Telecom switches emphasis: Preliminary analysis of the 2007 Telecom Industry Survey

Business model transformation is emerging as one of the key drivers of future value for telecommunications (telecom) providers. This is a change from 2006, when telecom executives in the IBM CEO Study 2006 placed less emphasis on business model innovation, concentrating instead on products and services innovation. Business model transformation will demand new, very significant distinctive capabilities. Therein lies perhaps the industry’s greatest challenge: 2007 Telecom Industry Survey respondents still point to traditional sources of competitive advantage rather than some of the newer dimensions that will determine success in the markets they are now entering.

There is a perceptible shift in the telecom industry’s focus away from cost reduction to business model transformation and revenue growth. Whereas only 34 percent of telecom providers singled out business model transformation as a source of value five years ago, 69 percent now believe it will be the primary driver of value in the industry going forward (see Figure 1).

Globally, revenue growth takes second place, with 65 percent seeing it as an important source of value. Many more firms also expect to reap synergies from mergers and acquisitions over the next five years than in previous years. Fewer companies see managing operating expenditure as a means of creating substantial additional value.

Other key findings of the 2007 IBM/Economist Intelligence Unit Telecom Industry Survey are:

• Business model transformation, with a strong focus on external collaboration, is considered critical
• Distinctive capabilities need to be reassessed and better aligned with business model changes
• Voice and broadband still dominate the “revenue mix,” but converged content services are the preferred growth engine
• Advertising is expected to make a significant revenue contribution, but operators have yet to exploit this new opportunity
• The end-to-end telecom and media “experience” is a key differentiator, but is critically dependent on service, ease of use, and applied customer knowledge
• Despite optimism by most survey respondents, the complexity of network transformation persists
• Most respondents anticipate an increase in outsourcing across various business functions.

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