Atos Consulting: TMT must integrate in value chain

04 April 2013

The Technology, Media- en Telecomsector (TMT) is currently undergoing an immense degree of change. As a result, operators are faced with large uncertainty and with the daunting task of making major, and in some cases make-or-break strategic decisions. A new scenario planning study from Atos Consulting reveals that - of all the strategic options at hand - one decision should be inevitable: the drive for more integration in the TMT value chain.

Strategic Challenges

From a strategic point of view telecom companies find themselves in a difficult position. On the revenue side they are facing fierce competition. The entrance of the so called 'Over the Top'-players, firms that offer services via Internet directly to end-customers such as WhatsApp and Viber, are putting pressure on existing business models. For example, services which in the past were lucrative, such as calling and texting, have lost their 'cash cow' status. In addition, telecom operators face continuous margin erosion due to structural regulatory pressure aimed at lowering prices to end-consumers (eg. cheaper charges for roaming). Lastly, telecom is one of the most globalized sectors, and as a result competition in markets is generally very high.

Atos Consulting Balancing Power in the telecom value chainv

At the same time telecom operators are witnessing an increase in their cost levels. And even worse, the ratio of costs against revenue will likely not improve in the coming years. Heavy investments in infrastructure and IT are needed just to keep operating in line with customer demands. And the explosion of demand for data - according to A.T. Kearney a doubling each year until 2017- will oblige firms to make major financial investments.

Yet a declining revenue base and increasing cost base is not the full equation. The market is facing major external challenges as well.

Technological innovation is rapidly changing the landscape, leading to both opportunities and challenges. If the mass usage of data through Wi-Fi home networks turns out a success then the future of data services will be completely different compared to the current situation. And if the market continues to consolidate at the current pace then there may only be a handful of mega operators in the telecom sector.

More integration in the chain

In the new white paper 'Balancing power in the telecom value chain', Atos Consulting investigated the strategic options telecom operators have. Based on scenario analysis of 26 identified trends, the consulting firm comes to a clear conclusion. "we see a movement towards further integration" says Michel van Buitenen, Managing Partner TMT of the consulting firm.  At present, the market is dominated by three value chains: content, telecommunication and software/hardware. Companies in these value chains basically offer different products and services to the same customers.

Atos Consulting - TMT Sector

In the future integration and synergy across value chains will be key. Van Buitenen mentions three examples: "Consider that Amazon sells tablets alongside content, Google rolls out a fibre optic network and Apple who approach customers directly with the with Apple TV".