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Choose your own Adventure: Future CSP Business Models

By: Jennifer Fellows

These are truly exciting times for communications service providers (CSPs). Their world is dramatically changing, pushing them to new levels and challenging their time-tested ways. There are many new adventures that they could choose.

For a long time (or a long time in this industry, anyway) there was stable growth: voice revenues were still growing, SMS was a strong revenue stream and data usage was profitable without hurting the network. All the CSPs had to do was more of the same.

But change is, of course, inevitable. We all know that service offerings are changing, that multi-play is the new norm and services such as mobility, cloud, IoT, video, and unified communications are all being requested by today’s savvy customers. Deep down we also all know that the legacy infrastructure that is in place was built for a very different service paradigm. That means a lot more catch-up is needed. 

There are also further potential changes in terms of how CSPs address their market and their customers. Today’s world is no longer simply divided into consumers and enterprises. The new market reality is that there is a lot of value to be gained from the gap between those two segments (or maybe the group that crosses into both segments, depending on how you look at it).

So although we know that change is required, we don’t know the exact nature of that change. Ultimately this is an adventure for CSPs. They must choose. And they will define their new role and business models as they transform into DSPs, or digital service providers.

Thrive or Die?

The problem is that, unfortunately, not everyone actually thinks of it as an exciting adventure. For some, it’s very scary. For others, it’s not an adventure at all, but a desperate struggle for survival.

Gartner has predicted that by 2025 there will be 20% fewer network service providers compared to the 2013 number. This decrease, which some observers believe is actually a prediction that is significantly below reality, will mainly be achieved through mergers and acquisitions (M&A).

For those CSPs that aren’t adventurous enough and don’t maximize the valuable assets they have (namely their customers), their journey will end by being swallowed up into a more adventurous competitor. In this shifting world, M&A allows the acquiring CSPs to buy out competitors to grow into new markets or extend within their own market, and to add additional services through acquisition rather than R&D.

Often this M&A activity can trigger new internal adventures. Rather than solving all the problems, it can sometimes create new ones. The cost saving envisaged by buying a competitor or new service can sometimes be very hard to realize as the back-office systems can’t be consolidated as easily as predicted.

However, there are success stories, and there will be many more to come. New entrants that are not encumbered with old legacy systems or thinking, that are freshly transformed DSPs, will blow open the market and compete partly on price, but more importantly on innovation or service quality. These new players will often enter the market armed with strong customer bases from other sectors, or offer a great new way of thinking and manipulating the technology.

For many existing CSPs, the adventure that they will undertake over the next few years will be to match and eventually overtake the new DSP entrants.

Digital will Dominate

It is clear that digital will drive innovation and new business models in the communications sector. We already have many new "digital" services that are being demanded by customers, including apps such as Netflix, Facetime, Periscope or Evernote. That is what we can already see in front of us and there will also be many new services that we can’t even venture to predict right now. Further innovation is inevitable and increased demand from customers for new services is equally foreseeable.

What is needed, is not just the ability to be able to launch new digital services, but the ability to be able to think digitally. Thinking digitally is what will power the new adventures for service providers.



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