How to be lean and not mean
Whenever regulators or consumer groups protest about high prices in some parts of the telecommunications market, operators are quick to respond with justifications for these prices. They predict a woeful outcome or at best no benefit if some contributions to these prices, notably high mobile termination and roaming rates, are reduced by regulation.
These justifications are typically backed up by supporting evidence in the form of the results of econometric models developed by economists they hire. These economists often refer to behavior such as the “waterbed effect”, in which an improvement or price reduction in one aspect of a service will supposedly lead inevitably to an equal or greater deterioration in some other aspect of its affordability and/or quality.
However, evidence from “best practices” across the world provides encouraging examples of how creative mobile operators have been able to adjust to and even prosper in environments characterized by substantially lower retail prices and wholesale charges than would have been thought possible even a few short years ago. While technological progress has made significant contributions to these achievements, thanks to Moore’s and Cooper’s Laws, the introduction of innovative business models has been critical.
The Indian model of mobile operators provides a striking example from which other operators can draw valuable lessons. This model is an instructive illustration of how a focus upon core activities can benefit a company, with other elements of its value chain being outsourced to organizations that can execute them more efficiently and economically because of their economies of scale and expertise. Key, but by no means the only aspects of this model include:
* Extensive outsourcing, covering:
o Network operations, including construction and management
o IT operations
o Customer care
* Infrastructure sharing
In addition to cost reductions, there are also significant opportunities for increasing revenues. As well as taking advantage of the price sensitivity of demand as prices fall, especially when they start from a high level, pricing innovations include:
1. Lifetime prepaid schemes,
2. Dynamic pricing, and
3. “Roaming without borders”.
South African mobile operators have already shown themselves to be very capable of innovation in areas such as prepaid services and over-the-air top-ups. If motivated to do so there is no reason why they should not be able to adapt to and prosper in a very different, and much more customer-friendly pricing environment than has prevailed until now.
ICASA and the Department of Communications should be very skeptical of any protestations that substantial reductions in MTRs will oblige these operators to raise the prices of other elements of their services to preserve their financial health. The only questions are how rapidly and abruptly changes in the structure and level of the pricing of mobile services should and will be introduced, and whether operators themselves will take decisive initiatives in this direction, or only change if and when subject to regulatory fiat.
The latter circumstance will likely lead to greater disruption in the business models of mobile operators than if they decide to make changes on their own initiative, so as to build a smoother, more self- and market-driven path towards the future for themselves and their customers.
Link to full article: http://www.bmi-t.co.za/?q=content/mobile-operators-–-how-be-lean-and-not-mean
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