IBM Survey: Operators must rethink business models

A new study from IBM shows that service provider executives are in general feeling positive about the current state of telecom. But consumers’ responses to survey questions could be a warning that prosperity is tenuous and new business models need to be figured out very soon.

IBM experts conducted one-on-one interviews with 60 C-level executives from 40 service providers and 7722 consumers in North America, Europe and the Asia-Pacific region for its report, "Telco 2015: Five Telling Years, Four Future Scenarios."

Ekow Nelson, the executive in charge of IBM’s business development, spoke exclusively to Connected Planet about the study. He acknowledged that most operators around the world considered this a “glorious” year, driven by the rapid diffusion of mobile telephony and emerging-market expansion. And with the rise of mobile broadband and new devices like the iPad and sophisticated dongles and netbooks, mature markets (especially North American markets) have seen revenue contributions that have made up for the voice decline experienced in 2008 and early 2009.

But despite auspicious beginnings and predictions for this year and the next five years, Nelson warned that consumers’ answers to survey questions could be a red flag, as economic pressures might force consumers to cut back on communications spending in the upcoming years and make different choices about providers.

While most consumers said the economic crisis did not yet impact their communications spending, many indicated they would switch to fixed bundles or defer upgrades and even consider cutting back spending on mobile if they felt a crunch. Willingness to cut mobile spending was highest in Spain and Germany, followed by the U.S., U.K., the Netherlands, Australia and lowest in China.

About 33% of those surveyed said they would consider cutting mobile spending between 10% to 20%, Nelson said, adding that if this happened on a broad scale, it could trigger consolidation and pose problems, particularly for small- and medium-sized operators.

When consumers were asked who posed the greatest competitive threat to their current choice for services, the majority (76%) indicated that Internet companies, voice-over-IP (VoIP) providers and social networking players would be the first they would consider. Following those were cable and satellite (34%) and mobile device manufacturers (29%).

There was also evidence that over-the-top (OTT) communication services are challenging telco-controlled services. The greatest adoption and growth potential of OTT communication services existed among younger consumers in the survey.

The operators surveyed in markets approaching mobile saturation (North America 92%, Western Europe 100%+) agreed that growth continues, driven by new devices and fixed/mobile substitution, as well as churning to other providers. But though that growth is real, the realization of significant revenues is not. “The operators verified that though mobile broadband is still growing steadily, its revenue contributions are nowhere near voice services,” Nelson said. “They said that unless there is another technical innovation like mobile, they foresee a significant challenge going forward.” (See: "Four future scenarios for the global communications market" below.)

 For most of the operators surveyed, the biggest issue they face is finding a sustainable strategy to balance bandwidth demands with pressures to generate revenue and cut costs. “With video and non-voice traffic creating bottlenecks, the majority of operators admitted it is becoming much more expensive to provide services,” Nelson said. He believes this will continue to push operators to abandon the unlimited data plans that currently hinder them. Part of the discussion for a solution centers around tiered pricing or allocation of resources and bandwidth to profitable customers. “Some of the biggest concerns revolved around regulatory uncertainty for things like Net neutrality and mandates to carry other providers’ traffic at regulated prices, which would hinder their ability to impose variable charges and tiered pricing,” Nelson said.