To serve customers, telcos must raise shareholder value

Calls to cut costs and increase revenues are the two most common imperatives echoing around the boardrooms of major corporations....

Calls to cut costs and increase revenues are the two most common imperatives echoing around the boardrooms of major corporations. This is hardly surprising, as the profitability of any organisation rests with these two fundamental metrics.

Within the telecoms community these calls have taken on a new urgency. After years of positive performance and near-hysterical market sentiment the telecoms industry is into a period of retrenchment.

The days of soaring stock prices fuelling acquisitive strategies are over. The industry has had to accept the "back to basics" concept of reducing debt and building real shareholder value. Expansion strategies have been replaced by survival plans.

No part of the telecoms industry has escaped the setbacks. Solid blue-chip companies have seen their valuations fall dramatically, while more fragile organisations have disappeared entirely.

Senior managers of telecoms service providers have begun to address key business issues and this has already started to reshape the industry. The David and Goliath battle of the new entrant versus the incumbent has shifted in favour of the heavyweight. The more immediate issue of short-term return on investment has superseded long-term vision.

Many of the major names in the network equipment market have seen tough times over the past year. But this is not because demand for telecoms services has evaporated overnight. Indeed, underlying demand is probably as strong as ever.
Ironically, the rapid growth in data services and the subsequent Internet dotcom boom that did so much damage to the industry will be its saviour.

Voice has never been a high growth service - apart from the mobile telephony market, and even that is showing signs of saturation - and many multimedia services have failed to take off due to inherent lack of bandwidth or business need.

How many times has videoconferencing been described as the broadband "killer app" that will render air travel unnecessary? Even at the end of the dotcom boom the real success story of the past five years has been the way the Internet has seeped into every pore of corporate life. It is too well entrenched for anyone to take it away.

Part of the problem rests with identifying the profitable services that will drive real revenue growth rather than user statistics. Carriers face a tremendous challenge as they try to make money with commodity Internet services such as basic connectivity or access. However, business customers, especially those that want to outsource networking infrastructure, will pay a premium for business-quality Internet protocol (IP) services.

Demand for value-added business and enterprise data communications will continue to fuel service provider growth. It will be data and Internet services, such as transparent local area network services, IP virtual private networks, frame relay, broadband access, co-location services, content delivery and management, wholesale IP and Web hosting that will provide opportunities for growth well beyond what could be achieved with voice-only services. They will require investment in key areas.

High capacity multiservice core infrastructure will be needed to transport data with reliability rates taken for granted in the voice world. Broadband network access has to be available using a variety of physical access technologies from copper to fibre to fixed wireless.

The real innovation exists in mapping the needs of the users to the network resources through increased intelligence at a service control layer capable of optimising resources and guaranteeing quality of service.

The right moves now will define the architecture for rebuilding the telecoms industry.

Hari Haran is chief technology officer at Lucent Technologies

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