Value Chain: Lateral Moves

Business transformation is the fate of any paradigm provider of communications services. In an effort to turn predicament into triumph, telecom operators and other communications providers are moving across value chain boundaries and transforming into a business that can exercise control and exploit scarcity in the markets where they create and claim value. To paraphrase Viktor Frankl: when you are no longer able to change a situation, you are challenged to change yourself.

The communications industry is currently unbundled to a large extent (except for Apple and RIM’s Blackberry which offer integrated products and services). Referring back to Fransman’s (2002) reference model I used before, the following table illustrates how layers 1 (“equipment and software”) and 4 (“content integration”) are broken up. The handset equipment players are no longer vertically integrated as explained in an earlier post. For the network equipment industry this is also the case but to a much reduced extent. The table below also illustrates how industry players originating in the equipment layer vertically integrate capabilities in other layers (through acquisitions or organic growth), and how companies from the content integration layer enter the handset software in layer 1.

Layer Activity Operator Nokia Google Apple Facebook Developer
5 Content Provision X
4c Social Networks ↑↑ X X
4b Cloud Services (X) ↑↑ X ↑↑ ↓↓ X
4a App Platform ↓↓ ↑↑ ↓↓ ↑↑ ↓↓
3 Network Operation (X) (↑)
2 Facilities Provision X (↑)
1d Operating System (↑) ↓↓ X
1c Hardware Platform X X
1b Hardware IP X
1a Manufacturing X

The following table explains the capabilities[1] that companies should possess to extract that value.  This figure also explains where the operator’s acquired capabilities fit in.

Layer Description Required Capabilities Strength/Weakness for operators
5 Content Provision (a) Media production capability
(b) Brand
(c) Network effects for user-generated content: large consumer base
(a) Weakness
(b) Weakness (as a media brand)
(c) Weakness
4c Social Networks (a) Network effects: large user base
(b) Revenue model to be specified
 N/A
4b Cloud Services (a) Storage, computing power standardization
(b) Virtualization
(c) Billing
(d) Security
(e) Availability, uptime, SLA
(f) Scale and low cost
(g) Service catalog
Strategic “fit” for operator as provider of connectivity as a service to enterprises, owner of global IP backbone, brokerage/billing capabilities, and possibility to expose network functionality
4a App Platform (a) Single marketplace for submitting, certifying, device targeting and pricing of apps;
(b) Centralised billing, settlements and reporting;
(c) Global distribution across handset OEMs and operators;
(d) Provisioning, license management, installation and lifecycle management; and
(e) On-device discovery, catalogue management and marketing
a) Strong in customer/device analytics; weak in attracting developer community
b) Strong, based on subscriber accounts
c) Weakness compared to global reach of OEMs
d) Neutral
e) Weakness
3 Network Operation (a) Wireless access, transmission and core planning, design and optimization
(b) Site acquisition and construction, procurement, warehousing, installation, testing, integration
(c) Operation and maintenance
(a-c) Strengths, but lacking scale and facing high operational expenditures over revenue
2 Facilities Provision (a) High-quality mobile broadband network capable of QoS differentiation
(b) SIM control
(a) Strength
(b) Weakness
1d Operating System (a) Network effects on hardware side and application/developer side N/A
1c Hardware Platform (a) High performance/cost
(b) Scale
N/A
1b Hardware IP (a) IPR portfolio N/A
1a Manufacturing (a) Quality, utilization, low waste, dependability, flexibility, scale, low cost, distribution N/A

Platforms are extended with functionality that makes them increasingly similar. E-mail platforms include voice (e.g. Google mail), chat is available on voice services (e.g. Skype), social networking increasingly incorporates functions like chat and voice. This implies a development towards a communications market served by a range of platforms. The competitive battle for the mobile service provision platform that creates and extracts maximum value from network effects (Shapiro & Varian 1998) is ongoing. As argued before, this is a battle between industries, between paradigms.

The competitive dynamics of a handset-centric service platform (iOS) versus an aggregator-centric service platform (Android) versus an operator-centric platform for mobile service provision will be explored in future posts.

Fransman M. (2002) Mapping the Evolving Telecoms Industry: The Uses and Shortcomings of the Layer Model. Telecommunications Policy 26(9-10):473-483

Morecroft, J., Sanchez, R. & A. Heene (2002) Systems Perspectives on Resources, Capabilities, and Management Processes. Pergamon.

 


[1] This draws upon the literature on the resource based view of the firm. Resources are defined as anyone (human assets) and anything (tangible or intangible assets) that are available and useful in any activities an organization undertakes in pursuing its goals. Resources can be firm-specific (under the legal control of a firm and thus residing within the boundaries of a firm) or firm-addressable (beyond the legal control of a firm and thus residing outside the boundaries of a firm, but accessible to it). Capabilities are an organization’s repeatable patterns of action in the use of resources, again usually in the context of activities that the organization undertakes in pursuit of its goals. Organizational capabilities result from the coordinated application of the knowledge and skills of individuals in person-to-person interactions and in the interactions of people with non-human tangible assets (e.g. production machines, computers, etc). (Morecroft et al. 2002)

 

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