 | Issue: | Latin America III 2001 |
| Article no.: | 6 | |
| Topic: | Unsolicited Advice for New Players in Brazil’s Corporate Telecom Market | |
| Author: | Ian Bonde | |
| Title: | General Manager | |
| Organisation: | The Strategis Group Latin America | |
| PDF size: | 20KB |
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Article abstract
Technological convergence is the norm. Convergence is not just technology; it is an essential mindset. Strategic plans must deal with a range of complex issues to succeed in convergent technology markets. Nevertheless, a few obvious strategic necessities, such as the following, are often ignored: know your market: have strong, local, management; be a sector value leader; have a top-notch sales team; do not underestimate the competition; do not underestimate investment in advertising, promotion, quality of service and customer service.
Full Article
The growth of interdependent telecommunications technologies, networks and information technologies has made it necessary for our common business sense to see convergence as the norm. Convergence is no longer only related to technologies and the necessary interconnectedness between them. Convergence is a mindset. This mindset will be the differentiating factor between those businesses that fail and those that succeed. I look back upon this year in Brazil, and one of the things I notice is that prior to April I was mostly managing projects on corporate strategy. Since April, I’ve mostly been managing due diligence projects. A lot has changed: operators and suppliers are re-evaluating their business plans; so are their investors. I do not entirely blame them. Just take a look at the market numbers they were using to base their financial projections on. There is still a lot of pent-up demand in the Brazilian telecom market, but there is a lot less than last year. Now is the time to reanalyse, to take a step back, take a deep breath, count to ten, and start with the right foot. I would like to share a few important guidelines I have picked up while evaluating companies these past months. Most, or even all, of these points may seem quite obvious. Still, most of the business plans I have assessed fail to truly address all of those points and, more importantly, the interconnectedness between them. The Brazilian telecom market opens up fully in January 2002. Especially now, these guidelines are ever so important for the long-term success of your business. Always know what the addressable market is for your product or service. Understanding what the real demand is for your product or service is one of the most important keys to the success of your business. A little over a year now a company came to us a month before it started offering service in Brazil. It had already invested over a US$1 billion in network deployment. It wanted to know what the potential demand for its services was. Needless to say, the company recently shut down its operations. One of the reasons: gross-overestimation of potential demand. Anatel (Brazil’s telecom regulatory agency), for example, believes (or wants to believe) that the failure of the ‘C’ band (PCS) auctions was attributable to the global telecommunications situation and its effect on the major international telecommunications operators, characterised by falling stock prices, heavy indebtedness (in many cases caused by exaggerated prices for 3G licences in Europe), diminishing revenues per user and overcapacity. All of the above are true, but the lack of a potential market for new entrants, specific to Brazil, also contributed. Brazil is a country with a population of 170 million. In countries such as the United Kingdom, for example, that has 60 million people, the serviceable market for mobile service is essentially the total population. In Brazil the market is much more restricted, due to fewer people participating in the industrial economy, much lower income per capita, poor income distribution, coverage issues such as service provision in rural areas, etc. The effect is that Brazil has a serviceable market of probably only 40 to 50 million people, most of whom have limited resources to spend on telecommunications. Currently, mobile subscribers in Brazil have two options, the ‘A’ band, which comprises the former Telebrás companies, privatised in 1998, and the ‘B’ band which is operated by winners of the competition for licences that was held in 1997/8. The market shares of the ‘A’ band companies have been between 61 per cent and 83 per cent, even after two years of direct competition. Your local management team is key; if you do not have a strong management team locally, you’ll lose. It is imperative that your management team has extensive local experience. Experienced local management will facilitate last-mile, MAN and backbone price and timing negotiations. Furthermore, it will add in-depth knowledge and perspective of the local market, understanding of the local culture and client requirements as well as quick adaptation to local market changes. Move up the value chain. Voice, data and Internet access are increasingly becoming commodity markets, and profit margins (and market recognition as a premier corporate solutions provider) will depend on the continuous development and marketing of managed services. With the entrance of several new players into the corporate market in 2002 and large investment on the part of incumbents into this market (investing over US$2 billion into corporate services in 2001), new players must be prepared to offer differentiated corporate products ahead of other market players if the company is to sustain its value proposition. Your business may have invested heavily into ‘top-notch’ technology that enables your company to offer new integrated solutions to the corporate market, for example, but if your competitors feel these solutions are required to capture new clients, a similar solution to yours will be deployed in little time (especially when your competitors have deep pockets). As prices for core products such as voice, data and Internet access will continue to drop rapidly, the success of your business depends on the continuous development of managed services that truly add value to your proposition. Do not underestimate your competition, especially the incumbents. Most of the competitive players in the market that provide services to the corporate market have networks that are obviously a lot more modern and, most of the time, more proficient than the incumbent’s legacy circuit-switched networks. Few competitive players offer integrated voice, data and Internet service. Even fewer, offer managed voice, data and Internet service. How long can these smaller companies sell this differentiating factor as a value proposition? In other words, how likely are the incumbents to deploy such a proficient network and what impact would this have on the ‘shelf’ life of their existing circuit-switched networks? Incumbents in Brazil have two main sources of revenue: voice and data (Data and Internet). Voice and Data are two separate divisions within the company. If incumbents were to offer integrated voice, data and Internet services (offering, for example, a 25 per cent discount on price), this would lead to the ‘cannibalisation’ of the incumbent’s business-in other words, incumbent profit from offering two services individually rather than converged. Furthermore, the integration of both business units would require substantial re-engineering and internal dispute between divisions. Incumbents will not invest into providing similar solutions to those of smaller corporate providers as long as the market does not require these solutions. Only when incumbents recognise that they are losing clients (churn) or losing contracts to these smaller competitors, will they implement and market similar solutions. You have to sell. If you do not have a top-notch sales team, with local experience, you’ll lose. There are several factors that contribute to the success, or failure, of your sales efforts and forecasts. Some of these factors include: timing issues for last-mile access, speed of negotiation for links to new POPs, and pursuing a pre-defined and focused sales strategy. These factors directly translate into how effectively you close sales. A local sales team, trained in selling integrated solutions and with years of selling experience in the local market will increase your chances at successfully closing contracts consistent to your marketing plan. Furthermore, the more experienced your sales team is the better it will deal with the fact that the company lacks market presence and a solid client portfolio as well as the infamous Brazil Factor (realistically, everything takes a little longer to get done right). Do not underestimate investment in advertising and promotion. One of the most important challenges in the Brazilian telecom market is building a strong brand image. One of the most important methods to advertise and promote corporate image is by word-of-mouth; however, it is important not to underestimate spending on corporate advertising. Brazilian culture (business or residential) pays a lot of attention to mass advertising campaigns that recognise and establish the company as a solid, well known and international operation. This is extremely important, especially at present, where even companies with well-known names in the market have been encountering financial difficulty. Know this: advertising and promotion budgets for the first two years of operation may account for as much as 40-50 per cent of total revenues, and fall to the 5-15 per cent range in the long run. Maintaining your level of Quality of Service (QoS) and customer service is expensive. As your network grows, complex logistics will be necessary to achieve the same level of QoS and customer service (as a result of increase in clients, increase in traffic and increase in hardware/software). A marketplace which is ever so complex (more so when providing integrated and managed services) requires partnerships with carriers, last mile, applications providers, network access points, web-hosting partners, just to name a few. It is imperative that you have the operational management team capable of implementing network growth (seamlessly to your client base). Conclusion Network (WAN/MAN/LAN) engineers, commercial (sales) engineers, applications engineers, and account managers with high proven performance are human resources not only well recognised by the market but also extremely difficult to keep in the company due to frequent invitations by competitors. Plan to invest heavily in your workforce in terms of salaries, bonus incentives and quality of life-style. Only in doing so will you adequately train, develop and educate your employees in your company’s philosophy, principles, and mission. Only in doing so will you sustain (and hopefully keep improving) quality of service and customer service levels.
