The inability of new-wave services to make up for the loss of revenue from legacy services continues to be the overriding concern for established wireline operators. Analysys Research forecasts a –3.2% CAGR in retail consumer fixed/broadband telecoms service revenue over the next six years in Western Europe. It goes without saying that fixed voice is in decline, but the rate of decline is accelerating rather than easing off, and the loss of revenue is huge; Analysys Research anticipates that fixed narrowband access and services retail revenue will decline by 54% between 2006 and 2012, a loss of EUR28 billion (see Figure 1).
The potential growth in broadband access and service revenue is substantially smaller than this loss: an increase of 79% over the same period, but a net gain of just EUR15 billion. Residential broadband penetration is close to saturation in some smaller country markets such as Denmark and the Netherlands, and any additional value from VoIP and IPTV will be very limited in most countries; while figures for active users of IPTV appear to be showing, for the time being, healthy growth in some countries, IPTV continues to be a remarkably low-cost, low-revenue business, and so it is difficult to see IPTV providing anything more than a brief fillip to overall European broadband ARPU. In the consumer market, there will be a gap of around EUR13 billion to fill even to maintain today's level of spending in nominal terms.
Figure 1: Residential fixed telecoms service spend, narrowband and broadband, Western Europe, 2006–2012 (Source: Analysys Research, 2007)
Overall consumer telecoms service spend has, for many years, continued to be a steady proportion of GDP, but with sluggish growth for mobile services forecast in developed markets, this is likely to end. So it is an opportune moment to ask whether there is something unsatisfactory about the telco model of service provision.
For telcos, service provision means managed network service provision, and, however customer-focused a downstream retail business may consider itself to be, managed network service provision is based on a fundamentally network-centric model: service provision is the glue that binds the deliverable – the customer experience – to the upstream network business.
Today, customers’ communications experiences are rarely provided end-to-end by a single network service provider, but are furnished by a combination of devices, software, standalone content and, yes, networked services. Moreover, the drivers of consumer demand for devices may be becoming even stronger than those for networked services. There are two main reasons for this. First, the centralisation of services on a developed-world network continues to bear developed-world overheads, whereas devices benefit from developing-world manufacturing costs as well as the economies of Moore’s Law. Second, particular devices and particular bits of content have a totemic value that simply do not have equivalents in the context of services; to use the obvious example, the pre-3G iPhone is more desirable than any managed 3G service.
In other words, the share that services have of total consumer communications spend, while still dominant, is shrinking, and this change may be beginning to impact on broadband. The truly visionary approach for the communications retailer in the twenty-first century is to abandon the ‘network-out model’ in favour of a ‘customer-in model’. This is easy to say, and indeed most telcos will have repeated it as a mantra, but there are few signs, especially in the NGN world, that they are delivering on it. In fact, NGNs appear to be a prolongation of a tendency to centralise intelligence in the network rather than to distribute it out to clients. Which of course is fine if you are in the business of wholesaling to retailers that want to sell managed network services as part of their communication enablement portfolio, but not fine if you are a retailer and the proprietary network provides the only basis for delivering the customer experience.
In its recent approach to retailing, AT&T is one of the few major integrated telcos that is beginning to focus on selling the experience rather than simply selling the service. Some of its Cingular stores have been rebranded and transformed into AT&T Experience Stores, showcasing broadband/TV and wireless products and services. These stores have more in common with Apple and Nokia stores than with ordinary mobile retail outlets. Goods are tangible, totemic and desirable. Not only the name, but the very lay-out of these stores appears to reflect something of a shift from selling (just) services to selling experiences. Several ‘experience and personalization stations’ are located throughout the stores, allowing customers to see how the overall experiences can be tailored to their requirements. Break-out spaces (or ‘guided selling kiosks’) help to finalise the sales of products and services. The experience comes first, followed by a personalised focus on how that might be delivered and sold through products, content and services.
This is just a start, but putting experience rather than services at the centre of the retail business is a way of recapturing lost value.