TELECOM BUSINESS: One Size Fits Many

Value chain (VC) is a business model that enables the organizing of
operations around the value adding activities that result in a better service or
product. It is often linked with value proposition to maximize value, reduce
operation costs and create value to the end users. The goals of value chain are
to assess the profitability, productivity and cash flow objectives in the
company’s operations and strategy.

The telecommunications industry all over the world has seen drastic changes
in the last few years. There have not only been evolutionary but also
revolutionary technological developments which have shaped the industry in these
years. These technological advances have been instrumental (though indirectly)
in forcing the resulting business model of the industry also to evolve and align
itself to the evolving customer needs. The following business depicts these
relationships. It is important to note that the changes in technology have been
revolutionary and not evolutionary.

Any player who wants to succeed in this industry thus needs to evolve its
business model as rapidly as the changing customer needs and technological
advances. The speed of these changes and advances has been pretty fast. Thus the
corporations need to understand the structure of the value chain in this
technologically intensive industry to elicit as quick a response and sustain a
competitive advantage.

The Value Chain

The value chain will be developed slowly by first looking at the industry at
a macro level and then going to the micro level. The various special entities
will be factored in later. Next we will see how to adapt the value chain to the
future forecasts.

n The Macro-level Value Chain:
Looking at the telecommunication industry at broad level results in the
following picture of the value chain.

This value chain can more specifically be called the technological value
chain since only the technological aspect has been covered. This diagram does
not talk about the players but the value that is being provided at various
levels. The arrows signify the flow of value. The value is added as the software
and equipment are integrated by the System Integrator (SI) to allow service
provider to provide the required service to the end user. In the next section
these boxes are exploded and the types of players adding the respective value
are identified. The linkages and flows are also identified and explored.

n The Micro-level Value Chain:
Exploding the boxes and looking at the chain more closely gives the
following detailed diagram. The industry is comprised of the following types of
entities. It is important to understand that these entities and their
definitions are taken from a general structure of the industry which is common
all over the globe. The applicability is not restricted to any particular
geographical area.

n Communication Software
Vendors (CSV): These are those vendors which are basically providing
software for the telecommunications industry. This includes software like
protocol stacks adhering to particular standards, applications for OSS
(Operation Support Systems) and BSS (Business Support Systems) like billing.

n Independent Software Vendors
(ISV): In the current context these are those vendors which develop and
supply that software which is not communication related. But these are required
by other entities in the value chain. This may include operating systems, basic
network software and other utilities for developing software.

n Network Equipment Providers
(NEP): Though the name suggests that these entities provide the equipment
but there is more to it. Since the hardware is relatively quite expensive as
compared to software hence these NEPs need to buy software and integrate it with
their hardware and make it work. Thus the NEPs are the main customers of the
CSVs and ISVs. Also developing hardware needs a lot of software work. To sum it
all, the NEPs buy the software from CSVs and ISVs and integrate into their
hardware and then sell the whole solution to its customers.

n Telecommunication Service
Providers (TSP):

There are entities which are the contact point for the customers. These
service providers finally use all the equipment and software from the other
entities to provide the various telecommunication services to the end user. This
may include mobile services, Internet services and DSL and others.

n Consumer: These are the
end users which are single individuals and hence exhibit a certain behaviour.
They have a unique kind of bargaining power, perceptions, preferences and
decision making methods. This may include the user of a mobile service or a user
of a dial-up Internet connection at home.

n Enterprise: These end
users are organizations and corporations and exhibit a different behaviour then
the individual users. They have greater bargaining power and increased focus on
quality and reliability and lesser on cost. This includes firms with lease line
connectivity for Internet or firms asking for a complete EPABX installation at
their facilities.

The arrows signify the flow of value. The value is added as the software and equipment are integrated by the system integrator (SI) to allow service provider to provide the required service to the end user

The above value chain clearly covers all the different types of entities that
have actually evolved in the course of time. This includes NEPs like Ericsson
and Motorola, CSVs like Hughes and Wipro, ISVs like Sun and Microsoft, TSP like
Vodafone, Hutchisson and NTT Docomo.

The arrows underline the flow of value. Each entity adds value to the
product/service and passes on to the successor along the arrow. Though ISVs
supply software to end users but those flows have been discounted as they are
not relevant to the telecommunications industry value chain.

The Macro Value Chain had covered the aspect of a System Integrator which is
not present in the above. This is because the role of system integrator is a bit
complex and will be covered in the following section. But this does not lower
the significance of the above value chain. The concept of a SI has evolved later
into the industry. Earlier it was either the TSP itself or the NEP that did the
integration.

The Complete Value Chain

Factoring in the role of a SI into this value chain results in the following
model (figure on next page). The system integrators

are the players which take up the complicated and high value adding task of
integrating all the components from the different NEPs, CSVs and ISVs to make a
working system capable of deployment and providing service.

This includes players like PwC and Accenture.

Future Technologies and the Future of Value Chain Model

n M-business: Technology
advances in wireless network technology and the increasing number of Internet
penetration and number of users of mobile devices worldwide make it possible for
rapid development of mobile business (m-business) and bring personalized
services to mobile users. According to the Gartner Group, by 2004 at least 40
percent of consumer-to-business e-commerce will come from smart phones using the
wireless application protocol (WAP)

m-commerce is the buying and selling of goods and services through wireless
handheld devices such as cellular telephone and personal digital assistants (PDAs).
On the other hand, m-business offers a wider perspective on how new businesses
in the digital era can be formed using mobile applications and m-commerce
technology. It is about creating any transactions with a monetary value that is
conducted via a mobile telecommunications network. Such businesses can include
mobile store portals, in-house customer service and mobile physician portals.
The following figure shows the relationship of m-business and m-commerce.

M-business is like e-business but different from e-business in its mobility
sense. In short, Internet plus wireless plus e-business equals m-business.

The next step after pure wireless Internet access seems to be to facilitate
m-commerce transactions over the same network. Many pilot projects have already
today been carried out and some companies such as the giant Japanese
telecommunication operator, NTT DoCoMo already have production implementations
in place.

As m-commerce is still very much in its infancy, no one can really say who
the real winners will be or what the services asked for will be. It is important
to note that m-business will not replace e-business but it will simply
complement each other depending on the user’s need, preferences and locations.
The following diagram underlines the m-commerce value chain.

This value chain does not make any changes to the value chain already
developed in the paper. The different entities as underlined in the above model
have already been covered in the value chain as follows:

Technology Platform Vendors: CSVs, NEPs

Infrastructure and Equipment Vendors: NEPs

Application Platform Vendors: ISVs

Application Developers: CSVs

Content Providers: TSPs, Other businesses outside the
telecommunications industry

Content Aggregators: TSPs

Mobile Portal Providers: ISVs, CSVs

Mobile Network Operators: TSPs

Mobile Service Providers: TSPs

Handset Vendors: NEPs

n Convergence: The
evolution of technology has facilitated offering many services (voice, data,
video, etc) using a single last mile connectivity loop. Service providers can
now exploit this by providing a range of services to the end consumer. This
helps them leverage economies of scale, essentially by spreading expenses over a
range of services offered. This is supported by evidence that consumers prefer
to have a single service provider for a range of facilities. They also value the
convenience offered by a unified billing. This because in a converged system, a
single point interface reduces the number of interactions required to a minimum,
thus providing much valued convenience to the end consumer. The following
diagram is used to depict the same.

With the advent of convergence the value chain a developed in the previous
section would not be effected as the concept of TSPs encompasses the whole
service providers. Had the ISPs and BTOs were taken separately in the value
chain the there would have been significant changes in the model. But since the
model is generic it remains unaffected.

n Mobile Virtual Network
Operators: Virtual networks are the new trends in mobile telecommunications.
Convergence of mobile and fixed communication and voice and data traffic has
made a whole new range of services possible. The Virtual Operator does not
control or own any radio network facilities. Instead network capacity is
purchased from the Network Operator. A Virtual Operator has greater access to
customer information, control over pricing and has greater possibilities to
modify the total product offering than the first Service Providers.

The value chain for MVNOs breaks the industry of mobile communication into
two roles, the network operations and service provisioning. Companies working in
the industry will perform these roles by taking one or more of them. A virtual
operator is an actor in the value chain whose sole responsibility is service
provisioning. The structure of the value chain is as follows.

Network Operations: The network operations mainly deal with the
construction and maintenance of mobile telephone networks and making wireless
voice and data communication through mobile terminals possible. The clients of
the network operators will be the service providers which in most of the cases
will be the same companies acting as the network operators. Network operations
deliver the network capacity to the service provisioning.

Service Provisioning: Service provisioning deals with packaging
network capacity into meaningful services, followed by distributing and selling
these services to the end-user. Service Provisioning operations can be described
as marketing meaningful mobile communication services, like for example a
subscription on mobile voice telephony, to the end-user. By providing content to
these mobile communications services, extra value can be added.

This value chain is a subset of the value chain developed earlier in the
paper. Thus the applicability is easy and follows trivially.

It’s Generic

The value chain model referred to here is generic and can be applied to all
geographic areas as already discussed. It can be applied also to evolving and
upcoming revolutionary changes in technology and infrastructure. The model is
largely technological in nature but identifies all the linkages between
different entities including the smaller ones also. These may be things like the
small application provided by the CSVs to the individual users or the software
purchased by the Sis from the CSVs and ISVs for their integration. Thus the
model though generic tries to capture as much detail as it can within the
limitations of generality.

Future Scope

The model can be developed to introduce the aspect of learning. Thus if the
feedback of the lower end entities can be incorporated then the concept of how
the organizations learn from the experience and evolve can be addressed. The
concept of reverse value chain as developed in <4> can also be incorporated.
This is necessary because the increased competition is forcing the firms to
provide better customer service. This customer service includes returns and
special offers thus increasing the load on the reverse value chain and
necessitating its optimization also. In addition to this, reverse value chain
helps achieve cost and time efficiencies while enhancing supplier performance.
All these refinements will increase the robustness of the model and will widen
its applicability in more decision making situations for the corporations.

Dr V Sridhar, Gagan Singla, Durgam
Phaneedra, Shashi Kiran Rapalle, Avinash Gonamanda, and Yalla Sridhar