Roland Berger develops Lean Blueprint for telco players

01 September 2014

European telecommunication companies should rapidly consider adopting new and leaner business models, or else they might find themselves succumbing to the fierce competition and new reality in the marketplace, warns a new report from Roland Berger Strategy Consultants. To help telco’s with responding to the challenge, the strategy consultants have developed a blueprint which can save up to 20% of OPEX costs.

For decades the telecom business was a highly lucrative industry: an analysis from Roland Berger shows that between 2000 and 2007 the market size of the European telco industry grew from $287 billion to $467 billion, a growth of 62%, or an impressive 7% per annum. Since 2008, however, this upsurge has given way to a constant decline of around 2% a year. Key reasons include the rise of new technologies such as VOIP (lowering fixed line and mobile revenues), free instant messaging services such as Whatsapp (impacting SMS and mobile revenues) and increased competition and regulation, which has put margins under pressure.

Revenues of European Telcos

Telco’s have over the past years generally responded to these new dynamics by implementing rigorous cost-cutting programs, yet according to Roland Berger this potential is close te being exhausted, or requires a substantial effort in order to capitalise on. “There are limits to what straightforward cost-cutting programs can still achieve within inherited structures. Often, their potential has long since been exhausted," points out Carsten Rossbach, Partner at Roland Berger. The key lies in accepting the new playing field, and exploring and embracing new business models, explains Philipp Leutiger, also a Partner at the strategy consulting firm. “Telco’s have been too complacent about their business models for too long. That has precipitated their downward slide in recent years."

Returning to profit: Lean telco

If telco’s want to return to profit, then according to Roland Berger they must go through two fundamental steps. Firstly, they need to thoroughly revisit and update their strategy. To do so, they need to find the answers to three key questions:

Three key questions

Secondly, based on the new strategy, telco’s need to create leaner corporate structures. Although the common misconception is that lean is all about downsizing, this is not the case. “Lean means powerful, flexible and adaptable to current and future market needs” write the consultants in the report ‘Lean Telco. Redefining the telecom business – from cost-cutting to smart efficiency’. The question though is: how can telco’s become more lean? In Roland Berger’s view, which is based on decades of consulting experience and in this case more specifically on dozens of interviews with telco executives*, firms should consider four essential components.

Four essential components

In addition, they recommend breaking down the organisational structure of telco’s into three main layers: Marketing, Sales & Service | Network & IT | Support Functions. By using the above approach, telco’s can in an effective manner transform their operations into a ‘lean machine’. Examples include a leaner product and service portfolio, reduced process complexity, lower total cost of ownership through the outsourcing of non-core functions and increased automation. At the same time, cost savings can be plowed back into core business activities to fund more innovation.

If the approach – which Roland Berger calls the ‘Lean Telco Blueprint’ – is successfully implemented, telco’s can in its view achieve OPEX reductions of up to 20%, leading to a “significant increase in annual EBITDA margins.” For some, well-performing telco’s, Roland Berger’s advice may be no more than a subtle warning, yet for providers that find themselves sliding away the transformation to a Lean Telco may be imperative.

Phillipp Leutiger - Carsten Rossbach - Roland Berger

* In the report, Roland Berger states that 85% of the interviewees in its survey ‘strongly’ or ‘partly’ agree to its so ‘Lean Telco Blueprint’.


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