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Telecom Convergence: Changing the Conversation

Collaboration Sows the Seeds of Organic Growth

The telecom industry is at a crossroads. New technology, customer demands, and economic realities are forcing firms to reevaluate how they do business. This is particularly evident in the burgeoning markets of the Middle East and Africa, and their experiences can serve as a lesson for operators looking to compete in the new global telecom market.

Mergers and acquisitions activity in the telecommunications industry across the Middle East and Africa was at an all time high until recently, with the total value of acquisitions annually in the Middle East passing $20 billion. This trend has slowed down recently as acquisitions became more expensive. Instead, corporate boards are shifting the pendulum toward organic growth within these newly acquired operations.

So what does this change mean for operators?

First, strategy departments will be expected to get back to their core function: finding ways to drive organic value and increase shareholder value. But M&As have left strategists with more than one operating company to worry about, each with its own unique customer base and maturity levels scattered in far away countries. Companies must think about not just strategy, but group strategy.

How should strategists now think about creating value and delivering growth to shareholders who shouldered the investment burden for the promise of fast growth?

Most of these newly acquired operations are in countries with traditionally low penetration and average revenue per user. Many countries had little or no competition until recently, and incumbent operators could easily and effectively generate revenue. But governments in these countries saw an opportunity to open the telecom floodgates. They auctioned more and more licenses, privatized their assets, and saw more investors splash cheap money on the promise of easy and high returns. It could be considered the great gold rush of the 21st century.

Those who became third and fourth entrants followed the path of least resistance fueled by shareholder appetite for "more and now." A loss-leadership position was quickly established with across-the-board cuts targeting cheaper-to-acquire prepaid customers. This quickly led to a war of attrition (of margins) as incumbent operators followed suit and responded with similar eagerness. These operators played a blind chess game and ended up eroding value in the market and training their customers to become dual SIM users and deal shoppers.

Yet as price becomes a commodity, operators need to think differently. A telecom executive's best friends are now in marketing departments. A new breed of marketing professionals has arrived and they talk a language using the letter "C." These new professionals understand that organic growth will come from Customers—the only scarce asset—and they understand that they must stand out from other operators.

Today mobile networks are taking a varied approach to managing customer value as an organic growth driver. As these groups expand across EMEA and in other regions, they need to build and deploy customer management capabilities to protect and grow base value. Yet these groups are struggling to drive synergies and help operating companies adopt customer value management.

Unifying divergent operating companies is no easy task. But the benefits include streamlined processes, innovation from within, a true understanding of customer value across the organization, and a consistent customer experience that all help drive organic growth. Peppers & Rogers Group recommends that group-level strategy and marketing functions adopt four critical approaches:

1. Establish a shared language around common customer value groups and an agreement around the need to manage customer value to achieve organic growth.

First, it is important to achieve a paradigm shift in the minds of all marketers across the mobile network, from a one-size-fits-all way of competing with easy-to-copy, above-the-line price offers toward a culture of treating different customers differently. Marketing executives in saturated "zero sum" markets need to lead the charge to acquire skills and capabilities to compete narrow and deep to win the marketing battles in micro-segments. To do this, an organization should develop group-level customer segment definitions and deploy them across operating companies. Common definitions are essential to keep everyone moving in the same direction, speaking the same customer language, and sharing best practices across the organization. Cross-country customer segments allow mobile networks to understand the value of customers within and across operating companies.

2. Install customer management functions at the group and operating company level and matrix those teams to accelerate group-level learning and execution.

A true test of customer-value focus is whether someone is accountable for the performance of customer segments, ideally starting from higher-value customers. This requires organizing and defining marketing roles at both the group and subsidiary level to manage customers. At this stage, the group chief marketing officer and chief sales officer will need to each play a visible, critical role in driving through this change.

3. Provide visibility into leading indicators of customer performance.

Too often we find that board members and senior executives lack visibility into the customer value creation process and leading indicators of customer value performance. It is critical for marketing executives to help their boards and senior executives understand how customer behavior changes and which levers have direct impact on financial outcomes, as well as their magnitude. This understanding can be achieved by implementing a group-level dashboard to report segment performance across operating companies. With a comprehensive dashboard that tracks customer segment-level metrics from acquisition to churn, boards and senior executives will better understand magnitude, timing, and focus of change with respect to customer treatment in any given operating company.

4. Lead the way towards a culture of experiments.

One of the most important differentiating features of customer value management is the continuous running of customer treatment experiments to stimulate usage of higher margin services and achieve better retention performance—simultaneously in different segments; with control versus target cells set up and offer performance through various inbound and outbound channels measured. Such organizations will be constantly learning as customer responses are reviewed and fed back into data models to help them predict smarter with each customer interaction. Business intelligence or customer analytics functions must provide an environment where marketers can extract and act on insight to guide channels and improve performance. We believe mobile networks have a profitable path to growth by instituting a common language around customer segments and proactively managing performance of strategic customer segments. There is a critical role for marketing leaders to head this charge of "customer-izing" their organizations with cross-cutting yet small proof-of-concept initiatives to spur organizational learning and simultaneously create a plan to consolidate and scale up high performance.