Innovation Key to Telecom Survival: F&S

by CXOtoday Staff    Jan 23, 2009

The telecommunications sector, which is feeling the effects of the economic crisis, needs to implement an open and shared innovation model, focusing on enhancing the effectiveness of processes and innovative business, to stay afloat.

According to Saverio Romeo of Frost & Sullivan industry analyst, the telecommunications sector will likely be hit by the recession in two main ways. "First, due to the lack of credit in the global economy, investments will fall in the beginning of 2009. Particularly, investments related to incredibly costly projects such as acquisitions, will feel this drop intensely. Second, consumption will fall as people move away from wants and focus on their needs. This will reduce the uptake of innovative services."

These two effects have already taken a toll causing service providers to trim down. Since November 2008, Vodafone and Telecom Italia announced mid-term cost reductions of 1 billion pounds sterling and euro 2 billion, respectively, while BT and Virgin Media announced job cuts..

Romeo said, "The key success factors are the optimization of organizational resources and processes as well as promoting business innovation; which means being able to design lower cost and disruptive business models as an effective way to attract consumers. Disruptive business models here refer to combining existing technologies with new business models to create low-cost products and services (i.e. the combination of mobile content with forms of marketing and advertising)."

Lowering costs and disruptive business models will require partnering with players of different expertise. This type of collaboration can reduce costs, advance the quality of service, and offer more attractive packages to the customer.

From a public-sector perspective, national governments and super-national organizations have come to view the telecommunications sector as a critical route to overcome the crisis. Even the European Union has committed to an immediate investment of euro 200bn to implement ‘public-friendly’ legislation.

Last month major mobile network operators declared processes of strategic and operational adjustments in order to face 2009, arguably the toughest economic year since 1992.

One clear strategy is to pull the purse strings tight through cut costs, reduce investments, monitor consumption through pricing and certainly reign in cash flows. Supporters of this strategy hope to minimize the short-term damages of the recession. The other major trend is to identify and act upon the need to use this time to build opportunities out of the recession.