Advertisment

9 Steps to Revenue Maximization

author-image
VoicenData Bureau
New Update

Through 2015, communications service providers (CSP) will try to redefine their business scope and participate in new areas beyond traditional telecom services.

Advertisment

One area for expansion is value added services (VAS). Taken in the broadest sense, they will have a direct influence on the revenue and profitability of CSPs, as well as on the market share for traditional services.

VAS comprises of activities beyond traditional CSP networking revenue. These include IT services and cloud computing, fixed and mobile content services, or advertising and payments.

Offering a wide range of products and solutions to users is attractive, but how can a CSP create long-term competitive advantage and gain leadership in its geographic markets?

Advertisment

It is all about differentiation. Offering a 'me-too' type of service is just not going to provide a competitive edge. The smart-pipe strategy based on standard interfaces, enabling platforms, and quality adapted to user's requirements (among others) is not providing enough differentiation in this respect.

Gartner identifies 9 main competitive factors enhancing the competitive position of a CSP when offering VAS:



1 Attractive VAS Catalog

Advertisment

By offering services, applications, and content that are richer and more adapted to market segments (by age of social cultural dimensions) than competitors, providers attract customers and keep them longer.

Offering a large range of good VAS (content/applications) at acceptable prices makes consumers happy and they do not churn.

Search engines are also very important to guide users or to present titles meeting their preferences. Most CSPs stick to the top 1,000 or top 3,000 movies (sometimes fewer than this).

Advertisment

Differentiation and competitive advantage in content and applications should come from CSPs' products that offer:

  • The widest range of content and applications in several languages
  • The widest range of add-ons
  • The widest range of supporting devices
  • The most user-friendly search engines and preference management
  • The best links to social networking, recommendation engines, and free content

2 Better Brand Value and Advertising Power

Advertisment

By offering a broad range of VAS as well as good design and functionalities, including advanced lifestyle applications and hyped content, CSPs increase the value of their brands. The investment for this type of content can sometimes cost more than the direct selling of content subscriptions, but it also increases market share in other products, which has a tremendous impact on a brand's value.

Creating a high-value brand is indispensable for leadership. A highly recognized brand brings premium prices for services and customer loyalty. It also increases the product recognition and makes advertising more attractive and efficient.

Differentiation and competitive advantage in brand value should come from CSPs:

Advertisment
  • Highlighting the wide range of VAS in their branding and advertising
  • Considering some innovative VAS trials as advertising methods
  • Promoting the power of their content and other applications through social networks
  • Using websites and mobile apps to help with finding and using VAS

3 Increased Market Share

By offering a wide range of VAS effectively, CSPs will get more traction and will grow their market share overall and if done well, will gain a market leadership position. The additional revenue easily represents a few percentage points of the total market in a country or perhaps more than the revenue from VAS.

Advertisment

An increase of 2% points in market share can represent an 8% increase in revenue.

Differentiation and competitive advantage in market share comes from CSPs offering a wide range of complementary services, including:

  • Excellence in customer experience and service
  • Top coverage and integration (for example, by offering fixed-mobile convergence for content or mail and integration of Wi-Fi in mobile)
  • Attractive pricing such as bundles, special roaming prices or pricing according to quality
  • A rich variety of VAS, particularly for content and applications

4 Increased ARPU for Traditional Services

VAS will drive more use of data services. For instance, cloud computing tends to involve more bandwidth, depending on application changes (a move to web applications and more online services) and the network architecture before and after using a cloud solution.

Similarly, mobile content is driving mobile data ARPU. It is realistic to assume that mobile VAS can increase mobile data transmission revenue by at least 10%, provided CSPs offer innovative and attractive pricing plans.

Differentiation and leadership in ARPU comes from CSPs offering additional services or devices that create more traction for some of them, such as mobile data, fixed very-high-bit-rate DSL or fiber access.

5 Increased Total Revenue

When combining the direct effects of VAS revenue with the indirect effects on market share and ARPU, we see a broader picture. The effect on market share and ARPU is much higher than the actual VAS revenue.

Value added services in the broadest sense will determine the success of leading communications service providers as transmission services become commodities. However an integrated approach and compatibility within complex ecosystems is required.

6 Economies of Scale

Offering VAS effectively can lower the unit cost of other services. VAS work at different levels on costs in the following ways:

By adding subscribers and volumes to the network, the average cost per unit (MB for example) should come down, due to economies of scale, as far as CSPs can continue to upgrade the network without diseconomies of scale.

The more VAS CSPs offer, the more they benefit from economies of scale in VAS set ups and operations. In particular, CSPs combining VAS with cloud computing can reap the benefits of scale, whether they own the cloud infrastructure or not.

VAS can drive more online support, more self-service and so reduce call center costs.

7 Profitability

As VAS increase overall market share and ARPU, they also increase CSPs' profitability. Moreover the intrinsic profitability of mobile VAS is higher than for traditional mobile services. For enterprise services, profitability is similar for traditional services and VAS.

For fixed consumer services, VAS tend to have a lower direct profitability, but we can see how IPTV drives broadband connections, in any case this very much depends on the cost of the networks (for example, fiber vs DSL) and VAS solutions.

8 Leveraging the Platform Effect

By offering a wide range of VAS for consumers, mobile users, and enterprises (based on cloud computing), CSPs can create a platform effect. Having a platform or a number of integrated platforms eases the development or roll out of VAS and lowers the cost. It also speeds up the launch and allows more experimentation and market testing. An integrated platform will strongly support synergies by creating links between VAS, such as the sharing of data or payment use for all VAS.

A platform offering to third parties will also be more attractive for developers, media companies, and advertisers.

CSPs need to build lasting competitiveness on solid open software and hardware platforms. They can only compete through open platforms and by integrating best-of-breed technology.

9 Competing with Over-the-Top Providers

One of the biggest fears of CSPs is becoming a low-value bit pipe and seeing OTT providers reaping the benefits of broadband. OTT providers can offer most VAS and many offer better VAS than traditional CSPs in some categories.

Three important factors drive CSP competition with OTT providers:

The regulatory context, where some countries prevent CSPs offering their own media content. Others are more open or may even favor CSP initiatives.

The geographic reach, where the more a CSP can use cultural differences or geographic coverage of different markets, to strengthen its VAS offerings, the better.

The scope of VAS offerings, such as internet searching or movie archives. By offering content and applications/services with a wider scope or more adapted to a customer base, CSPs can effectively compete with OTT providers or find better cooperation terms.



Conclusion

Over the years, CSPs have rolled out a variety of VAS offerings to cater to local market demands. VAS are not independent from each other, instead they complement and reinforce each other. CSPs need to exploit these synergies to create leadership.

To build a leadership CSP position and benefit fully from direct and indirect revenue from VAS, we recommend that CSPs build a lasting and comprehensive VAS strategy and stick to it. The strategy should span fixed and mobile services, across enterprise and consumer sectors.

It is built on VAS' assets and activities that have already been assembled thus increasing the scope significantly.

Jean-Claude Delcroix

The author is research vice president, Gartner

vadmail@cybermedia.co.in

Advertisment