Thinking about "Change Management"

For what it is worth, these are some references I used when preparing to teach portions of a "change management" course to some Asian telco executives a couple of years ago.

70 percent of change efforts fail, the Journal of Change Management has estimated. Management consultant Philip Kotter argues there are eight crucial processes to a change plan.

As you clearly can see, the whole process inherently is political: executives have to overcome resistance to change, creating a sense of urgency, then building a coalition to overcome resistance, then creating and communicating the vision.

Organizational personnel then must be given authority to make the changes by acting in non-traditional ways. People with power to support and sustain the changes must be hired and promoted. Perhaps the corollary is that key obstacles have to be removed.

Leaders need to understand they will face a huge amount of resistance, and then discouragement.

What business are you in?

Executives know what business they are in at present. The difficult question is what business they will be in in the future. That’s the hard part. Some organizations will eventually find themselves in different lines of business.

What is the value of the fixed network? How are fixed networks used? What is the opportunity or danger from mobile substitution? What, in fact, is your response to "mobile" competition or the mobility business?

In any event, data services are driving growth on both fixed and mobile networks. And that might always be the case. But what is the relationship between access and services?

What happens to smaller carriers? Scale always matters in the communications business. Will organic growth or acquisitions drive growth?

Many service providers will have tough choices to make, such as whether to sell the business, divest some parts of the business, or outsource parts of the business. Others will find the business context has changed.

Is your business growing, flat or declining?

Global telecom revenue tends to grow, in most years. But that doesn’t mean every segment, and every market, does so.

Your business strategy will reflect that dynamic. Some service providers face a fundamentally tougher future business climate. That is true in Europe, and could be an issue in other similar markets. Consider four years of decline in the U.K. market and other Western European markets.

That is a problem for most service providers in developed markets, less a problem for developing markets, where the decline of voice revenue is not yet a problem. Some think additional markets are approaching a peak. Even mobile messaging is becoming mature.

But the Asia-Pacific region is generally seeing high rates of revenue growth. So, in general, does most of the developing world. But growth will not be universal.

Regulatory action also will affect your strategy. In some cases, regulators will take action to decrease your revenue. Regulators also powerfully affect your business model, prices, revenue opportunities and therefore strategy.

What business should you be in?

What is the foundation for your business? what is the lead offer? How much must you supply? How will that change, over time?

How much should you rely on organic growth, versus acquisitions. Can you, and should you, enter the mobile business, if you are not already in that business? Is such a move even feasible?

Is unified communications the answer? How about machine to machine services such as home automation? How big will that business be in the Asia-Pacific region?

What about cloud computing? What is the role of entertainment video? What about connected car opportunities? How much can service providers make from the connected car business?

How important will mobile commerce potentially be, for mobile service providers?

What are the relative values of business and consumer customer segments? What do those customers want to do? How big will product transitions be? In any case, business models must change, many would argue. If there is good news, it is that such transitions are possible.

Who are your competitors?

Who are the logical, and unexpected, potential mobile service providers? Can mobile compete with fixed networks for broadband access? Even the most stable markets can be upset by new competition.

The switch to IP networks automatically allows new competitors into any business, especially non-traditional providers. That means new competition is coming. Look at France, where Illiad has disrupted the market.

Expect more of those unconventional attacks, from unexpected competitors.

Who are your customers?

Do you serve consumer and business customers, wholesale or retail customers? What do they want from you? How might your customer base change in the future?

If you are a fixed line provider, how do you benefit from mobile and mobile offload?

What are you doing now?

It is important to contain cost. That might not be so easy. But in competitive markets, the lowest cost competitor tends to win.

And customer demand is changing. Keep in mind that big changes in the communications business tend to have a long gestation period, where it doesn’t seem much is happening. But then we hit an inflection point and everything changes quickly. Because change is slow at first, many will move too slowly to meet coming challenges.

Market competitive Internet access offers provide one example. In some markets, change now has become non-linear.

Still, managers will do best, financially, by protecting existing revenue streams, even as new lines of business are grown. The reason is revenue magnitude. The legacy business normally is large; the new businesses small. So small changes in the legacy business represent much more revenue impact that big changes in new lines of business.  

What must you do tomorrow?

Over the medium and longer term, new revenue sources must be found. In many cases, there will be serious gross revenue implications. The saying “exchanging analog dollars for digital dimes ” captures the dilemma.

But even legacy services require more investment. And nobody likes being thought of as a dumb pipe. But “access” is a foundation for the rest of the business. Untethered might be as important as “mobile.” Can you use new spectrum?

But in many cases, major change will be necessary. But the timing of your moves will be crucial. And what drives growth is a question.

Much also depends on the future competitive environment, including mobile bandwidth capabilities that challenge fixed networks.

What are your unique sources of advantage?

Does your firm possess unique sources of value? If so, what are they, and how do you know? How much value will your network provide in the future? Is innovation one of those strengths?

How do you create value? What should your core revenue strategy be? If you are a fixed services provider, what is the strategic value of your network?

Are your people ready for change?

Skills need to change, and that can be difficult to manage. Change will be easier for mobile service providers, harder for fixed network service providers.

Reinvention is risky and hard, but there are some examples of success. The bad news is such success normally happens for larger carriers, not smaller carriers.

Are you making the right investment choices?

Few executives actually focus on what is most important. Are you measuring success the right way?

What is your network?

Wi-Fi hotspots now are part of the carrier infrastructure, even when those facilities are not owned. What is your strategy about mixed private and public access? Consumers are rational about the value those options represent. Can you match your services to those expectations? How does Wi-Fi figure into your strategy?

How must you run your network to accommodate higher Internet access demand? In many cases, gigabit networks will become a market reality.

If you run a fixed network, and must upgrade, which network do you choose? Can you use unlicensed spectrum? Can you use mobile networks?

What are the roles for mobile and fixed networks?

Industry Issues

Net neutrality will have impact on revenue models and innovation. But investment is a bigger issue. So is intensified competition. That also means more mergers. Over the top competition is a fact of life.

Mobile services are a strategic factor globally. So is the Internet. How fast use of the Interent is growing likewise is a major investment issue.

Disruption is a major industry concern. Sometimes, that disruption can be unintentional. Often, the attacks use unconventional approaches.

Where is the revenue growth?

Mobile services drive growth, globally, but the role of fixed networks will vary from market to market. Public access will provide a niche opportunity. In many instances, mobile networks will be the primary way people buy  high speed Internet access.

In most cases, even new services will have uncertain revenue magnitude.

That illustrates another problem with many new services: profit margin might be a challenge.

One reason so many service providers now bundle products is that the old “one product” model is broken. There is just too much competition to support a business that way.

How do you respond to over the top services?

In some specific instances, OTT could help service providers. Also, software or application services might grow faster than hardware based solutions. Unified communications might be one example of that trend.

Sometimes the revenue models are not completely clear. And every larger service provider must decide to get into OTT apps themselves, or not. That requires an assessment of whether OTT messaging cannibalizes text messaging.

That could unlock some Internet ecosystem revenue for service providers. The point is that service providers have choices.

But that doesn’t necessarily mean service providers always should respond to new offers by matching them, as logical as that seems. Can you compete? Should you?

How do you price and package services?

Bundling works, which is why most service providers are striving to be multi-product providers.

Crafting retail offers entails some science, some art. The challenge of pricing Internet access will become more difficult in the future.

In many cases, adding small incremental charges can add more revenue than big new services initiatives. But packaging tactics can make a big difference.

Also, revenue upside from selling faster access services can be a challenge.

Mobile service providers are counting on 4G networks to boost revenue. Just how impact that will have is unclear. There is hope, over the long term, but new revenue opportunities often emerge only after some time has passed. Tablets might be an exception to that rule.

How offers are constructed might also become important. Today, service providers price by the minute or by the megabyte. Someday we might price by the value of an application. That will require retail packaging that is both simple and sophisticated.  

One growing problem is that people have choices. There simply are other ways any consumer can solve a problem. Many of those choices have revenue implications.

Price anchoring will be important.

Ting Internet Expects 50% Adoption Within 5 Years

As Google Fiber apparently discovered, one of the most-significant variables for any “overbuilder” in the internet access business (a third competitor in markets served by a telco and a cable company) is the adoption or penetration rate, since the other two legacy providers have nearly 100-percent market share.

As was the case for overbuilders in the video entertainment business, and now with triple-play and internet access overbuilders, it has proven difficult to reach 20 percent market share after several years of operation.

Tucows, an overbuilder constructing gigabit internet access networks in a number of mid-sized towns, believes it eventually will reach 50 percent adoption rates in its markets after five years, a stunning figure that has been seen once or twice in U.S. overbuilder markets, but an achievement that  remains quite rare.

At that level, an overbuilder would become the likely leader in its market.

Even expectations for the immediate future are healthy. “We expect to see 20 percent adoption among serviceable addresses in a year and 50 percent in five years,” says  Elliot Noss, Tucows CEO. Generally speaking, an overbuilder with 20-percent share and control of its operating costs reasonably can expect to survive.

Tucows estimates that its Ting Internet operations will continue to require about $2,500 t0 $3,000 per customer in capital spending.

In Charlottesville, Virginia, our customer installs continue to increase every single month and we continue to be limited only by city permits, serviceable addresses and installed capacity, said Noss.

Westminster, Maryland; Centennial, Colorado and Sandpoint, Idaho also are expected to go commercial in 2017.

Internet Fast Lanes Do Not Inevitably Create Slow Lanes

Network neutrality is not an easy concept; it never was. But as U.S. network neutrality policy seems likely headed for changes, the misinformation and misunderstanding will have consequences.

In popular imagination, network neutrality has been about preventing potential internet access provider exercise of market power. The thinking is that by outlawing any forms of packet prioritization.and quality of service, ISPs can  be prevented from creating new “fast lines” for content.

Ignore for the moment other issues, such as the fact that some types of internet content actually benefit from packet prioritization; that packet prioritization already happens; that paid packet prioritization already happens; or that it is nearly impossible to clearly distinguish between permissible “network management” and banned “packet prioritization.”

The notion has been that creating voluntary “fast lanes” (allowing content delivery network features from access edge to the end user) would, by definition create “slow lanes” (otherwise known as best effort internet access, which is precisely what we have now).

Those assumptions are based on “scarcity,” something that is ceasing to be a constraint in the mobile and fixed internet access businesses in the United States. In other words, creating some services that have quality of service features “creates slow lanes” only if one assumes there is a scarcity of bandwidth.

On networks pushing up to a gigabit per second, and then beyond within the next five years, on both mobile and fixed networks, there is not going to be any functional scarcity. There will be plenty of available bandwidth for best effort services, as well as some QoS services, much as now happens with WoS-enabled cable TV video services and best-effort internet access services.

To be sure, some worry that for-fee prioritization, were it to become a market reality, would disadvantage smaller content or app providers. That already happens, as big content providers routinely use content delivery networks that prioritize packets. That is what Akamai and other CDNs do. It does not appear that such packet prioritization by some big providers actually prevents all other smaller providers from entering markets and creating services.

Scarcity of access bandwidth used to be a problem. It is not going to be a problem in the near future. For that reason, fear over the impact of prioritized packets misses the mark. Fast lanes will not automatically create slow lanes, because there will be bandwidth abundance. Best effort still will work. But apps requiring some QoS measures might be made lawful.

It is not going to be an “either, or” choice.

Sprint is Going to Sell, Not Buy

SoftBank Chairman Masayoshi Son seems to be signaling a rational approach to any proposed

transaction regarding Sprint. In the past, SoftBank has tried to act as the acquirer of T-Mobile US. And though many (including investment bankers who profit from any transactions of this sort) believe SoftBank might make another run at T-Mobile US, the company also seems to be signaling that any other reasonable deal, including those where Sprint is the target, not the the buyer, are possible.

That seems sensible. For some of us, it never has been so clear how that particular combination would pass antitrust muster, in particular the Heffindahl-Hirshman Index used globally to measure concentration in telecom markets. By HHI metrics, the U.S. mobile market already is highly concentrated, and a Sprint-T-Mobile US merger would only concentrate it further.

Other vertical combinations would not face such immediate problems, might actually preserve or strengthen mobile market competition, and therefore would seem to make much more sense, from the standpoint of asset owners looking to gain scale and scope in the U.S. communications market.

Leading U.S internet service providers Comcast and Charter Communications already have made clear their intention to enter the U.S. mobile market. So one buys T-Mobile US; the other buys Sprint. HHI then is not an issue. Both cable companies become instant market leaders.

Some have floated the idea that Verizon buys Charter, something that raises HHI obstacles of another sort, namely in that case the need for Verizon to divest nearly its whole fixed network to avoid issues on the “share of U.S. homes passed”  front.

That outcome--Verizon divesting its Fios assets--seems unlikely, or at least problematic. On the other hand, Verizon does face strategic issues as it seeks further growth. It cannot acquire additional mobile share by acquisition. It may not want to be a bigger player in fixed network consumer services. And, so far, it has preferred a “get bigger in mobile advertising” path than a “get bigger in video content” strategy.

Nor has Verizon wanted to expand internationally. Still, if a big wave of mergers starts to happen in U.S. telecommunications, Verizon might feel compelled to make a move of some kind to bulk up. None of the rumored moves seem unabashedly “right.”

Incentives Always Matter; Free Always Encourages Usage

Nothing encourages use of any desirable product so much as a price point of "zero." That seems clearly to be the case in India, where Reliance Jio in the fourth quarter of 2016 allowed new customers 4 GB of mobile data usage, each day, and even now offers new customers 1 GB of free mobile data usage, as a promotion.

Such generous offers should have consequences. Indeed, they have, allowing Reliance Jio to sign up 50 million new accounts in a few months. But such generous mobile data promotions also seem to decrease use of Wi-Fi.

We normally expect consumers to rely on Wi-Fi for much of their internet access from mobile phones, and often expect the majority of total data consumption (not sessions) to occur over Wi-Fi networks, since such behavior helps customers protect their mobile data usage allowances.

In India, where Reliance Jio has been offering first 4 GB of free data usage per day, and 1 GB of free data usage per day through early 2017, such offers have proven to increase use of mobile data far beyond what one might typically expect.

Since September 2016 Reliance Jio has signed up 50 million customers and has triggered a price war among India’s established mobile operators.

But Jio customers also differ from other mobile customers in India in one way: they have a very low usage of Wi-Fi connections, according to OpenSignal.

OpenSignal data from Sept. 1 to Nov. 30, 2016  (the three months in which Jio has been available), Jio users connected to Wifi networks about 8.2 percent of the time. That is well below the average of 29.8 percent of internet access time on Wi-Fi.

• Jio                  8.2 percent
• Idea               24.1 percent
• Telenor          24.3 percent
• Aircel            24.9 percent
• Airtel             27.1 percent
• Reliance        28.1 percent
• Tata DoCoMo 30.4 percent
• BSNL             31.1 percent
• Vodafone      31.3 percent

The obvious reason for the low Reliance Jio customer use of Wi-Fi is that they simply have so much free access on the mobile network that Wi-Fi access to “save on data usage” is simply an unnecessary move. Of course, all that could--and should--change once Jio starts charging for mobile data usage.