Transform Risks Into Profits for CSPs
18 Sep 2006
Reducing Business Risks Can Help Communications Service Providers Achieve Profitability Targets
The survival and prosperity of any organization is dependent upon its ability to effectively manage its business risks to achieve performance and profitability targets, comply with laws and regulations, avoid negative publicity, and prevent loss of resources.
In spite of the complex market conditions and environments in which communications service providers (CSPs) operate today, comprehensive risk management methods are being defined and deployed that can greatly reduce both the likelihood and the impact of a number of business risk events.
These approaches include centralized and decentralized control structures. Functions can range from complex risk probability modeling, scenario visualization and elaborate analysis to simply raising awareness and deploying a consistent methodology for identifying, evaluating and making effective risk management decisions.
CSPs face a number of significant risks to their operations. Among these are:
- Commoditization of Services: Traditional voice services are becoming increasingly commoditized. As this trend drives prices down, it subsequently puts CSPs under cost pressure. CSPs run the risk of losing their competitive advantage if they do not substantially improve their cost economics.
- Market Saturation: CSPs enjoyed significant growth rates in the past, mainly driven by mobile subscriber growth. Now that markets are saturated, particularly in the developed economies, CSPs need to find other ways to re-ignite the growth engine. Otherwise, they face the risk of diminishing earnings before interest, taxes, depreciation and amortization (EBITDA) caused by declining prices putting pressure on margins.
- New Entrants: CSPs are facing intensified competitive pressure from new entrants into the market place. Media and retail firms are launching mobile virtual network operators (MVNOs). Cable companies are entering the telecommunications market offering triple play – voice, video and data - driving CSPs to expand their global EBITDA footprint by acquiring or building subsidiaries outside their homeland in order to sustain growth, build on economies of scale and improve brand image. CSPs are now at risk of losing market share in their home markets if they do not improve customer loyalty and reduce churn of their customer base.
- Convergence: Convergence has become a reality. CSPs are preparing for fixed mobile convergence (FMC) and will launch innovative service bundles soon. Cable companies are offering triple play (voice, video, data). CSPs have responded to this competition with IPTV services and mobile data services. All of these initiatives have the same intention: to re-ignite revenue growth through new services, monetizing existing and future investments in broadband network infrastructure (e.g. 3G, FTTH, FTTP). Unless a CSP is able to offer attractive service offerings that provide true customer value, the CSP runs the risk of continued revenue erosion, loss of competitiveness and potentially losing investments in network infrastructure if they are not amortized.
- Customer Experience: In a world where traditional voice services are commoditizing and customers have an increase in service provider choices, as indicated by high churn rates, creating a superior customer experience is the key to differentiation and achieving customer loyalty. Unless a CSP is able to provide that differentiated customer experience, it runs the risk of a shrinking customer base and facing a low-value commodity business model in which customer attraction and retention is controlled by the handset subsidies.
For each of these risk areas, CSPs have choices to make in how they manage the risk. They can:
- AVOID the risk: Get out of a business venture or walk away from a potential business situation.
- TRANSFER the risk: Look to a partner to share the risk. Partners can be insurance companies and underwriters, or commodities such as hedge funds.
- MITIGATE the risk: Work with a team to put controls and processes in place to help reduce risk.
- ACCEPT the risk: Take the penalty because the payoff is greater. Risk is often accepted because it's the cost of doing business.
Risk management practices should be embedded in business processes and rooted in the culture so that decision-makers will apply a consistent mindset to the consideration of relevant risk factors.
EDS offers the skilled resources and expertise to help you develop and integrate a comprehensive risk management strategy. Our goal is to transform your legacy applications portfolios and infrastructure environments into a flexible, agile IT environment that costs less to support and drives increased sales – whether that includes market consolidation, commoditization of voice offerings, or the convergence of data and network services.
Not only does EDS have more than 40 years of outsourcing experience, but we also have 33 years of proven expertise in helping our CSP clients consolidate and transform all aspects of their businesses. As your dedicated partner, we can work with you to mitigate your business risks and improve your profitability.