Incumbent telecom operators need to transform themselves and adopt a new, decentralized operating model that addresses current challenges and anticipates future ones, according to a report.

Over the last decade, telcos have come under financial pressure due to several developments: tough competition, erosion of revenues due to so-called over-the-top (OTT) services and the need to invest billions of dollars building next-generation networks, said a report from the Boston Consulting Group (BCG), a global management consulting firm.

As such European operators have been forced to cut dividends. Also the Middle East region is affected, as internet telephony is ever more eating into the valuable revenues from international calling, while at the same time billions are being invested into new fiber and mobile networks, said the BCG's latest report on "Facing Up to the Future: A New Operating Model for Telcos."

Traditional telco operating models that were shaped in an era of government-owned monoliths are showing signs of severe strain, it added.

The optimization of the monolithic telecom incumbent has come to an end in a world of new competitors pulling from all directions, the study stated.

Hermann Riedl, a partner in BCG’s telecoms team in the Middle East, said, “If incumbent telcos are to survive in this new landscape, they have no choice but to reinvent themselves within the next three to five years. Only a comprehensive commitment to a new operating model can do that.”

The predicament keeping telecom managers awake at night is easy to state but hard to solve: How can they respond to nimble, specialized competitors attacking simultaneously on several fronts?

Meeting today’s varied challenges calls for agility – but former state monopolists are hamstrung by complexity, said the world’s top advisor on business strategy..

BCG therefore advocates a modular model to operate successfully on the telecoms markets of the future. Four major blocks, each its own business dynamics, have been identified:

•Network Owner: “This is much like the real estate business, where deep local knowledge pays off,” says BCG’s Hermann Riedl.  Much as property companies tap their familiarity with terrain and traffic to acquire and develop the space they lease out to retailers, network owners can draw upon theirs to develop infrastructure that they will lease out to service providers.

•Network Operator: Unlike network ownership, network operation is an activity that calls for scale. Some of the most important decisions awaiting incumbent telcos will concern which network operations should be outsourced and which kept in-house.

•Service Provider: This module has the characteristics of a retail business: By tailoring services for specific segments – whether defined by price, level of service, ethnicity of the customer base, or other parameters – best practice operators are gaining market share while improving price realization.

•Digital Services Unit: As services from Facebook, Skype, Google, Amazon and otherscapture a growing share of the telecom ecosystem, it is crucial foroperators to find a way to participate in them more fully. An effective digital unit that works at ‘internet clock speed’ is a telecom operator’s best means of claiming a piece of the action.

In the Middle East, for example, Etisalathas recently announced the creation of a new business unit to participate from growth opportunities in these segments.

Top Management must embrace the idea of running a portfolio of businesses, granting units a degree of autonomy while requiring them to be competitive within their subsectors, said the BCG in its report.

The stovepipe IT structures that still predominate must be supplanted by systems based on open standards. A large workforce transformation – involving staff reductions and outsourcing, as well as recruitment of new talent – will be unavoidable, it added.-TradeArabia News Service