place network operators is to concentrate on today’s customers and their current requirements. This customer focus is – among other aspects – based upon a multi-brand strategy with new tariff plans, customer segmentation and strong wholesale efforts that companies in Germany have been following for a couple of years now. The big players have recognised this trend and are now opening up their networks to new providers with strong brands in order to achieve further growth and face the new competition. This, however, is threatening the impressive revenues and margins the dominant players once counted upon when they had fewer problems to deal with and little competition in the market. The new brands provide everyone with exactly what they want – no more and no less – and at much lower prices. By offering packages that do not include a free handset and by holding back on the technical gimmicks, smaller providers can reduce their costs and raise profits at the same time. Passing part of the cost benefits on to customers in the form of cheaper rates per minute, improves the challenger’s price advantage, competitiveness in the market and profit margins. There has also been some rethinking where technical innovations are concerned. The move away from the industry’s technology mania is an inevitable consequence of a systematic customer focus. This is because for the vast majority of users in Germany (over 80 per cent), simple, low-cost, voice and SMS (short message service) tariffs continue to be the most important factors in mobile communication. This was shown by a TNS Infratest survey of German mobile phone users conducted at the beginning of 2007, as well as in a large number of other studies. A comparison with the survey data from the previous year also shows that although half of Germans knew what third-generation UMTS (Universal Mobile Telecommunications System) technology was at the start of 2007, demand rose only slightly over the year to a few per cent of all users in Germany – despite investments totalling billions of euros in the German market. General customer interest still remains low at nine per cent. At the moment, even with a broadband-capable mobile and increasing data transmission speed, customers primarily just want to make telephone calls. Customers do not want to buy a technology, they want to buy real additional benefit – and this continues to be found primarily in the area of mobile telephone calls. By comparison, everything else has been living in the shadows – from a customer perspective and on the mobile providers’ balance sheets. Of course, the importance of data services is growing and the data volume mobile networks handle is soaring. With expanding networks, the proliferation of suitable handsets and the offer of low-cost flat rates for data, mobile Internet access is certain to make it onto the mass market in the next few years. Even so, there is still a long way to go before data services make up a significant proportion of the revenue on company balance sheets. As a smaller provider, it therefore makes perfect sense from a commercial point of view – it is simply logical – to focus on what customers are asking for today. Of course you need to keep a close eye on usage patterns; if demand changes, respond, and don’t miss the chance to offer new services at an early stage before losing ground. This is true for businesses such as mobile advertising, as well as collaborative ventures with partners in other industries. Nevertheless, a challenger cannot use big investments and brute force to open up the market for new technologies and services – that is for others to do, and some of them will have to pay dearly for the privilege. For the moment, the goal continues to be to capture minutes from the fixed-line network for the mobile network. The possibility of substituting parts of the fixed-line network holds the greatest potential for the mobile industry in Germany. By European standards, Germans do not use their mobiles often. Mobile accounts for only a little over 20 per cent of all voice minutes on the German market. Many countries in the EU have already passed the 50 per cent mark. Just a few extra percentage points would quickly translate into billions of euros in additional revenue. German reticence so far has been due to the mobile tariffs, which for a long time were way above the European average, and this is precisely where challengers, the new providers, now come in – with fair offers and pricing that make the mobile more attractive in the long term than the fixed-line network for telephone calls. This strategy is paying off with increased revenue and profitability for the leading challengers in Germany. Companies achieved this success by focusing on their customers rather than upon technology.

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