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Convergence: a Source of Hope for the Telecom Industry?

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Note -- this news article is more than a year old.

The European telecom market is currently undergoing major changes aggressive competition is leading to falling prices and decreasing revenues. Increased regulation at the European level has exacerbated the situation for many providers. The industry is currently looking for solutions. "We're seeing European providers respond to the changed basic conditions in numerous ways. Companies are constantly in search of innovation and new revenue sources, and at the same time they're also continuing to focus on cost reduction. In some European markets, for example the UK and Switzerland, the current trend is towards consolidation," says Hagen G tz Hastenteufel, A.T. Kearney.

The study's co-author Robert Kremlicka believes competition will continue: "There's not much scope left for people to increase the amount of phoning they do. And even if data transfer volume does increase, it will be a zero-sum game, because of the price war. Revenue per call minute is falling so rapidly that in mobile communications, for example, by 2013 they may only be able to cover their costs."

Fight for growth markets

Under present conditions in the industry, the providers suffering most are those only involved in classic telecom business, i.e. operators of pure fixed networks or mobile communications networks. "By 2013, we expect broadband applications and online services segment to account for 22% of revenues (current level: 5%)," says Hastenteufel. However, it is precisely in that segment that competition is heating up.

Positive leverage effect of convergence

The study believes convergence will exert a powerful leverage effect. This essentially involves the integration of mobile communications and fixed network business, initially in sales and customer service, then subsequently in marketing and network operation. "In Europe, virtually all former state-owned providers are positioning themselves as convergent and in that way trying to generate competitive advantages", says Hastenteufel. This is palpable in concrete products. Successful convergent products bundle existing telecom services with new services such as TV.

Convergence in line with what customers want

Integrating mobile communications with the fixed network opens up ways to ensure stronger customer loyalty and win new customers more successfully. "Examples have shown that convergent products can bring down customers' desire to switch by more than half", notes Hastenteufel. Potential for up- and cross-selling increases, which creates competitive advantages over pure mobile communications and fixed network providers. "Convergence fulfils customers' desires for technically high-end yet easy-to-use telecommunications. Integrating the two technologies opens up further scope for product innovation."

But A.T. Kearney agrees that convergence is not a panacea, and will only be successful if implemented in a thoroughgoing, comprehensive manner.

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