Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
In my last column, “Wave of consolidation washing over wireless,” I summarized the key drivers of consolidation across the wireless industry and how they are playing out across the wireless value chain. It’s clear that no link in the chain – from network equipment providers to device manufacturers to service providers to mobile operating systems – is immune to the pain of consolidation.
In this column, I’ll discuss how consolidation is affecting major competitors and new entrants in the global network equipment sector. While we have already witnessed massive change and consolidation among these players, more choppiness lies ahead. Those network equipment providers that strategically adapt their business models and execute flawlessly will be reap the benefits as we emerge from the rough waters of the recession.
Leaving rough waters
Despite continued wireless services market growth, the recession saw mobile network operators step back in network expansion and capital spending. Many paused to allow subscriber counts and backhaul capacity to catch up to the substantial 3G network investments and build-outs completed between 2004 and 2008. In addition, two critical inflection points in the network equipment market – the move to 4G wireless and the emergence of strong Chinese competitors – occurred in 2009 and 2010.
Neither of these changes alone should have significantly affected the mobile network equipment market. Like moves from 1G to 2G, and 2G to 3G, the shift to 4G has long been anticipated, creating high expectations for greater network capabilities as well as a new wave of growth and competition. So, why did major players like Ericsson, Nokia Siemens Networks, and Alcatel-Lucent see their revenues shrink by anywhere from 1% to 20% in 2009?
Simply put, the recession caught the network equipment industry flat-footed. All major players grappled with the market’s shift from application-specific, voice-centric products towards standard platforms for delivering data-centric services. Many wrestled with the difficulties of rapidly migrating expensive engineering resources to low-cost countries and dealing with increasingly strong competition from China. Some continued to struggle to execute complex mergers and integrate decades-old businesses. Even as manufacturers rallied on managed services growth and began moving towards 4G revenues, the wind was leaving their sails and stalling their progress.
It didn’t have to be this way. Each of these challenges was, arguably, predictable. But now, network equipment manufacturer must turn themselves towards a different, and hopefully brighter, future. Once again the levers to pull are clear – do the players have what it takes to survive?
Charting a course for the future
More than any other link in the wireless value chain, network equipment manufacturers must uniquely position for change. Whether it’s technological innovation or improving the customer experience – it all starts with the network. “Change,” as John F. Kennedy famously said, “is the law of life. And those who look only to the past or present are certain to miss the future.”
Indeed, network equipment providers must lead the charge if they are to prosper in a market that becomes more complex by the day. Our work with the major wireless network equipment manufacturers reinforces the three critical levers that these companies must employ: innovation, operational excellence, and customer experience.
Lever No. 1 – Innovation: Given their central role in deploying new network technologies, network equipment providers must possess world-class innovation capabilities. Innovation needs to go well beyond product development, however, and be multi-dimensional as well as global. Innovation, after all, doesn’t just come from within the company or only from its engineers. Innovation starts with what we call enterprise co-creation – focusing on actively engaging all stakeholders, including suppliers, customers, employees, partners and even regulators in the creation of the valuable outcomes and experiences they seek.
Innovation should also originate from the far corners of the business, using techniques like reverse innovation to not only develop local products like low-power base stations for remote villages, but to creatively leverage these inventions to drive mass-market shifts. Wireless can learn a great deal from the likes of GE Healthcare, where a handheld electrocardiogram device originally developed for rural India changed the rules of competition in the United States, lowering prices by 80% and garnering significant market share gains for GE.
Lever No. 2 – Operational excellence: The intensely competitive nature of the wireless industry means that operational excellence is now table stakes. From product development to supply chain management to managed services, processes must be streamlined to take full advantage of limited resources and capital. Leading network equipment manufacturers are not only moving development resources to low-cost countries, they are establishing sophisticated practices to align and manage the movement of resources from one development effort to another and maximize their utilization.
Likewise, the globalization of the wireless industry, coupled with outsourcing manufacturing to third parties, is exacerbating the need for improved supply chain management. Bloated, inefficient supply chains are no longer acceptable in an environment of constrained capital, and shortfalls in supply planning and strategic sourcing have caused missed revenue objectives by more than one network equipment provider during the past year. Our recent global supply chain trends survey highlighted the perception that supply chain volatility and uncertainty have permanently increased, thus requiring changes in how original equipment manufacturers manage their supply chains.
Lever No. 3 – Customer experience: While customer experience is most often associated with consumer products and services such as smart phones and wireless data, it’s a vital area for network equipment manufacturers as well. This point is reinforced time and again by executives with major U.S. network operators, who often cite the difference it makes when an equipment supplier shows an interest in their success, whether by sharing their roadmap or scheduling a CEO visit before the close of a major deal. Strong, end-to-end account management is more essential than ever as competition intensifies.
Wireless equipment providers can also be crucial in helping service providers deliver a strong customer experience. Network management tools and capabilities that rapidly identify, isolate, and resolve coverage, performance, and quality issues are a major opportunity. Even better, equipment suppliers should prepare to help operators connect performance issues to customers, enabling proactive actions and experience co-creation with their customers that will further increase satisfaction and reduce churn.
While wireless network equipment competition remains intense and consolidation will likely continue, significant opportunities exist for those network manufacturers who adapt. Pulling the critical levers of innovation, operational excellence, and customer experience can not only help equipment manufacturers move away from the losses of past years, they can put wind in the sails of winners for years to come.
My next column will explore the consolidation taking place in the mobile device sector, including devic
e OEMs, component manufacturers, operating sys
tem vendors, and distributors.
Dan Hays is a partner in the services, electronics, and software practice of PRTM, a global management consultancy focused on operational strategy and innovation. Hays works with communications service providers, equipment manufacturers, software companies, and media firms worldwide to drive growth, boost profitability, and set new standards for market leadership. Hays welcomes your comments at [email protected].
