NEW BLOG: Across Europe and the US, the current wave of operator mergers could be seen as an attempt to create giant international network groups that rival the Chinese model in size. But China’s three national operators are actually a collection of regional networks, many of which are larger than even the biggest national operators in the west.
So as emerging operator companies in the west move to consolidate, they can learn from the Chinese experience that size alone is not the answer.
Across all industries, when two of the seemingly bigger players in the marketplace merge – or one acquires the other – talk immediately turns to synergies and economies of scale. Analysts study the deal and also see areas where cuts can be made to avoid duplication and start predicting how many jobs are at risk. In our world of telecoms we are seeing this scenario play out currently in Nokia’s acquisition of Alcatel-Lucent.
But it’s not just happening in the vendor community. The last 12-18 months has also seen a number of the larger mobile operators and groups join forces through M&A activity. In some cases, the coverage footprints are pretty similar and the analyst view quickly moves towards the economies of scale argument. Other operational scenarios are not so crystal clear though, and the scaling up argument seems to be as much about market share and buying power, as it does efficiency.
More than efficiency gains
But if the expanding operator groups in the west could learn one thing from the Chinese market it should be this: scale can be used to drive innovation, not just efficiency.
For example, and directly from our own experience, China leads the way in centralised, cloud-based operator technology platforms that don’t just provide localised service variations, they actively encourage and promote them. Although built and based on a common cloud platform, these systems allow the flexibility for regional operators to implement their own business rules and processes where local variations are required. They can create and launch targeted campaigns, adjust tariffing, quickly introduce new service offers or combine different services in unique ways to create custom business or consumer packages.
This approach would deliver the capex savings and the potential for operational economies that underpinned the motivation for the merger in the first place – but also open up a new way of doing business that increases operator flexibility and encourages service innovation.
In the face of growing competition and the increasing blurring of boundaries between the operators and the internet powerhouses, the ability to innovate and collaborate from a position of strength and scale will be become even more important for the operator community.
The over-the-top advance is far too well entrenched for operators to turn back that particular clock. But operators with the ability to build, deploy and charge for services that can be delivered individually, locally, regionally, nationally and internationally – across multiple sectors, user groups and devices – are a powerful and attractive partner not just for the giant OTT players but also for those emerging talents looking to launch the “next big thing”. Scale is a key advantage to operators looking to add value to digital services partners, for example through charging, promotion and distribution, as these services can cover a larger consumer market.
In China we have seen how operators have been the catalyst for mash-up services with both large internet firms and smaller OTTs. China Telecom generates over $2 billion annually through digital service partners that make use of its open operational platform.
The expansion of the operator groups in Europe and the US can be a catalyst for innovation. It can represent a new beginning for operators and the chance to benefit from the digital services revolution that has been seen as a drain on their potential. Alternatively it can be merely a means to reduce costs and improve economies of scale.
We prefer the approach where big operators need big ideas to drive bigger revenues and bigger margins. Western operators can take encouragement from China, which is increasingly seen as a proving ground for such ideas.
Andy Tiller is VP of product marketing at AsiaInfo
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.