Enterprise communications has changed a lot over the last decade and is increasingly moving from hardware to cloud-based software solutions. The working environment has become a lot more fluid, with changing perceptions on flexible working hours, forcing organizations to address their collaboration strategies. Indeed, employees expect to connect with their colleagues or customers instantly, whether it is via email, social media, video, or voice, on any device, wherever they are. Enterprise communications have subsequently had to extend the capabilities of mobile collaboration to meet these new demands, which have resulted in the growth of the fixed-mobile convergence (FMC) market and given rise to cloud communication software technology, including telephony, contact center, instant messaging, video conferencing, and chat.
Despite being popular in the 1990s and early 2000s, when vendors promised capabilities such as services routing calls over converged intelligent networks, the FMC market never really took off. Mobile substitution prevailed over any form of merging of fixed and mobile lines, particularly among the younger generation. However, in recent years, the FMC market has seen more growth than ever before, with what looks like better prospects than a decade ago. The increase in video consumption on all types of telecommunication networks means that FMC is more likely to be successful through cloud business communication software vendors than it was through the voice operators.
According to latest telecom forecasts, we can expect the number of next-generation access (NGA) fixed-broadband connections to increase in most regions worldwide between now and 2020. An Analysys Mason study expects the FTTH/B share of total fixed broadband connections to increase from 32.4 percent in 2015 to 42.5 percent worldwide in 2020. Fixed-network operators are focusing on how to monetize their CapEx investments in NGA and FMC bundles, and are offering discounted mobile and value-added services in order to drive NGA take-up. Delivering value-added services over NGA networks is less expensive than over mobile networks (in terms of the cost of extra megabytes of data delivered), whereas delivering value-added services on mobile is compromised because additional capacity increases the cost.
Operators that expand their bundled services portfolio increase their value proposition, and service diversification enables operators to compete with each other without fierce commoditized price wars. Increased value propositions and service diversification will result in overall revenue increases in the long term. Therefore, it is expected that FTTH/B's share of total fixed broadband revenue will grow significantly and usually the revenue increase will be faster than FTTH/B penetration growth. FTTH/B's share of total broadband revenue worldwide will increase from 25.2 percent in 2015 to 37.6 percent in 2020. This figure will exceed 60 percent in developed Asia-Pacific (DVAP) and EMAP in 2020, and 40 percent in CEE and the Middle-East and North Africa (MENA).
Fixed and Mobile Service Bundling
Developing and investing in existing relationships with customers limits the subscriber acquisition cost and dilutes retention costs. Bundling fixed and mobile services allows operators to differentiate themselves from mobile-only or fixed-only competitors, limits fixed churn, and increases brand loyalty in the long term. According to another Analysys Mason report, it was observed that intention to churn in Europe and the USA decreased from 28 percent for customers on standalone fixed offers to 23 percent for double-play, 21 percent for triple-play, and 19 percent for quadruple-play customers.
In India, specifically, the FMC has been a non-starter due to a few obvious reasons.
Numbering plans and number portability. Fixed and mobile numbers come from separate blocks and have different lengths. Currently, mobile number portability (MNP) is available but not fixed number portability.
Directory services. Fixed operators provide directory service to their customers. This catalogue contains information on all fixed line customers. Currently, mobile operators do not offer this kind of service and mobile numbers are considered as personal subscriber data.
Handset availability. All mobile handsets are not Wi-Fi-enabled, they are multi-mode handsets, though it is improving.
Role of the regulator. Permitting interconnection of PSTN and Internet (IP) networks; determining IP termination charges in line with mobile termination charges as a part of interconnect usage charge; unifying the numbering system for fixed and mobile, move toward electronic numbering; and establishing the facilitating interconnection rules so that the market forces can control the direction, extent, and pace of FMC.
Fixed and mobile bundles offer heavily discounted mobile services, and are aimed at attracting low- and medium-mobile data users. Mobile offers combined with fixed broadband access seem to be a safe option for operators. Increasing usage of bandwidth on fixed networks fuelled by OTT video services, and the largely indoor nature of video consumption, make mobile data complementary to fixed data, so the continued relevance to consumers of fixed broadband is not in doubt.
Struggling with outmoded IT systems, siloed organizational structures, and pre-digital corporate culture, telecom operators have allowed faster competitors, notably the so-called over-the-top players, to gain the upper hand by offering better and wider-ranging services and more compelling customer experiences.
Players as Netflix, Skype, Spotify, Instagram, Snapchat, and the like, offer better customer experiences to steal a march on them. The OTT players distribute their innovative services "on top" of the operators' networks for free, reducing expenses dramatically and investing the money they save in developing new innovative services, while leaving the operators with all the costs involved in maintaining their networks but little of the value to be captured. The result: Revenue growth and profitability over the past several years have stagnated, and for some operators, particularly in Europe, they have declined. In short, "business as usual" has become a recipe for irrelevance, if not disaster.
Given the enormous and growing demand for all kinds of digital services, telecom operators do have a commercially attractive future, but only if they radically reinvent themselves for the age of digitization - building the right capabilities to reimagine the customer experience, rethink their operating model to radically reduce costs, and re-create their corporate cultures to instill the agile mind-set that will enable their digital transformation.
Whether they can succeed in transforming themselves into true digital telecom companies will depend on their ability and willingness to devise a workable digital strategy, build or buy the capabilities needed to execute that strategy, and then carry it out fully.
The Challenge of Consolidation
The search for value and a successful digital way to play has led to a high level of M&A activity in the telecom industry. The Indian service providers are no strangers to this. Players are combining forces to generate scale benefits and thus lower costs, while creating additional synergies.
But the most important reason to consolidate is to put together the right set of capabilities needed to fully address the ever-growing customer demand for fully integrated digital services, by growing inorganically, if necessary, and by scaling up to generate the cash flow needed to carry out digital transformations. All too many operators continue to maintain separate fixed and mobile networks and the services built on them - a result of their historical evolution, which has also led them to maintain a technology-centric view of their operations and, indeed, their culture. That is no longer what customers are coming to expect, and only a fully fixed-mobile convergent operator will be able to deliver on their expectations.
The most forward-looking telecom companies, those that are finally taking a truly customer-centric approach to their operations, have come to understand that customers want four things. They want to be able to use the best network available at all times, which requires seamless switching between wired networks, nomadic networks such as Wi-Fi, and high-speed mobile connections such as LTE. They want their FMC networks and services to be set up automatically, because they really do not want to be bothered with the technology involved. They want quadruple-play services - fixed voice, broadband, mobile, and TV - and the ability to switch their consumption of media such as movies and music, and even OTT services, from network to network, and to have all their applications and data available to them on all devices at all times. And they want to be able to research and purchase items and get help when they need it, wherever they want it, in an easy and consistent way - whether in a store, online, or on the phone.
Telecom companies must approach their business clients with the same customer-centric mind-set. Already, all kinds of companies - Google, IBM, GE, and others - are staking out their territory in these markets. Unless telecom companies can figure out how to participate, and quickly build or buy the capabilities needed to do so, they will be left behind, concludes PricewaterhouseCoopers in a recent paper.