 | Issue: | North America 2011 |
| Article no.: | 2 | |
| Topic: | Innovate or follow the leader? | |
| Author: | Keith Willetts | |
| Title: | Chairman & CEO | |
| Organisation: | TeleManagement Forum | |
| PDF size: | 282KB |
About author
Keith Willetts is the Co-founder and Chairman of the TM Forum, one of the largest and most influential communications industry associations in the world. Mr Willetts held executive positions at BT and TCSI as well as serving as board member or chairman of a number of software companies in the UK, US, Ireland, Sweden and Dubai. Mr Willetts is a regular presenter and writer; he also co-authored the highly influential book, The Lean Communications Provider. Mr Willets is the winner of the editors’ special award for outstanding service to the industry at the Global Telecoms Business Innovation Awards 2010
Article abstract
Telecom services still rely on their two oldest products – renting lines and selling minutes – and mobile is only the same thing without wires. These products generate around US$ 1.5 trillion a year globally, but competition is moving into the market. To stay competitive operators have to dream up new sources of revenue, but what should they aim at? The answer is in the digital economy, services in the cloud and doing what operators already do best, but with partners.
Full Article
Innovate or follow the leader? by Keith Willetts, Chairman and CEO, TM Forum As President Obama succinctly put it in his recent State of the Union Address “In America, innovation doesn’t just change our lives. It’s how we make a living.” While he honoured Edison and the Wright brothers in that speech, he could have mentioned Alexander Graham Bell. With due deference to Scotland and Canada, no other American invention has changed more lives of more people in the whole of history. Now, with a global customer base heading towards five billion people, and the Internet and smartphones generating unprecedented volumes of network traffic, instead of rejoicing, many communications operators around the world have their head in their hands. Market saturation, substitution, competition and regulation continue to squeeze revenues and margins, and although volumes – particularly for data – are rising dramatically, it’s driving up costs for new network investment more than offsetting any gains in revenue. Traditional services such as fixed-line voice are in decline in most markets, while high-margin services such as international/roaming calls are under severe pressure from ‘left-field’ competitors liked Skype – now the world’s largest international phone company. To the average Joe, telecom looks like a highly innovative industry. At the technology level it certainly is, but telecom services are still reliant on the two products that Bell would instantly recognize – renting lines and charging for phone calls – and mobile is only the same thing without wires. These two products generate around US$1.5 trillion a year globally, but are coming under pressure from all directions. So most operators are now looking at how to stay competitive in their current business while they dream up new sources of revenue. ‘Transformation’ is the big buzzword: moving from a high-cost base, poor customer service and low innovation model to lean-mean-agile and innovative players who care about their customers. While many are making good progress, there are still plenty of pitfalls. Just like a three-legged stool, which either wobbles or falls over if one leg is too short, concentrating on aggressive cost cutting without worrying about quality just drives customers to competitors. These two are easy to compare with the real route to long-term growth – continuous innovation of new products. Innovation is hard because it means taking risks. It means letting your people experiment and tolerating their failures from time to time. Apple had its share of turkeys before becoming the world’s most valuable tech company. But the brutally honest truth is that communications companies are not innovating at the product level. All of the communications gizmos we see today such as app stores, mobile social networking, maps, access to vast video and music libraries, cloud services and so on are mainly coming from the so called ‘over-the-top’ players. Sure, we in the telecom business can complain that they are getting a free ride on billions of dollars worth of infrastructure investment, that they can turn on a dime because they have relatively lightweight R&D and not even make a profit while their shareholders to shower them with money, but just try to name a truly eye catching service innovation from the communications industry in recent years. Prepaid mobile perhaps and short messaging maybe, but in truth both of these were sort of accidental successes. Mobile money – well possibly, but actually none of these started life in the home of innovation – the U.S.A. I’ve been in the communications business all of my life and for much of that time nearly everything smart and new in communications came from west of my home in England. Today we look eastwards more and more for service innovation and even then there’s precious little really new; it’s just more rehashing of ways to bill a customer. So my call is to the communications industry, particularly in the U.S., to unlock the creativity and innovative spirit that still beats in its heart. We need some real charisma, leadership and risk-taking if the communications industry is not going to be the commoditized bit carrier that it has nightmares about. There are numerous organizational, people and cultural barriers to overcome if telecom is to reach its true potential and innovate its way to growth. Our sector’s culture originally encouraged reliability and solid engineering above all, so many of our people still tend to avoid any failures and mistakes, but that fosters risk avoidance behaviour so people avoid risks and are reluctant to try new things. Layers of committees don’t help either as they tend towards making bland and boring decisions rather than bold ones. Most existing lines of business in a communications company are so humongous that they dwarf whatever new and innovative services arise and, therefore, get first bite at the cherry for resources. This can lead to new services being a bit shaky and under-resourced, and usually with lots of people ready to say ‘told you so’ when it goes wrong. Leadership is another big factor. It was very telling that at a recent conference run by TM Forum, we showed pictures of 20 leading CEOs in high-tech sectors – the audience could name most of the guys running Google, Amazon, Apple and so on, but nobody could recognize the telecom CEOs -and this was mainly a telecom audience! So what might those new products and services be? Well there are always pundits predicting the next big thing in the telecom business – often these tend to be hopelessly way off base. But there really are huge and untapped market opportunities waiting to be exploited – but not necessarily by aping cable or Internet companies to come up with lookalike content or applications. To paraphrase Bill Clinton, I think the answer is the digital economy, stupid. The core competency of a communications company is to help others do something useful – they provide the means by which anyone, anywhere on the planet can communicate easily and simply – but they don’t do the talking. So expand that idea to allow anyone, anywhere on the planet to do business in the digital economy – and I don’t mean just bit shifting. More and more goods and services are moving to digital format; movies, books, music and applications are here now, but all kinds of cloud services are fast approaching. The most obvious is raw computing and storage cloud services like Amazon’s Elastic Compute Cloud service, but the really innovative area is in cloud applications – software as a service (SaaS). SaaS replaces things previously done by software on your desktop computer or by a head office server. Companies like Salesforce.com are mushrooming by providing all manner of services to businesses and individuals on an online basis. On top of that are huge numbers of complementary businesses springing up such as smart grids, for example, where the gas or electricity meter is connected back to the grid so that the energy generated can be dynamically adjusted in accordance with demand and billing can be automated without someone coming to read your meter. Online healthcare, eGovernment and mobile money services are all popping up around the world. Then there are the estimated ten trillion devices that will become network enabled over the next decade. This ‘machine-to-machine’ market is where devices embedded in everything from your car to your washing machine to your central heating will be permanently online. That makes five billion people talking on a mobile look like a niche market! Instead of trying beat application innovators at their own game, communications companies could really leverage their core competencies and tap into these new revenue streams by innovating in a different part of the value chain – by being their enabler: providing not just the transport networks but providing a whole range of value-added services like authentication, billing, security, customer care, etc. Think FedEx – they’ll ship a parcel, but they will also handle your taxes, customs and so on for extra cost. That’s essentially a business-to-business, partner-based approach. It’s where telco economies of scale come into play as well as core competencies in service operation, handling large numbers of transactions, tracking and billing for them, which communications companies do very well. This approach demands new thinking and innovations – partnering skills being one of the biggest – a weakness in an industry that’s been used to calling all the shots for a long time. Another angle is the network engineering innovation that’s needed to underpin cloud services – poor latency is the enemy of the cloud – when you tap on the screen or hit the return key you want it to work, not dither for a few seconds. Still, telecom companies are often motivated more by market defence than market innovation. So put it another way if you like, if communications companies don’t partner with cloud providers, then they the providers will just build the infrastructure they need and be even more threatening to the communications companies – after all Google is currently one of the world’s largest buyer of undersea cable capacity. It’s currently all there for the taking – but it won’t be there for long. To quote that great innovator, Steve Jobs, CEO, Apple Inc: “get out there and innovate – it’s what separates the leaders from the followers!”
