More and more network operators experiencing dropping voice revenues and increasing data usage are having to decide on future paths that may conflict with their past experience and investor sentiment.
Should they concentrate on building up their networks, increasing capacity and offering faster access or should they invest in new digital services, applications and software and enter market segments they are not familiar with? Or should they do both?
This is the unnerving position that telco CEOs are finding themselves in and whatever they do will certainly be a test of their mettle and worth. Deutsche Telekom’s CEO, Timotheus Hoettges, was very clear on which path his company would be taking when he recently announced its intention to invest €23.5 billion domestically in its mobile and fixed networks over the next five years.
“Building networks is what we know how to do best —we’ll leave making apps and creating services to others,” said Hoettges, speaking at the Digital Life Design conference in Munich recently.
His point was very clear; investing in high-speed networks strengthens Deutsche Telekom’s hand in negotiations with content providers. But what negotiations that entails is not very clear. Is he implying that he sees content providers as potential customers where now they benefit from connectivity paid for by their joint customers?
Hoettges contrasted Deutsche Telekom’s situation with that of Google and Facebook, which compete on voice and messaging services yet escape regulatory oversight. Perhaps he sees a future where his company offers their services instead of his own to take advantage of the regulatory anomaly?
Regardless, the stand taken here is clearly one of sticking to what they do best and hope that the network will be an essential element in all digital traffic movement. How that can be effectively monetized must be the key concern of Hoetgges and every other network CEO. Maybe by concentrating on the network, potential competitors in the content and services space may see the network operator as an ideal partner rather than a full-on competitor. Only time will tell if that theory works.
The other route will be to offer all types of content and digital services they can get their hands on. Some operators have opted to buy startup technologies to corner the market, but with new competitors turning up each day this does not look like a very sustainable path.
Telcos don’t usually have the know-how or expertise to take on non-telco stuff so doing this comes with extra cost of resourcing the new lines of business. None of which are guaranteed to provide the return on investment (ROI) stakeholders are used to dealing with.
A third option could be to dabble in new lines of business by forming partnerships, but these have to benefit both sides if they are to succeed and neither partnering or revenue sharing have been great successes for many a network operator. They may, however, be forced to go this way and that will need a substantial change of mindset for many.
Only one thing is certain. Doing nothing at all will certainly be fatal for any network operator that feels comfortable with today’s business models. Equally dangerous is embarking on a route that is new or unclear with no guarantee of ROI.
Of course, they could opt to be advised by any number of consultants, analysts and futurists – but they can’t see into the future any more then you or I. Would anybody like to be a network CEO just now?