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Telecoms companies urged to review risks

27 March 2009

Losing ownership of the client to non-traditional players is the biggest risk for companies in the telecoms sector this year, according recent findings.

An annual top ten ranking reveals that as non-traditional players, such as internet companies, cable providers and equipment manufacturers have become new partners and competitors, they are battling to control the same clients as traditional telecoms operators. This in turn is creating competition that is both intensifying and becoming much more complex.

These are the findings of a business risk report by business advisors Ernst & Young, published in conjunction with strategy consultancy Oxford Analytica.

Vincent de La Bachelerie, global telecommunications leader at Ernst & Young, said there are a number of factors that have driven the risk from non-traditional players up to the top of the list. However, he said that companies need to be aware of all the risks they face and be ready to respond to them – particularly in an economic downturn.

“As the market becomes more global and prepaid packages more common, customers are becoming increasingly anonymous,” he said. “In addition, new entrants such as internet companies are competing to ‘own’ the client by delivering alternative services and modes of communication. Losing ownership of the client means losing touch, losing loyalty, losing a share of value added and ultimately, losing the client entirely.”

La Bachelerie said companies are responding to the trend by developing new competencies and shifting to software-based and transaction-based services. He added that telecoms companies also needed to regain loyalty, not only as network service providers, but as brands in their own right.

Counting the costs of a downturn

The research suggests that the current slowdown is expected to bring about a certain decline in overall telecoms services, especially for the latest high-tech services. Also, a growing threat is posed in some emerging markets where telecoms operators that provide high-quality services face increasing competition from companies with new, low-cost business models.

In the current economic conditions, it is unsurprising that for mature market operators efficiency is a priority. Adequately forecasting and measuring returns from technology and infrastructure investments, as well as ensuring that new business models would generate sustainable cash flows, become even more critical in this environment.

“Traditional telecoms companies looking to continue their growth plans and move into emerging markets must look at new strategies that reduce costs and maintain a competitive advantage against these new players,” La Bachelerie said. “An inability to do so may expose operators to increased risks, particularly when they are even more vulnerable if weakened or distracted by the economic downturn.”

The 2009 top 10 telecoms risk rankings are:
1. Losing ownership of the client
2. Regulation and compliance
3. Inaccuracy in forecasting returns from technology and infrastructure investments
4. Failure to generate sustainable cash flows from new business models
5. Inability to manage consolidation and mergers & acquisitions
6. Attracting and managing talent and intellectual capital
7. Inappropriate processes and systems to support new business strategies
8. Poorly-managed strategic partnerships
9. Privacy and security risks
10. Inability to contain and reduce costs

“Many risks the sector is facing are linked to balancing the need to remain competitive through new service offering, strategic partnerships and cost cutting, whilst fighting the economic perils of a downturn and new players entering the market all at the same time,” La Bachelerie continued.

“Business risks change with market conditions, so it’s important that companies take a strategic view of the risks they are facing and ensure that plans evolve with the current business environment. In volatile times, this discipline is more important than ever.”