AT&T Tower Sale Raises, Does Not Answer, Question of "Core Competency"

What is AT&T’s “core competency?” That is a question observers might raise, in the wake of AT&T’s decision to sell its U.S. mobile tower network to Crown Castle, and then lease the towers back.

But the question is not new. Sprint Nextel decided to outsource network operations in 2009, for example. In other words, Sprint decided that the day-to-day operation of its network was not, in fact, central to its success as a mobile service provider.

Some might note that leasing a tower site, or even a whole tower network, is not core because ownership does not provide unique value. But at least some service providers do not believe running a network is crucial, either.

But you can peel back the onion yourself. What actually is the unique, hard to replicate competence that is customer facing and also enables a service provider to apply in other new lines of business or markets?

Except for the fact that it they are not customer facing, one might be tempted to include deep understanding of the regulatory process, ability to raise large amounts of capital at reasonable rates or ownership of scarce access assets as examples of core competence.

So what is a mobile service provider’s core competence, or key competencies? Many would be very hard pressed to identify them, at least using a classic definition.

A core competency, as seen by, C. K. Prahalad and Gary Hamel. In their view a core competency is a specific factor that a business sees as central to the way the company or its employees work. It fulfills three key criteria:

1. It is not easy for competitors to imitate.
2. It can be reused widely for many products and markets.
3. It must contribute to the end consumer's experienced benefits and the value of the product or service to its customers.

A core competency revolves around a specific set of skills or production techniques that deliver additional value to the customer, allowing a firm to succeed in a wide variety of markets, not just one, it might be argued.

By that definition, many “core competencies” actually are not central, because competitors can and do imitate the claimed core competence, because the competency cannot be demonstrated in more than one product line or market, or because the claimed core competence is not customer facing.

Walt Disney World Parks and Resorts has three main core competencies, some would argue:

• Animatronics and show design
• Storytelling, story creation and themed atmospheric attractions
• Efficient operation of theme parks

Some might argue that core competency does not matter, in the sense that what is core is the ability to operate outside the legacy core in a new line of business or ecosystem.

Others might argue the core competency is the ability to recognize and acquire a new core competency, or that adaptability is the core competency.

That’s a reasonable approach, except that it implies “customer facing” skills are not, in fact, required as part of the definition. Some will say that is the case.

Some might argue a successful competitor can have multiple “core competencies,” despite the classic definition of a core competence as the singular capability a firm has that cannot be replicated easily by its competitors.

Of course, one key scientific principle is that when a theory does not fit new facts, the theory likely is wrong in some way. In the case of telecommunications, it is likely the fact that do not fit are that most of the likely candidates for “core competence” are in fact, not directly customer facing.

That is not to say telcos have no core competencies. But it is hard to fit the likely sources of advantage within the traditional definition of core competence.

Selling towers is not unprecedented.  T-Mobile USA has done so. Sprint did the same. Other carriers, such as Saudi-owned PT Axis Telekom Indonesia, have sold off tower networks.

In fact, the sale of tower assets seems to be a global trend.

VimpelCom, as did Sprint,  has signed a five-year managed services contract with Ericsson that has Ericsson managing network operations on VimpelCom's behalf at more than 10,000 sites.

The deal suggests that network operations are not viewed as a core competency by VimpelCom. It isn’t that the network is unimportant; simply that it is not the unique source of perceived value.

Likewise, Reliance Communications signed a similar deal with Alcatel-Lucent in India.

Such developments might have been unthinkable back in the monopoly era of telecommunications, when executives might have argued that network operations were the core competency. The phrase can be misunderstood.

In common usage, a core competency might be understood as “something we do well.” That is not quite what business strategists might mean.

A core competency is a single, specific competence that not only is essential, but offers a key way of differentiating from other contestants in the same market.

A core competence therefore is a subtle thing. It is not just “something we do well,” not only the “singular advantage” a company might possess, but a capability that also distinguishes a firm from all others in the same business. And the traditional definition is even more stringent: the competence is customer facing.

That is what makes a “core competence” hard to pin down. Firms might have key skills in the regulatory area, for example. But other leading firms might also have such skills. That means skill at managing the regulatory process is not a “core competency.”

What is a bit shocking is that “running a network” is no longer seen by every carrier as a “key competence,” much less a core competence. That is not to say the network is unimportant, only that it is not uniquely important.

Mobile virtual network operators, and most fixed network service providers in Europe, likewise would say “owning a network” is not crucial for them. On the other hand, “access to use of a network” is foundational, if not a unique source of advantage.

Most difficult, one might argue, is the “customer facing” nature of such competencies. Unless you want to argue that billing, or marketing, or retail operations are examples of core competencies, it is quite troublesome to identify what a core competence is, for a communications service provider.

Most of the sources of advantage some of us might identify--regulatory skill, access to capital, ownership of scarce access assets, huge customer bases--are not directly customer facing.