There are any number of ways to describe the growing stress on communications service provider business models in Europe. Service providers are adopting three distinct business models, according to Bart Bastiaans and Lars van Zomeren, consultants with KPMG in the Netherlands.
Those models include the “private access network” model, the “shared access” model and the “mobile virtual network operator” model. Only the first model uses the traditional “owned infrastructure” approach.
The “shared access” model uses one or more levels of network sharing, while the MVNO model is a wholesale-based model with no network ownership.
Traditionally, network ownership has conferred business value. That works when access is expensive and therefore scarce. The model doesn’t work nearly so well when there are multiple access providers competing in a single market.
“In markets where networks are no longer seen as a differentiator, private access network models most often result in high capital costs with little added value,” the KPMG analysts say.
In the shared access model. assets are shared between competitors. In some cases, only the passive assets (such as towers but not antennas) are shared while in other cases entire active mobile networks are shared and jointly managed.
Traditionally, the mobile virtual network operator model is among the non-facilities-based ways service providers can do business.
Others have argued there are just four future models. Researchers at Booz and Company have argued that there are four basic business models.
Half the models essentially are wholesale in orientation; one requires global operations and one is the traditional model, but with operators moving further up the value chain.
The "network guarantor" model has network infrastructure providers operating in a wholesale mode, providing other retail providers network services.
The "business enabler" is a mixed model, including both retail broadband services as well as wholesale broadband, managed services, transaction and billing support, and platforms such as hosting and cloud computing.
The "experience creator" is closest to the current retail model used by most service providers globally. Experience creators will look to move up the telecom value chain and provide end-users, both consumers and business customers, with the ubiquitous connectivity they demand, with targeted applications, fresh content, and a distinctive experience, and with the ability to create and distribute their own content.
The "global multimarketer" model is a retail model, but requires global operations and scale beyond a single nation. Already, more than 75 percent of telecom subscribers in regions such as Europe and the Middle East are owned by global operators,” Booz & Co. says.
There are challenges for service providers in all four scenarios. The "wholesale only, network guarantor" model offers a trade off. There is less sales, marketing and customer service cost, since the products are wholesale, sold only to retailers, not to actual end users. On the other hand, gross revenues likely are smaller, and profit margins also will tend to be lower than is typical for retail operations.
To the extent that executives are worried about being reduced to the role of "low margin dumb pipe providers," this model guarantees it. In this scenario, service providers supply connectivity and other network services to all other retail entities, who have the actual relationship with end users. Also, companies that want to "own the customer relationship" will find this model unattractive, since it abdicates that role.
The "business enabler" model has a mix of advantages and disadvantages. It retains the retail role, implying both higher sales, marketing and customer support costs, but also higher gross revenue potential and higher margins for those retail services. But this model also includes sale of infrastructure services to third parties, on a wholesale basis.
That means there is inherently a possibility of channel conflict, as the service provider essentially competes with its wholesale customers in the retail market.
The experience creator model is the closest to today's model, where a service provider sells retail services to end users. It offers the least dramatic changes to the current model, but arguably also offers the smallest chance of dramatic changes in overhead and operating costs.
The global multimarketer role is most logical for larger, well-capitalized firms with some ability to leverage a strong brand in additional markets. This strategy probably is not viable for small national firms with weak brand name assets and small market capitalization. This strategy also is likely to prove attractive only for firms with the ability to provide mobile services.
