Customer Climate Change Hitting Dutch Telecom Operator

Tough times are ahead for (mobile) telecom operators. Yes, they knew it was coming, but the speed at which customers are embracing mobile VoIP and chat still surprised them. The measures Dutch telco KPN is forced to take should be a shot across the bow for operators across the globe. The METISfiles predicts a painful transition for many from telco to connecto. Why? Simple: the business model and internal costs of many operators reflect a telco business model, yet they need to more closely match the connectco model. (See our analysis on the six-sided telco model here).

The uptake of mobile VoIP and chat is not coming out of the blue. The main drivers are the fast growing smartphone and mobile internet adoption, the widespread availability of 3G infrastructure, the availability of all-you-can eat mobile broadband bundles, and the high price of mobile voice and SMS. The impact of an increased uptake is potentially devastating. Operators run a very real risk that voice and SMS revenues will dwindle.

So what are the options available for an effective response? Doing nothing is out of the question, as mobile VoIP and chat usage will continue to grow and erode traditional voice and SMS revenue. Blocking VoIP traffic will cause customers to churn to challengers that offer VoIP and chat and will be an issue with EU net neutrality laws. There are a couple of short term solutions, however, that might help operators smooth the transition from telco to connectco.

Operators could lower voice and SMS pricing. However, customers might still churn – albeit at a lower churn rate – to competitors that proactively offer mobile VoIP and chat.

Operators could price VoIP traffic. However, net neutrality will still be an issue here. One of the more effective measures could be bundling voice, SMS, and Internet in one bundle, increasing the possibility that customers will need to buy out-of-bundle usage (similar to the T-Mobile Relax Sim Only bundles).

Operators could create their own VoIP and chat versions for their own customers (like T-Mobile and bobsled). This is a more involved solution and a risky one. The success rate of operators in the world of chat and social networking is limited to say the least (see our analysis of how social networking and communications are merging into social communications here).

But those three options are interim solutions at best. Ultimately, when 4G comes around (within 3-4 years), operators will have to have finished their transition from telco to connectcos. The more innovative operators might even have become webcos and servcos, offering unbundled services to customers and the channel. In the mean time, the transition period is bound to be disruptive and painful.

What do you think? Will KPN CEO Eelco Blok be a reincarnation of Hans Brinker? Or will the flood of mobile VoIP and chat prove to be too strong? Let us know!

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About Pim Bilderbeek

2 Responses to “Customer Climate Change Hitting Dutch Telecom Operator”

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  1. Pim
    I tend to be more optimistic about the future chances of Telcos than you are. The mass centralisation of computing gives them new revenues irrespective of technology. Monthly broadband costs are not that different from monthly contracted mobile bills. Software companies lack billing systems, so Service Providers can add the ‘go’ in Pay-as-you-go for them. The Internet of things will give us orders of magnitude of extra data, some of which is going to be shipped around by Telcos.
    If everything goes IP then users will need much more capacity – try restoring a broken drive from a Web-based DR service. 4G looks interesting – I’ve even heard some suggest MPLS networks could be replaced with it! I’m interested in your ideas about whether we’ll see a repeat of the licensing fiascos of 1999.
    Best Wishes

  2. Hi Pim,

    I agree with the large part of your analysis.
    For incumbents like KPN, their main service, fixed telephony, has been intertwined with the infrastructure for decades.
    When ADSL came up, they were able to offer a new kind of service, re-using the good old copper infrastructure.
    Now as services become really independent from the networks they are operating on -even on the favourite mobile network- it is up to the Telco’s to come up with new services and be more than a supplier of access.

    I agree with Martin that companies such as KPN should be able to make this transition, I don’t think it is a lost game. I am not sure whether billing will be the core competence here, micro payments seem to find their way already on the web.
    However, incumbents tend to think that their services should not be spread too agressively outside of home countries. Possibly there is a kind of gentleman’s agreement not to compete too agressively, with your fellow-incumbent.

    I guess at some point they should let go of this live-and-let-live position, which might have have an effect on the stock markets as well. On the other hand: most of these companies have money to invest so let us see what kind of service companies KPN will acquire during the coming period.