DTT TMT TelecomIndRprt 03824

Technology, Media & Telecommunications
Waking up to
Competition in the
Telecom Sector .
2003 Deloitte Global Telecommunications
Operator Survey
. . .
Audit Tax Consulting Financial Advisory .
2003 Deloitte Global Telecommunications Operator Survey
Foreword
The view from the executive suite

The 2003 Global Operator Survey was undertaken to help our This report blends the responses with the expert analysis of
clients, partners and staff improve their understanding of how practitioners drawn from Deloitte’s 5,000 strong Technology, Media
telecommunications operators view themselves and their markets and Telecommunications team.
today. The responses provide an industry self portrait by the
The image that emerges is of an industry scrambling to manage
executives plotting the future of the world’s largest service providers
extraordinary change. Full sector liberalization in most major
and operating companies.
markets, the accelerating pace of advances in telecommunications
The survey is part of Deloitte’s commitment to provide on-going technologies, along with global regulatory trends, have turned a
analyses founded on in-depth research to inform strategic decision 125-year-old industry on its head.
making in an increasingly complex global market. This publication
For those operators that can rise to the challenge the overall picture is
complements our program of sector analysis by Deloitte’s
bright; those unable to raise their game face a slow, steady demise.
Technology, Media & Telecommunications group (TMT), which
includes the Deloitte Global Telco Index, Deloitte Research reports
and numerous regional and national reports. Survey methodology
For this report, Deloitte commissioned a global primary
“Our challenges include research program based on 60-minute interviews with 108
executives of major operating companies. Interviews took
regulation, market growth, place in the second quarter of 2003. The survey focused
on four broad geographical regions: Asia Pacific (APAC, 20
maintenance of market share, interviews), Europe-Middle East-Africa (EMEA, 31 interviews),

Latin America (10 interviews), and North America (47
cost reduction, and control of interviews). Qualifying operators had revenues in excess of
$500 million; just over a third of our participating companies
capital investment.” had annual revenues exceeding $3billion. All respondents were
key decision makers; 60% were CxO level. We interviewed
additional executives when speaking to the largest, most
– European executive diversified companies.
Table of contents
Management summary
Can sleepy utilities become market warriors? 1
1. Corporate structure
Structurally unfit for competition 5
2. Product lines
Steady, unrelenting change 7
3. Finances
Prudence or a cut too far? 9
4. Customers
The customer is king – yet still treated like a pauper 11
5. Regulation
Embracing the regulator 13
Conclusions and recommendations 15

About Deloitte 17
Deloitte Contacts 18
Management summary
Can sleepy utilities become

market warriors?
Telecommunications service providers around the globe are
struggling with the biggest upheaval of the century-plus history of
their industry – its mandated metamorphosis over the past decade In fact, the vast majority of our respondents (67%) predicted they
from a collection of utilities and government-owned monopolies would report revenue growth in 2003, while an overwhelming
into a competitive industry. 81% expected to report greater revenue in 2004. The top line
remains positive.
�� However, of greater concern is that many of the world’s telcos

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perceive they have failed to adapt to the permanent shift to
competitive markets that has occurred in the past decade: they have
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failed to reinvent themselves as true market warriors.

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That does not surprise us entirely. Indeed, since Alexander Graham

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Bell founded the first phone company in 1877, competition has
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historically been the exception in the telecommunications industry.
In the US, competition flourished at first, but then the monopoly
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model prevailed for decades. Policies favoring a comeback of
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competition appeared in the US in the 1970s and took hold in a
major way with the 1984 break-up of AT&T that opened the long-
�� distance market, and which spurred the onset of competition in
other countries. But full competition was not mandated in most
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major markets until the mid 1990s.
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The telecommunications sector of 2004 and beyond will be

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dominated by operators that can successfully recast themselves
as aggressive competitors. The remainder will flounder, over time.
The Deloitte Global Telecom Index, published in September 2003, revealed Ominously, our global survey strongly suggests that many telcos
a precipitous drop of more than 70% in the market caps of service remain poorly prepared for competition. Management traditions
providers worldwide from April 2000 through April 2003, after which stock born in the monopoly/utility era have often failed to evolve with
prices began slowly recovering.
the market, resulting in executive suites populated with leaders
suspicious of change and clinging to outdated management
The true impact of these changes has been distorted somewhat by philosophies. Many are resentful of demand-driven products and
several years of market aberrations – most notably an irrational run- services, naive about basic concepts of customer management and
up in stock prices in the late 1990s, followed by market corrections ill-prepared to deal with risk.
that had investors fleeing for cover during much of the last three
years. While the mercurial stock exchanges proved disastrous for
the market capitalizations of operators worldwide (see Figure 1),
the industry’s fundamentals offer cause for great optimism. Demand
for mobile communications is buoyant with more than a billion
subscribers; we are closing on one hundred million broadband
subscribers; third-generation mobile users will exceed 10 million in
2004. Aggregate revenue from standard telecoms services has been
steady, despite uncertain economic conditions.
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Given this context, many respondents cited numerous initiatives 2. Product lines
their companies would be undertaking in the near future (see Telcos are worried about their product portfolios for many reasons.
Figure 2). Given the vast differences in economic conditions and Constantly evolving technology means they must keep innovating
regulatory climates from country to country and region to region, but they cannot invest in technologies customers don’t need.
it is difficult to generalize globally about many aspects of the Moreover customers are becoming more demanding on price,
telecommunications industry. Yet five areas of concern emerged products and service. Deregulation has increased these pressures by
universally in the responses to our survey: introducing more competition. If a telco misses the mark, customers
will go elsewhere. Undeterred, more than 70% of our respondents
indicated that their companies were likely to develop and/or
Operators are poorly structured for competitive markets, and many introduce new products in the near future (see Figure 2).
will have to correct swiftly internal weaknesses in operations,
balance sheets, shareholder value and customer management While advances in technology will clearly anticipate the general
strategies. More than half our panel reported the need for direction of new product development, the challenge will lie in
significant improvements in revenue assurance, IT alignment with committing only to those technologies that will actually generate
business objectives, customer management issues and billing. At the customer demand. Betting on the wrong horse could prove
same time, the ability to adapt quickly to a range of externalities, disastrous. Yet, the gospel of demand-driven products represents
from the economy to consumer demand, will remain a constant a fundamental change in mindset for an industry in which product
challenge. Many operators have operated on a utility model for development has historically been a top-down process. Significantly,
far longer than they have been competitive; some are clearly still when asked to list their criteria for choosing which new products to
struggling to comprehend the new market reality. introduce, only 36% of our executives cited ‘customer acceptance.’
As competition ratchets up, operators will have to act rapidly to Fixed-line products, once the industry’s only offering, now share
address their organizational shortcomings. Most urgent will be the stage with wireless technologies. Wireless and fixed operators
the need to improve the quality of managers, creating structures are slowly migrating along divergent paths from voice to data
that guarantee fast response to market conditions and new networks, with fixed-line services increasingly embracing Internet
opportunities, increasing business intelligence efforts, embracing Protocol (IP) and wireless operators edging toward 3G. There was
proven financial controls and integrating flexible customer wide disagreement among our respondents about when data
management systems throughout the enterprise. services will replace traditional voice products as the industry’s
primary revenue source, but the general view was that this point of
inflection is inevitable.
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The Deloitte Global Operator Survey revealed an ambitious ‘To Do’ list for
the telecommunication industry’s largest service providers. The emphasis
on cost reduction is not surprising, given the economic climate of the
previous three years, but the other initiatives suggest the kinds of longer-
term strategic moves discussed throughout this report.
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4. Customers
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�� Operators are aware they must improve every facet of customer
support –the Achilles’ heel of the telecommunications industry.
�� Improvements are required in billing (cited by 51%), scheduling
repairs (53%), customer databases (57%) and the introduction of
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new products and services (57%). The larger challenge for operators
�� will be to embrace retail models in developing management
structures that are truly customer focused. Somewhat ominously,
�� however, our survey strongly suggested that customer management
initiatives were being seriously compromised by outdated corporate
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structures and disappointing results from CRM technology.
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5. Regulation
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Operators were generally unhappy with regulators, whom they
accuse of obstructing their industry’s progress and damaging their
�� companies’ market value. An overwhelming 85% said regulators had
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intervention would help the industry. In many cases, their resentment
seems overdone – and at times misplaced. Like death and taxes,
3. Finances regulation will be with us forever. It is well past time that operators
‘get real’ about regulation. We believe companies must outgrow their
Operators were cautiously optimistic, with 67% predicting
institutional biases, accommodate new regulatory philosophies and
revenue growth in 2003 and 81% expecting greater revenue in
embrace competition if they are to succeed.
2004. Overall, they anticipated industry revenues increasing 8%
over each of the next two years. Half reported that their own
company’s financial strength was better than a year ago. About a
third expected a turn-around in 2004. Only time will tell if these
improvements are long term rather than an illusory result of
unbalanced cost cutting. A sustainable return to financial health
will require operators to reduce debt and cut costs while recruiting
quality personnel, improving customer service, deploying new
products and restructuring internal systems. Long-term health will
also depend on rational pricing strategies, dependable revenue
assurance systems and a planning process that values turn-on-a-
dime flexibility.
Our survey suggested much concern about macro-economic

conditions: 49% of respondents blamed the global economy
for dragging down their companies’ financial performance and
share price. However, historically demand for telecommunications
products has tended to be relatively recession-proof, accounting for
a growing percentage of GDP regardless of economic conditions
(see Figure 3).
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“Regulation is a huge pain point In our Conclusions and Recommendations, we offer five
fundamental requirements for success in the market:
for us at the moment.” Focus on the customer

Cast off the legacies of the utility era and build a company that
– Asia-Pacific executive thinks and acts like a retail endeavor.
Invest in knowledge
A quest for solutions
Good business intelligence enables you to anticipate changes
Clearly, these five areas of concern are intimately intertwined.
in customer attitudes and shifts in demand – as long as it is not
For example, successful development of the product portfolio
orphaned and ignored by management.
will require structural changes that enable operators both to
gather useful market intelligence and to act on that intelligence
Avoid eating seed corn
efficaciously without hitting a wall of office politics and
interdepartmental warfare. Clearly telecom executives recognize this Cutting muscle from a company to pare costs will ultimately alienate
challenge. Many of those we surveyed pointed to external factors investors more than showing weak earnings or even losses during
– economic malaise, increased competition, price pressures, changes down cycles.
in technology, customer expectations and a challenging regulatory
climate – as key forces driving down their performance. Most also Reinvent your company wisely
wisely identified internal factors as potential responses, demanding There is no quick fix for ineffective companies. The entire corporate
of their companies significant improvements in financial controls, structure and all its human assets must be tailored to today’s
product portfolios and customer care. markets.
It is crucial that we do not lose sight of the enormous potential Work with rather than against regulation
for telcos. Given the almost certain increases in demand for
Companies that play to regulatory changes tend to achieve an
telecommunications services over time, the market’s outlook
advantage over those that emphasize resisting them.
is excellent – but only for those companies that can sort out
challenges arising from product development, customer care,
finances, organizational structure and regulatory compliance.
The fundamental survival tool will be a competitive mindset. As
operators find themselves fending off challenges from both within
and outside the industry, the safety of the utility era is becoming an
ever dimmer memory. Today’s market is one of robust competition in
which one wrong move – a single mistake in choosing a technology,
an acquisition target or a partner – could spell long-term disaster for
even the most well-heeled company.
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Structurally unfit for competition

More than 70% of respondents agreed that competition in the The lack of faith in business competitive intelligence processes, cited
telecommunications industry will continue to grow. Yet most by 44% of respondents, is especially disturbing. It suggests that for
operators revealed they were in poor organizational shape and thus a significant group of operators, understanding customer needs
ill-prepared to cope with competition. and requirements is dangerously compromised, a situation that will
Operators identified multiple areas of underperformance, almost certainly result in failed product introductions. Companies
acknowledging that ‘significant improvement’ would be required that are unable to repair their business intelligence process will
across processes spanning the organization. These ranged from quickly be squeezed out of the market.
human resources to IT management, from channel development to Our panel also addressed what they perceived as less urgent matters
billing systems. More than half our sample identified seven processes – those designated as ‘requiring attention’ (Figure 5) as opposed to
as ‘requiring significant improvement.’ Two-fifths cited as many as needing ‘significant improvement’ (Figure 4).
15 problem areas (see Figure 4).
In the less urgent category, more than half of respondents identified
Of greatest concern were revenue assurance and the management 10 areas of concern. The most common problem in this category,
of IT – named by almost 60% of respondents. noted by three-quarters of the sample, was that current internal
processes are not conducive to reacting quickly to market demand.
A third of this group said a ‘great deal of attention’ was required in
this area. This implies that the majority of operators acknowledge
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requirement for any company operating in a competitive environment.
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�� business and budgetary planning exceeded the value they added to
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the enterprise. This suggests that management quality is lacking.
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A large proportion of respondents expressed dissatisfaction with
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the way they looked after their own customers. Close to three-
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fifths rated their customer satisfaction and contact centers as below
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New products and services, a key potential source of revenue
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growth, were seen by 57% of operators as needing repair. The same
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proportion highlighted customer management – vital to controlling
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churn – as faulty.
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Service provisioning, billing and revenue collection – three functions ��
vital to realizing revenues after products and services are sold – were ��
each listed as problem areas by more than 45% of our panel, while ��
key internal roles – corporate strategy, human resources and capital ��
management – were named as areas of concern by more than 40%. ��
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A substantial number of concerns seemed to cluster around • Latin American companies seemed more likely than companies
customer management issues. One crucial deficiency, cited by 82% elsewhere to seek significant improvements in corporate strategy,
of respondents, was in the area of billing information. Notably, this network upgrades and mergers and acquisitions.
deficiency included event-based billing for both fixed and mobile
operators, which allows premium charging based on value rather Areas in greatest need of attention included internal processes
than on volume (time or bandwidth). When managed adroitly, supporting effective decision making, billing systems, business
event-based billing enables operators to invoice for a wide range of intelligence processes, service provisioning, and business planning.
value-added content, from interactive voting or ordering products Of less concern were repair systems, IT security and network
during television programs to selling ring tones and screen savers planning/maintenance issues.
for mobile phones and extra levels of play for online video games.
Deloitte’s bottom line
Just under 70% said their business intelligence efforts delivered
inadequate information on customers. Not surprisingly, close The degree of competition will ratchet up, not down. Thus,
to 60% said this intelligence deficit resulted in their company operators must take urgent steps to improve their ability to
leaving money on the table due to poor pricing strategies. Service compete by addressing the sundry shortcomings plaguing their
provisioning was also a concern, rated by more than three-fifths as internal organization.
inflexible or untimely.
Fixing the following key elements of operations is essential for survival:
The constant struggle to remain competitive by introducing new
services and technologies, often while attempting to cut costs, has Management capability
taken a toll on the ability of companies to organize and manage Stable management structures will prove less valuable than flexibility.
their internal control systems. No doubt some of this is simply Skills and knowledge that served utility-era managers well, will not
the result of ineffective legacy management structures designed necessarily morph into competitive savvy. Fresh blood and intense
for monopoly/utility models or for once-smaller markets. As one retraining may be needed.
European executive commented, “Going from a small business to
a multi-national company in just a few years … the management Financial controls
structure needs to be adjusted to keep up with our services.” The The transition from monopolist to market warrior – through the
far bigger challenge is restructuring to accommodate a newly anything-goes run-ups of the late 1990s, followed by panicked
competitive industry that is becoming far less forgiving of lethargic constriction in the last three years – has left many operators
utility legacies. writing business plans and balancing ledgers on a roller coaster
ride. Now that the ride has slowed, it is time to assess and
Given the disparate histories of today’s telecom, there is no one fix
embrace fiscal realities.
that will work for all operators. The fact that our respondents widely
cited inadequacies in strategies for assuring revenue and for aligning Customer care
IT functions with business objectives suggests that investments in
control technologies are not being fully exploited. That inference is First operators have to get to know the people who buy their
reinforced by the fact that 75% of respondents say their internal products – who they are and what they want. That means business
processes are not optimized and hence require either some (49%) intelligence must be reliable and must dependably percolate up
or a great deal (26%) of attention (see Figure 5). In addition, 64% through the management structure. Operators also must construct
consider their service provisioning too inflexible, believing it requires responsive interfaces between the customer and the enterprise.
either some (55%) or a great deal (9%) of attention. CRM systems that do not deliver must be fixed or abandoned,
whatever the investment.
When examining areas identified by our respondents as being
in need of significant attention, several regional differences are Billing and pricing
worth noting: Billing must be flexible enough to charge for next-generation
applications, such as consumer video telephony and on-the-fly
• North American executives were more likely than executives
service upgrades. Pricing must reflect utility – otherwise money will
from Europe and the Asia Pacific region to identify a need for
be left on the table. Effective business intelligence is fundamental to
improvements in managing customer information and were less
both an appropriate billing structure and optimal pricing.
likely to voice concerns about service provisioning.
• European respondents were less likely than other executives to

identify a need for improvement in customer information and in
billing/collections.
• Asia Pacific companies were more likely than their American

or European counterparts to cite needed improvements in a
wide range of areas, including managing customer information,
customer service, service provisioning, billing/collections,
corporate strategy, channels/partners, competitive intelligence and
legal services.
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2. Product lines
Steady, unrelenting change

“We need new products that ��
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cover the needs of our customers
and keep them happy.” ��
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– European executive
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The inexorable evolution in telecommunications technologies will
continue to produce a disruptive shift in products and services that
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will define competition among operators for the foreseeable future.
The most important shift in recent years has been the rapid expansion ��
of wireless products, including various flavors of 3G. This shows no

sign of slowing, meaning that the product mix will continue to morph
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rapidly for both fixed and wireless service providers.
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Far harder to predict is the timing of the transition from voice, the
industry’s historical revenue mainstay, to data. The majority of our
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panel predicted that data revenues would supersede voice within
the next two to three years: while 53% regarded voice as their
‘most significant’ source of revenue today, only 38% said they Whilst the timing is uncertain, the movement from voice to data is
expected it to be most significant by 2007. We consider this view a well under way and will likely accelerate. Already more operators
little impetuous: while the migration to data is inevitable, a three- we polled were offering data services (92%) than voice services
year time seems highly unrealistic given the lack of viable revenue (86%). But among those companies currently dominated by voice
models for data products. services, a full half did not anticipate data supplanting voice in the
next four years. This is reasonable since the companies surveyed
included pure-play wireless carriers that for the most part anticipate
a continuing focus on voice services in the medium term.
It may seem counterintuitive that data services are already offered by

92% of respondents, yet only 48% expect data to be the dominant
revenue generator in two to three years. In part, this is because
profits from data services have so far eluded the industry, which
is why voice remains the market’s mainstay product. Data today is
often a commodity service, sold at paper-thin margins.
To move beyond price-based competition, the sector needs to

innovate. Thus it is encouraging that over 70% of respondents
were keen to both develop and introduce new products and
services (see Figure 2).
Two respondents from North America probably best summed up the

global trend when they cited a rapid “decline in revenue on traditional
wire-line sales” and “an incredible movement towards IP technology.”
Operators clearly believe that their future lies in new products and
services based on evolving technologies such as 3G, broadband
and various IP-based services. A European executive described
his company’s priority initiative as a “roll-out of 3G network
and development of multimedia services and wireless corporate
business.” Similarly, a respondent from the Asia Pacific region listed
“growth of IP data services and moving our product portfolio for
data over to IP.”
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The dominant criterion in determining which next-generation

product an operator would introduce is its profit potential, cited
by 44% of respondents (see Figure 7). However, as profitability is
the assumed goal of any competitive business, the more instructive
criteria have to do with customer acceptance of a new product
(36%), compatibility with current products (33%) and the impact
of a new product on competitive positions (32%) – all of which
will eventually combine to determine profitability. A growing focus
on customer acceptance is especially encouraging, since a past
emphasis on technological innovation irrespective of consumer
demand resulted in a number of product failures (e.g. WAP).
It is also notable that ‘first to market,’ a criterion that seemed to

dominate product-introduction decisions during the market run-up
days of the late 1990s, is now perceived as far less important. It
was cited by just 23% of respondents, suggesting that the focus is
shifting from first-to-market to a best-to-market philosophy.

Rapid, demand-driven product evolution – much of which will be
based on data - represents a fundamental change and is hence a
major challenge for the industry. The ability to adapt simultaneously
to competition and evolving technologies will differentiate winners
from losers. Operators need to address the following issues:
• Developing new products and services will be crucial to operators’

survival as unrelenting progress in technology fuels competition
and invites disruption – but they must be products that answer
large-scale demand and that customers are thus willing to pay for.
• While voice remains the industry’s key revenue source, data will
supersede it, first in fixed-line networks but ultimately in wireless
networks as well. Data already represents the majority of volume
traveling over the world’s networks – but only a minority of the
revenues being generated. In the long run the industry needs to
implement business models for data that generate even greater
margins than voice has historically delivered.
• The sector needs to both improve its business intelligence

and enable that intelligence to drive product development.
Otherwise operators will continue to spit out products for which
there is little demand.
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3. Finances
Prudence or a cut too far?

In 2003, the telecommunications sector appears in relatively positive Similarly, many operators have cut staff, which in the long run could
financial shape, although its overall stance remains defensive, with amount to eating their seed corn. Some operators fear they have
the majority of companies still focused on cost cutting. While this failed to achieve the optimal balance. “We have to fire people in
is timely and necessary, cost cutting is no substitute for a long-term order to keep the cost down, which makes it more difficult to keep
strategy. In general, finances are stable or improving, while revenues up the services,” complained one European executive. An Asia-
have been rising or are expected to rise. However the recovery is Pacific respondent wondered: “How many heads can we lose before
delicate, with several respondents expressing particular concern it impacts the customer? It also creates morale issues.”
about the impact of personnel cuts on their ability to function. The income side of the equation suggests reasons for optimism.
Further, several operators still shoulder debts in excess of $10 billion Most of our sample foresaw revenue growth, with 67%
(see Figure 8). predicting revenue will be higher in 2003 than in 2002 and 81%
expecting greater revenue in 2004 than in 2003. Even so, only
�� those companies that can find the right balance in juggling their
�� product portfolio, customer management, cost reductions, internal
structures and relationships with regulators will exploit fully the vast
�� opportunity that is the telecom market. Not all operators will be up
�� to the task: casualties are inevitable. But there will be rich rewards
�� for survivors.
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Overall, most companies report their financial situation as either

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improving (49%) or stable (47%). Only 3% said they were faring worse.
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Operators see a combination of cutting costs and increasing
revenues as the key to financial health. For the present, cost
reduction is the overwhelming imperative, cited as a likely company ��
focus by 84% of our respondents. A total of 67% say they view the
costs of operations as a major challenge, but it remains to be seen
whether recent improvements in financial positions are a short-term Revenue growth, is the No. 2 imperative cited by respondents,
consequence of indiscriminate lopping and hacking of the cost base but it can prove even trickier to realize than cost cutting, given
or are the result of savvy cost optimization. For some operators, an increased competition, pricing pressures and customer churn. Most
improved balance sheet was conjured from much tighter financial operators are struggling to acquire more customers or higher-
management that could well have short-term benefits but long-term margin customers, but, except for carriers operating in emerging
costs. For example several mobile operators have postponed 3G markets, that can end up being a zero-sum game for the industry as
network roll outs. This reduces immediate capital expenditure but a whole. Lasting growth will more likely evolve from the successful
could delay the realization of crucial revenues from 3G products and introduction of new products that do not cannibalize existing
services. It could also damage the company’s competitive position. portfolios and that thus add to the top line. Operators clearly realize
this. More than 80% of our respondents said their companies
planned to roll out new products or services next year.
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However well operators balance cost cutting with product

introductions and revenue growth, a nagging problem will be
actually realizing income and maximizing profits. More than half our
respondents say their companies lack adequate revenue assurance
and fraud management controls (see Figure 9), meaning that time
and money will have to be invested in plugging leaks in the financial
enterprise. Two out of every five of our respondents assessed their
pricing strategy as sub-optimal, with the result that margins were
not maximized. In 15% of cases, this was classified as an issue
‘requiring serious attention’.

The key to long-term fiscal health is more complicated than simply
taking in more money than you spend. A highly competitive industry
largely defined by evolving technology demands shrewd investments
in product development, management skills and quality personnel
that inevitably complicate the balance sheet but are essential to
long-term survival. To a great extent, financial health will depend on
a combination of market vision and simple housekeeping issues:
• True financial health requires growth, which means investing in

new revenue generation. Cost cutting is admirable, but it is not a
long-term strategy.
• Pricing strategies must be balanced between an aggressively

competitive market and the need for revenue growth, yet 58% of
our panel cited pricing strategies as an issue requiring attention
in their company. That is not likely to improve soon since 67%
admitted their business intelligence efforts were not yielding
adequate information on which to base pricing decisions.
• Revenue assurance and fraud prevention must be dependable

enough to enable and protect competitive margins. Yet revenue
assurance was the single most frequently cited area in need of
improvement, mentioned by 58% of respondents.
• Planning processes must look far enough ahead to anticipate total

costs of product development and customer care. This, too, will
require a greater emphasis on business intelligence.
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4. Customers
The customer is king

– yet still treated like a pauper
Nowhere is the new order in the telecommunications industry more While operators recognize the need for customer care, only seven
apparent than in the changing relationship between operators and in ten respondents cited retaining old customers and attracting
their customers. In a competitive market, the key to success is to serve new ones as a key priority. More worrying, the survey indicated that
the customer with the right products at the right price and to respond customer management was being compromised by an outdated
appropriately when things go wrong. A third of our sample reported corporate structure and poor enterprise support technology.
that customers are already demanding better service, and meeting Two-thirds of respondents classified their business intelligence
that demand is going to become more and more challenging as the as sub-optimal. Thus they were not sure what their customers
product portfolio grows. Yet it is essential that operators focus tightly wanted or how they perceived products and services. In some cases
on the customer mission. It will prove to be a sustainable competitive the right data were never gathered. In others, good data were
advantage for those companies that get it right. never disseminated or acted upon efficiently because defective
In the monopoly era, a captive market meant that operators could management structures were stemming the flow of information
safely ignore the needs of all but their largest, most influential from department to department and up the food chain.
customers. In several parts of the world the telecommunications Close to 60% of respondents admitted their call center performance
industry became notorious for customer neglect. falls short. Of that group, more than a third stated that ‘a great deal’
of attention would be required to fix the problem.
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Of those surveyed, 70% have invested in a CRM system, but
only a third of that 70% rate it effective; most voice dissatisfaction
with limited functionality, inaccurate information and poor
�� interoperability with back-office systems.
��
Another 72% consider their billing capabilities limited, requiring
either some (53%) or a great deal (19%) of attention.
��
Indeed, in every measure of customer management included in
the survey, a majority of respondents admitted their companies are
��
failing. More than half (57%) said their management of customer
account information requires significant improvement, while 53%
��
said their service provisioning needs a major overhaul.
�� Thus it is not surprising that customer churn – a major drain on
profitability – was repeatedly cited as a key business challenge
��
globally. At least part of that churn can be attributed to widespread
�� ignorance of customers’ needs, which too often results in poor
product/service innovation. “We need new products that cover
�� the needs for our customers and keep them happy,” observed one
European executive. Similarly, a North American respondent voiced
the need to steer development into “more technology toward
��
customer interest.”
Operators appear to have moved on from the monopoly mindset to Likewise, our panel clearly recognized that customers are unhappy
grasp the importance of good customer management (see Figure with the lack of product quality and service dependability. “We
10), but they have often failed to act upon this revelation. As one must stabilize our infrastructure so our customers trust what we are
North American operator noted sagely: “We have to take care of our selling them,” said a North American executive.
customers. We are realizing more and more that it is important to
have better customer care. It turns better profit and market share.”
11
As for customer segmentation, target markets varied, reflecting

the wide sample we polled. Some operators focus more on the
large-enterprise market; some on consumers, still others on a full
spectrum of customer categories. In terms of product lines, some
offer a single service, e.g. wireless voice calling, while others aspire
to total customer ownership with bundles of services such as mobile
and fixed-line voice, broadband and other data services, Wi-Fi
hotspots and even delivery of video products.
Executives whose companies market primarily to enterprises said

that their corporate customers expect both product innovation and
effective customer service. More than half of the operators surveyed
are focusing aggressively on total ownership of their customers,
and for the most part are relying on bundled offers to facilitate
this relationship. This trend is stronger in the Americas, where
respondents cited strong customer demand for bundling, than in the
European and Asia-Pacific regions. European operators, on the other
hand, were more likely to report that price/value is the single most
important driver of customer satisfaction.

Customer satisfaction is driven by price and value, customer
care, reliable products, quality services and innovation inspired
by demand. The challenge for operators is to improve their
performance in the following three respects:
• Addressing customer care issues – everything from billing

problems to service interruptions and scheduling repairs – is the
industry’s biggest single challenge.
• Customers are demanding design simplicity to manage all the

high-tech gear that defines telecommunications today. Beyond
design considerations, this means providing technical support
that facilitates adoption of new interfaces and increasingly
complex gadgets.
• The bottom line is the adoption of a retail model that measures

and pays attention to customer interests at the very earliest stages
of planning new products and services.
12
5. Regulation
Embracing the regulator

The transition of the telecommunications market from the preserve
��
of sleepy monopoly utilities to a noisy, competitive bazaar did ��
not begin with operators chasing economic opportunities or
technological visions. It was, almost without exception, mandated by ��
governments acting to open markets and encouraging competition.

Incumbent operators loudly protest policies governing competition, ��
and struggling upstarts whose very existence was made possible by

regulatory reforms often blame governments either for not going ��
far enough in establishing competitive markets or for moving too
quickly. Thus, the regulator is about as popular as the taxman.
��
��
��
��
��
��
��
Moreover, 29% cited government regulation as a having had a key

�� impact on their company’s share price in the past 12 months, and
��
11% pointed to it as their company’s single most crucial barrier to
revenue growth.
�� In short, regulation has redefined telecommunications as a business

and investment proposition. In the process, it has become the
An overwhelming 85% of our respondents asserted that government industry bogeyman, blamed for all manner of challenges, failures
regulation had impeded development of the telecommunications and setbacks that operators face in the course of playing in
industry (see Figure 11) either ‘to a great degree’ (34%) or competitive markets.
‘somewhat’ (51%). Not surprisingly, 54% said less government
intervention would strengthen operators (see Figure 12). Several valid points of tension arise globally between operators and
governments over regulatory issues. In general, they boil down to
“Regulation is a huge pain point for us at the moment,” said three complaints:
an executive from the Asia-Pacific region. “Not just the fact that
regulation transfers value from us to our competitors, but there is a • Rules designed to increase competition have resulted in a
flow of effect to pricing and product innovation.” regulatory bias in favor of new entrants at the expense of large
incumbent operators.
• Regulation tends to be an artificial manipulation of the market

that can inhibit more natural forms of competition.
• Government, by its nature, moves too slowly to accommodate

rapid changes in telecommunications technology and markets.
13
“So much is now regulated Deloitte’s bottom line

While operators will no doubt continue to blame governments for
in the telecom industry. misfortunes and setbacks, they would do well to keep the following
in mind:
Government is trying to increase • Too many incumbents waste time and energy railing against
regulatory policy and the (at least partly) competitive markets it
competition, and as a result has created. The best advice for this group is: ‘Get over it!’ The
clock will never be turned back.
there is a bias toward small
• Top executives must replace the tired view of regulation
competitors.” as fundamentally incompatible with free markets with an
enterprise-wide culture of compliance in which the goal is to help
– N. American executive accommodate and shape regulation rather than trying to prevent it.
• However valid their resentment of regulators might be in some

Other sources of friction between operators and governments cases, operators that fail to restructure their businesses to
tend to be more regional or national in nature. For example, many accommodate regulatory realities are doomed to failure.
European telcos resent high prices exacted by some governments
for 3G spectrum, resulting in high debt levels. And the trend for • As the most successful incumbents and start-ups in North
many governments to drag their feet in fully privatizing national America and Europe have proven, the playing field that exists
incumbents remains a point of contention through parts of Europe today is rife with opportunities for any operator that moves
and the Asia-Pacific region. quickly to accommodate new regulatory philosophies and to
embrace competition.
Yet, it must also be noted that a minority of our panelists articulated
the view that regulation has had little effect – or even a positive It is true that incumbents face challenges as they struggle to
effect – on operators, and a few even called for more government compete with new entrants ranging from other telcos and resellers
intervention. to wireless operators, cable operators and Internet service providers.
And there is no doubt that today’s regulatory policy framework
“My company has not been barred from accomplishing what we’ve contains too many precepts carried over from the prior era and
intended to,” one North American executive said of the current too many provisions that are political compromises, rather than
regulatory climate. workable blueprints for dealing with new realities. But in order to
address these issues, incumbents must discard the oppositional
A South American respondent observed, “The last two governments mindset and engage with regulators, policy makers, consumer
helped the industry a lot. They are doing a great deal to entice advocates, and others.
businesses to invest here.”
Aside from these distinctly minority viewpoints, however, regulation

is by and large viewed as a barrier to revenue growth.
But this may be a mistake. There is some evidence to suggest that

those companies that have spent a lot of fighting the regulator, have
tended to perform worse in the long run. Conversely those who
have gone with the flow and focused on improving profitability with
innovative products or prices or by getting into a new market first
have performed well.
One example is Verizon in the US, which threw all its resources into
compliance with the new FCC rules for opening up competition. As a
result, it became the first regional bell operating company to receive
approval to sell long-distance services. Arguably Verizon’s current
health owes a lot to its flexibility in embracing the regulatory regime.
14
Conclusions and recommendations

“Some people see a glass that’s When we sat down to assess the world’s largest telcos through
the perspective of their own top executives in this survey, we
half empty; some see a glass found an industry generally ill-equipped to compete creatively
by developing markets and opportunities. We found executives
that’s half full,” comedian who learned the vocabulary of competition as their companies
morphed from utilities to retail models but who, in many cases
George Carlin once quipped. never actually learned to compete. Our panel’s responses too
often amounted to an admission of having failed to build essential
“I see a glass that’s too big!” management frameworks to accommodate key engines of
competition – customer care, business intelligence, rational pricing
In a similar way, the hazards and promises of the global and revenue assurance. Broadly, we recognized two general models
telecommunications market depend on the perspective of the of operator – the incumbent that has resisted change and dragged
individual operator, a perspective colored by history, geography and its corporate feet through seven years of market metamorphosis
technology. Some telco executives see the newly competitive market and the recent startup whose executive team quickly learned that
primarily as a threat, a glass half empty. Others see it primarily as being just marginally more agile and responsive than the incumbents
an opportunity, a glass half full. But both groups seem to view was enough to survive. The result is an industry that often appears
the market – or at least the portion of the market in which they rudderless to investors and lethargic and unresponsive to customers,
compete – as a thing of fixed volume and proportions. Thus, their especially in contrast to the far more nimble technology industries
underlying assumption is that competition is a zero-sum game: we that feed it.
grow by stealing your customers; you grow by stealing ours. Given The incumbent’s resistance to change is the more difficult to
the cost the industry is already paying for high customer churn, overcome because it is ingrained in the institutional history of a
that assumption suggests a pretty bleak picture of the future. former utility. Indeed, it appears that in many cases neither the
Fortunately, it’s not the only view. management team nor the management structure has been
Like Carlin, we believe the real issue is the size of the glass adequately realigned to accommodate the realities of competitive
– although in our view the market’s potential can never be ‘too big’. markets, and in a few cases a lingering legacy of monopoly-
Moreover, we believe in the lasting value of creative management era arrogance seems to permeate the ranks. There are bright,
– that an inspired and informed team of executives can change the compelling exceptions, of course, including a few of the most
size of their glass by recognizing new markets and inventing still successful operators in North America and Europe and a few Asia-
others, by introducing demand-driven products and services based Pacific incumbents who leaped headlong into the explosive-growth
on sound market intelligence, by building a lasting foundation markets in that region. But too many former monopoly utilities
for growth on customer care and by constructing a flexible still indulge an obsession with yesterday’s market realities, which
management architecture on principles of aggressive competition manifests itself in a sort of ‘cannot do’ attitude. Thus, through seven
rather than on protecting the status quo. Stealing customers is years of change, many operators by their own admission have failed
a great way to build cash flow, but creating markets and market to adequately eradicate a notorious legacy of customer neglect,
opportunity is the only lasting path to profits. resulting in costly churn and sporadic loss of market share. Likewise,
distracted by upstart competitors and unwelcome regulatory
changes, many North American telcos dragged out the introduction
of DSL so long – then implemented it so poorly – that they all but
ceded the broadband market to cable operators in many parts of
North America.
15
Against that background, we recommend that operators consider Reinvent your company wisely
five fundamental commandments of today’s telecommunications Operators must accept the fact that constant change is their only
market: certainty. The evolution of technologies on which their products
are based will accelerate. Consumer demographics and resulting
Focus on the customer
changes in demand will continue to redefine the customer base.
Any operator that wants to flourish in today’s markets must, first Consolidation, entrepreneurial startups and regulators will all
and foremost, be a customer-centric enterprise. This means casting contribute to increased competition, which in turn will threaten
off the legacy baggage of the utility era and building a management thinner and thinner margins. It all adds up to an environment
team that thinks and acts like a retail endeavor at every level and in which operators must be nimble, efficient and responsive to
across departments. More than simply improving the customer accelerating change. That will require many to address shortcomings
service help desk and phone bank, operators must consider the in personnel and management structures through hiring and
customer in every aspect of product development and delivery of retraining, embracing proven financial controls and integrating
services. Demand-driven product evolution represents a fundamental flexible customer management systems throughout the enterprise.
change for the industry, and the winners so far have been those It’s not your father’s telco anymore, and the entire corporate
companies that know their target markets as old friends rather than structure must be modified if need be to reflect today’s markets.
as nuisance elements in the planning process.
Come to terms with regulation
Invest in knowledge
Communication is a need as basic to humans as eating and
It should be obvious that a company needs to know what breathing. Thus, the public’s access to communication products
consumers of its products and services want and how demand and services will always be regulated by civilized societies. While we
is likely to change over time. Yet in too many cases the team may certainly disagree with the rules by which access is distributed
responsible for business intelligence is a marginalized management and regulated, they are a reality that operators must not only
orphan whose recommendations are muted or effectively acknowledge but embrace. That does not mean relationships
quarantined from the decision-making processes in product between telcos and governments will ever be without friction or
development, customer care and marketing. A company that fails that the industry should cease to lobby government officials for
to anticipate changes in customer attitudes or shifts in demand as a advantageous regulatory changes. It simply means that the time
consequence of demographic changes – e.g. an aging population, a for operators to indulge in debilitating future-shock is long over. In
surging youth market or new trends in mobility – is doomed. some instances it is appropriate or at least unavoidable to fight new
policies in courts and legislative bodies. But the key challenge today
Avoid eating seed corn is to define and promote approaches that speak to the social and
In the global economic downturn of the last few years, some cost political issues that preoccupy government decision makers while
cutting has clearly been necessary for survival and even to ensure freeing incumbents from restrictions and limitations that threaten to
the long-term health of certain operators. But propping up the lock them into a long decline if not a speedier demise.
bottom line by cutting the muscle from a company will ultimately
alienate investors more than showing weak earnings or even losses
during down market cycles. It is important to note that the recently
published Deloitte Global Telco Index revealed that while the market
capitalization of telecom companies worldwide had dropped more
than 70% since 1 January 2000, revenues in most parts of the world
had been flat at worst and in most cases had actually continued
to grow. Yet the cost cutting that was taking place across much
of the industry was more reflective of stock market values than
of cash flow problems. While some of this reflected an attempt
to deal with debt issues, we suspect that much was also a simple
matter of playing to the stock market at the expense of rational
investment in personnel and product development. The key to long-
term financial health will be the ability to balance cost cutting with
shrewd investments in product development, quality personnel and
customer care.
16
About Deloitte
Deloitte Touche Tohmatsu Technology Media and
Deloitte Touche Tohmatsu is an organization of member firms Telecommunications
devoted to excellence in providing professional services and advice.
We are focused on client service through a global strategy executed (TMT) Group
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17
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About this publication
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Technology, Media & Telecommunications

The view from the executive suite

maintenance of market share, interviews), Europe-Middle East-Africa (EMEA, 31 interviews),

Conclusions and recommendations 15

Can sleepy utilities become

������ � However, of greater concern is that many of the world’s telcos

failed to reinvent themselves as true market warriors.

That does not surprise us entirely. Indeed, since Alexander Graham

The telecommunications sector of 2004 and beyond will be

������� ��������� ����

������� ��� ������������

������ ��� ������� ���������

���������� ��������� ���������

���� ����� ���� ������������

������������ �� ��� �������

��������� �������� ��������

�������� ��������� ��� ��� ����

�� ��� ��� ��� ����

������� ��������� ����

Our survey suggested much concern about macro-economic

for us at the moment.” Focus on the customer

Structurally unfit for competition

������� ��������� ���� �������� ������� ��� �������

��������� ���������������� ��������

���� �������� �� ������ ������

�� ��� ��� ��� ����

� ����� ���� �� ��������� ������

���� ��������� ������

������� ��������� ����

• European respondents were less likely than other executives to

• Asia Pacific companies were more likely than their American

Steady, unrelenting change

of wireless products, including various flavors of 3G. This shows no

It may seem counterintuitive that data services are already offered by

To move beyond price-based competition, the sector needs to

Two respondents from North America probably best summed up the

The dominant criterion in determining which next-generation

It is also notable that ‘first to market,’ a criterion that seemed to

Deloitte’s bottom line

• Developing new products and services will be crucial to operators’

• The sector needs to both improve its business intelligence

Prudence or a cut too far?

�������� ����� ���������������

��� ���� ���� ���� ���� ���������

�� � ��������� ��� ����

������� �������� ���������

������� ������� ����������� ����

Overall, most companies report their financial situation as either

However well operators balance cost cutting with product

Deloitte’s bottom line

• True financial health requires growth, which means investing in

• Pricing strategies must be balanced between an aggressively

• Revenue assurance and fraud prevention must be dependable

• Planning processes must look far enough ahead to anticipate total

The customer is king

As for customer segmentation, target markets varied, reflecting

Executives whose companies market primarily to enterprises said

Deloitte’s bottom line

• Addressing customer care issues – everything from billing

• Customers are demanding design simplicity to manage all the

• The bottom line is the adoption of a retail model that measures

Embracing the regulator

�� However, of greater concern is that many of the world’s telcos

��

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�� In short, regulation has redefined telecommunications as a business