PwC Strategy& Consulting touts what telecom companies need to balance in order to sustain growth
For U.S. telecommunications services companies, much attention has been paid to the dynamics in core markets. Major wireless and wireline network operators are focused on driving subscriber growth and monetizing network assets through heavy promotion and marketing; new pricing schemes to distort the optics of device and service pricing; customer segmentation; and other tactics. Examples of these tactics include the introduction of “free” or “binge-able” data; rollover data plans; price matching or reimbursing residual handset payments to induce consumers to switch; and promotion of bundled services or global data access. Growth rates in many markets signal these strategies are working for companies across the industry (particularly after adjusting for changes in device accounting). However, attention to core market dynamics must be balanced by smart, strategic investments in adjacent and disruptive capabilities.
Adjacent growth focuses on applying existing capability sets to adjacent markets and/or expanding into new geographies. In the first, telecom companies diversify and expand services and offerings to better serve evolving consumer wants and needs. For instance, consumers have developed an appetite for on-demand, anywhere, instant streaming services. Telecom companies are responding to this new class of sophisticated consumer by developing offerings that are adjacent and complementary to their existing communications platforms. These adjacent offerings include, but are not limited to entertainment services, content streaming platforms and IP-based video products.
AT&T’s acquisition of DirecTV and Comcast’s acquisition of NBCUniversal are two such adjacent growth plays. While continuing to pursue adjacencies in entertainment, media and over-the-top products and services are surely in every telco’s playbook at the moment, differentiated content providers are few and the cost of content is rapidly increasing. Investments in content, if not carefully considered as part of a robust product and service ecosystem, may not deliver expected returns.
Another example of adjacent growth can be found in geographic reach. Players such as AT&T are pursuing growth in regions like Latin America, markets where wireless use is growing at rates, which resemble that of home markets in years’ past. Take activity in Mexico, for example. There, telecom growth strategies are underpinned by inorganic growth (e.g., AT&T acquiring Grupo Iusacell), organic growth (e.g., partnership and leasing opportunities created by regulatory changes enacted by the Federal Telecommunications Institute), or both. With connectivity continuing to increase between the U.S. and Latin America, and with the U.S.-based Latin population increasing, improved service offerings and targeted customer marketing creates opportunities to build brand relationships that span both regions and form an ecosystem that may lock in customers over time. While just one such tactic, it provides an example of how telecommunications companies can invest strategically internationally to enable continued global and even domestic growth.
Disruption-fueled growth, the third capabilities-driven growth lever, is often difficult to capture. Leading communications companies have many assets to exploit in the area of disruption, including a large customer base; access to consumer demographic and usage data; established infrastructure; complimentary services such as Wi-Fi and broadband; and generally strong cash flows available to invest in emerging pockets of innovation. However, many firms struggle with a lack of strategic and operational agility; burdensome legacy product and service investments; misalignments of available skillsets with needs; and recruiting of top talent. Internal research and development efforts can also be challenged by artificially short required investment return horizons; low risk tolerance; and a disproportionate focus on current platforms which often receive a series of incremental improvements, diverting resources from strategic development in key growth areas.
To enable new product teams to find and invest in the right mix of disruptive products and services, several communications service providers are forming internal incubators and corporate venture capital arms (e.g., Comcast Ventures, Verizon Ventures and others), in addition to traditional merger and acquisition. These corporate VCs are able to more quickly identify and more nimbly pursue disruptive business models, while providing the parent company with the opportunity to make investments on a longer time horizon than traditional R&D. However, standing up such an organization offers its own set of challenges, including organizational structure; resource incentives; capital deployment and management; and crystallizing where to play and where not to play to form a clear portfolio investment strategy.
With so many options available for strategic growth and so much at stake, communications service providers must carefully consider how investments in adjacent markets or disruptive businesses will mesh with their core capabilities to create lasting competitive advantage.
PwC Strategy& Consulting has helped firms across the communications, media and technology sectors find the right balance for sustainable, achievable growth. Dan Hays is a principal and U.S. Mobile Services Advisory Leader with PwC’s Strategy& based in Washington, D.C. A seasoned veteran in the wireless industry, Hays was a key player in driving early smartphone adoption. He has worked across the communications network (including device, distribution and service provider industry) to enable growth, bring new products and services to market, and drive improved profitability. His work includes 2G, 3G, and 4G networks spanning the GSM, CDMA, iDEN, EV-DO, W-CDMA, WiMAX and LTE standards, among others. Hays has worked with clients across the Americas, Europe, Asia, the Middle East and Oceania, and focuses on growth strategy, deals, product innovation and operations. Hays holds an Electrical Engineering degree from the Georgia Institute of Technology and an MBA from Harvard Business School.
