Over the top players’ – industry shorthand for internet companies delivering video and other content over third-party networks – are causing enormous anxiety for network owners, who worry that customers will develop closer relationships with providers of online services than with the operators themselves. The result would be operators being perceived by customers as little more than a utility service, the so-called ‘dumb pipe’. However, the spectre of the dumb pipe future is overstated for all but the most hidebound of operators.
That’s the conclusion of a report sponsored by Amdocs, and prepared by the Economic Intellignce Unit (EIU), which identifies five strategies that operators can pursue to avoid the dumb pipe scenario. The analysis in the report, Fighting smart: Strategy options for telecoms operators, is based on a series of 17 in-depth interviews conducted with senior network operator executives and independent experts from around the globe.
“Network operators have plenty of assets which allow them to compete, and partner, effectively with internet companies,” says Denis McCauley, director of global technology research at the EIU.
The five strategy typologies which operators should explore in seeking the optimal business models to take them forward are as follows: 
- Smart pipe: By partnering, rather than competing, with internet companies, operators can bring their own capabilities to content and applications development and stave off commoditisation. A smart pipe strategy makes sense in markets where internet companies are well established. Even where the latter have less power, for example in Russia, operators such as MTS successfully partner with online firms, while also competing aggressively in content and applications.
- Efficient pipe: By carefully monitoring competition and demand, efficient pipe operators are controlling the pace of next-generation network deployment. They are also using technologies such as femtocells, and sharing networks with rivals, to lower their capital and running costs, and are accelerating the automation of business processes to bolster profitability.
- Pricing pioneer: Many operators are examining new pricing models that better reflect actual network usage and guard profitability. Sophisticated schemes based on time-of-day usage and speed could meet with particular success. Vodafone, for example, has been trialling such a scheme in Spain.
- Defender of the realm: An extension of the smart pipe strategy, this approach recognises that partnering with, instead of blocking, internet companies is an effective means of attracting and retaining customers. For example, while mobile operators generally fear the impact of third-party Voice over IP (VoIP), one or two, including the UKs 3, realise there is more to be gained from partnering with VoIP providers than blocking them, which makes operators unpopular with their own customers.
- Transformer: This strategy focuses on identifying new revenue opportunities in areas such as energy, healthcare and publishing. An example is Deutsche Telekom, which is targeting €1bn (£850m) in sales from ‘intelligent networks’ by 2015. Operators could take a leading role in demonstrating the benefits of smart grids, e-healthcare and e-publishing, for instance, to their customers.
These typologies are not mutually exclusive, the report says. Learning to partner with internet companies; radically boosting operating efficiency; perfecting usage-based pricing; embracing, rather than resisting, competing technologies such as VoIP; and exploring new revenue opportunities in industry verticals are all strategies that, even if pursued in isolation, would help operators to counter the existential threats they face today, it concludes. If pursued in combination, the effect on operators’ long-term prospects could be magnified.
The report is available for free download here.
