Having been in the telecoms industry for 15 years now, it never ceases to amaze me how businesses typically contract with the cellular providers based on the size of the discount on offer. This practice has become the normal way of engaging business on tenders and RFPs, and has now finally arrived at “ground zero”, where there is no more discount to give.
Stories abound around key enterprise accounts in Sandton where Vodacom owned the account for two years and then MTN for two years, and then Vodacom, and then MTN until the margins were so low, all that was left for the service providers was the commission incentive bonuses and the volume breaks paid to the service providers by the networks.
During this race to the bottom, the one thing that never changed was the noise from the market on how bad the service was. It surprises me that there was this expectation from the businesses that the service provider should give up its margin and improve its service. Unfortunately, for the service provider and the businesses, cell phones and 3G cards have became a commodity. And they only have themselves to blame.
Why to blame? Because the role of the mobile device is so mission critical to business today, and the only value proposition from the networks supplying the dumb pipes still remains, how cheap is your service?
No partnership, no value proposition and bad service. Just a race to the bottom. And more pain for less money. Which has ultimately brought about the demise the likes of Nashua Mobile and now more recently Autopage. Leaving the giants – MTN, Vodacom, CellC and Telkom – increasingly faced with higher levels of frustration from their client bases and lower and lower average revenue per user (ARPU).
Never mind the insatiable demand for bandwidth, no new spectrum becoming available (thanks to the digital migration and the TV set top box debacle) and the fact that whilst the networks were busy selling on discount and spending the profits; Facebook, WhatsApp and Instagram et al ended up disrupting the market and owning the mobility space. This leaves the networks to sell dumb pipes at lower ARPU and with paper-thin margins.
Amazingly one would have thought that the lessons were learnt?
But no, there is more. Albeit in a different context and different time, as the digital economy continues to disrupt the marketplace at pace, the race to bottom continues. The enterprise expects more and more from internet service providers (ISPs) by way of converged voice and data networks and solutions. For their part, ISPs have larger and larger product sets but still the same problem. Margins within the telecoms industry are falling and so are service levels (yes, it can get worse). And the sales persons selling these solutions have to work three times harder to make the same commission and have very little incentive to optimise and manage their customers’ telecoms solutions more efficiently.
Selling at ever increasingly low margins, ISPs are unable to offer their customers the service they require in an increasingly more complex space. It is not that they don’t have the skills, they just don’t have the time or enough resources. Less margin requires more volume to make the same return on investment.
And so ultimately the CIO, under pressure to increase operational efficiency and empower competitive environments in the new complex digital economy, ends up buying more pain at a lower price.
And the service providers, seemingly devoid of any plan to increase their level of service, or innovate or partner with their customers, continue to sell on lower margin, higher volume and provide average service at best.
And the very industry selling the telecoms infrastructure, products, solutions and services on which businesses are meant to engage with the opportunities brought about by the new digital economy, is again without a value proposition and is selling on price.
I wonder who is going to blink first?