European Telecom Operators: “Innovation is like a game of chess”

An interview with Karim Taga, global practice leader TIME at Arthur D. Little.

What are the major results of the study and what are the implications for the different players?

Taga: On the one hand we see a massive rise in Capex due to the explosion of data traffic and the introduction of new technologies linked to Europe’s Digital Agenda. Both have the overall goal to secure high quality of data transmission in the B2C and in the B2B segment. There is a growing number of customers loading more and more data over the networks. The media industry very successfully markets its data applications. So everybody needs more data traffic these days.

What other trends do you see?

Taga: Another topic is the technology shift from 3G to 4G which most players are going through in order to differentiate from their competitors. This means that different players have to switch onto the new technology 4G (LTE) and constantly improve its coverage and throughput. This means they have to invest record levels - as they have to guarantee the capacity they promise.

How can incumbents cope with the increased competition by cable and mobile leaders?

Taga: The need to invest is not only a necessity for mobile players, incumbents have to invest just as well. This means that also their Capex reaches alltime highs. But as I said the Digital Agenda of the European Commission is a main driver for their peak investments.

How can the challengers in the mobile industry react to current developments?

Taga: Due to continued high competitive levels, all players continue to face shrinking turnovers and we expect this to continue over the next years. The industry really has to reinvent itself – and the market expects some stabilization reflected in significant increases in the major operators’ share prices and in telecom stock indices. To fulfill this market expectation, all players are desperately looking for new business models and ways to transform themselves while at the same time trying to fulfill the necessity to move forward technology-wise. They do this by network sharing or mergers. Also the landscape looks very different. Austria is already a consolidated market, the move from a four to a three player market has been “green-lighted” by the European anti-trust agency and France openly supports a similar move in a very specific market situation. In this merger situation, the classic model where a bigger player buys a smaller player is turned upside down. So companies have to do a lot of wargaming to go through potential scenarios of potential structural market developments.

What are the key trends you see in the next few years in the telecom industry?

Taga: Turnover in the core business will continue to shrink, Capex has already mounted to new peaks and new investment programs are frequently announced. At the same time, consolidation and convergence are on their way. All in all this means that the industry is changing radically. On top of that Web-players (Over-the top) like Google, Facebook or newer companies increase their efforts, increasing competitive pressure. The telecom operator of the future must find out how it can deliver real added value for its clients.

What role will innovation play in helping different players prepare for the future?

Taga: Innovation already starts when a player choses the business model he wants to pursue in the future. Does the company only want to “preserve the core“ or does it want to leverage its brand to offer “non-core” services? This is the basic question which any telecom company looking at acquiring another one has to answer. Innovation is like a game of chess in terms of markets.

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