Customers Unwilling to Pay for Premium Services - Report
Telecom industry executives are focusing on growing their revenues by introducing new products and services, yet, as the industry moves toward a converged services environment, many consumers say they may be unwilling to pay a premium for such services, according to a report commissioned by KPMG. According to the findings of a global telecom study, KPMG found industry executives projecting strong revenue growth ahead, eyeing revenue growth over greater cost efficiency (59 vs. 41%, respectively) as the leading driver of improved financial performance over the next two years. In fact, 44% expect revenue growth of at least 15% between now and 2007.
In reviewing the factors driving revenue growth, 57% cited new products and services, followed by 46% who said growth of customer base, and 38% who expect growth on spending from existing customers.
But in a separate KPMG global study of approximately 3,600 customers who own and use cell phones, 37% of the North American respondents surveyed said they would not pay a premium over and above their current bill for converged services and 20% indicated that they would spend only up to 10% more than their current bill.
"While holding the line on costs remains critical, executives expressed high levels of optimism going forward in terms of revenue growth," said Carl Geppert, Partner and Industry Leader for KPMG's Americas Communications and Media Practice. "Growth, however, will not come easy, as convergence and intensifying competition are fueling a relentless decline of prices for voice, broadband, video and packaged services."
In fact, in the KPMG survey, 52% of executives felt that "downward pressure on prices" would have a major impact on growth, followed by 17% who felt that "market saturation would impact growth" and 11% who cited a "shortage of talented staff."
Geppert believes it is time for the communications companies (wireless and wireline telcos as well as cable TV providers) to develop a specific new business model for converged services because "attempting to exploit converged services purely to squeeze more cash from consumers on a traditional subscription model will not work." "Service providers should use enhanced and bundled services to deepen customer relationships and allow other parties to reach users, delivering a loyal subscriber base that is attractive to advertisers and digital commerce partners," he said.
"This is a generation of consumers raised in the Internet era, where content is perceived as being free," said Geppert. "Service providers may need to follow the Internet business model themselves by doing what the major Internet search engines have been doing for years; providing a service offering so compelling that it attracts hundreds of thousands of eyeballs which - in turn - are attractive to third party advertisers."
The KPMG study found that North American consumers listed the cell phone as the means by which they preferred to consume all types of media, except music. "This indicates a preconditioned comfort level with the cell phone as an all-purpose multimedia terminal, which is a positive sign for providers of converged services," Geppert added.
KPMG found that the top ranked capability on wireless handsets is Internet access, with taking and sharing photographs second and e-mailing capability third. Among those interested in consuming video on their cell phones, movie trailers or short movie clips were at the top of the list of preferred content. News clips were second and sports clips were third.
The survey also found that 90 percent of North American consumers stated a preference for a single service provider, and 89% desired a single, consolidated bill for all the services they use.
"These are interesting times not only for wireless carriers but wireline telcos and cable companies as well," KPMG's Geppert said. "Our survey respondents exhibited an overwhelming preference for a single service provider. Yet, with converged services becoming an increasing reality, there may be room for only a few players 'owning' the relationship with the customer. It will become increasingly important to manage this new business model correctly in order to earn the right to own those relationships."
The Economist Intelligence Unit (EIU) polled 48 telecom executives for KPMG in October and November, 2005. The respondents in the telecom industry were drawn from network operators, service providers and equipment vendors.
KPMG commissioned Taylor Nelson Sofres to undertake a global consumer convergence survey. A total of 3,576 interviews were conducted in Asia- Pacific, Europe and North America with consumers who own and use cellular phones, in order to develop a detailed perspective on the experience base, attitudes, behaviors and preference associated with various electronic information and entertainment services, particularly as might be delivered via mobile handheld devices."
Posted to the site on 21st March 2006