KPMG Reports on Services

Telecom industry sees new products driving future revenue, yet many consumers may be unwilling to pay a premium for them, KPMG studies find

March 21, 2006

2 Min Read

LAS VEGAS -- Telecom industry executives are focusing on growing their revenues by introducing new products and services, yet, as the industry moves toward a converged services environment, many consumers say they may be unwilling to pay a premium for such services, according to KPMG LLP, the audit, tax and advisory firm.

According to the findings of a global telecom study, announced today at the TelecomNEXT conference, KPMG found industry executives projecting strong revenue growth ahead, eyeing revenue growth over greater cost efficiency (59 percent vs. 41 percent, respectively) as the leading driver of improved financial performance over the next two years. In fact, 44 percent expect revenue growth of at least 15 percent between now and 2007. In reviewing the factors driving revenue growth, 57 percent cited new products and services, followed by 46 percent who said growth of customer base, and 38 percent who expect growth on spending from existing customers.

But in a separate KPMG global study of approximately 3,600 customers who own and use cell phones, 37 percent of the North American respondents surveyed said they would not pay a premium over and above their current bill for converged services and 20 percent indicated that they would spend only up to 10 percent more than their current bill.

"While holding the line on costs remains critical, executives expressed high levels of optimism going forward in terms of revenue growth," said Carl Geppert, Partner and Industry Leader for KPMG's Americas Communications and Media Practice. "Growth, however, will not come easy, as convergence and intensifying competition are fueling a relentless decline of prices for voice, broadband, video and packaged services."

In fact, in the KPMG survey, 52 percent of executives felt that "downward pressure on prices" would have a major impact on growth, followed by 17 percent who felt that "market saturation would impact growth" and 11 percent who cited a "shortage of talented staff."

Geppert believes it is time for the communications companies (wireless and wireline telcos as well as cable TV providers) to develop a specific new business model for converged services because "attempting to exploit converged services purely to squeeze more cash from consumers on a traditional subscription model will not work." "Service providers should use enhanced and bundled services to deepen customer relationships and allow other parties to reach users, delivering a loyal subscriber base that is attractive to advertisers and digital commerce partners," he said.

"This is a generation of consumers raised in the Internet era, where content is perceived as being free," said Geppert. "Service providers may need to follow the Internet business model themselves by doing what the major Internet search engines have been doing for years; providing a service offering so compelling that it attracts hundreds of thousands of eyeballs which - in turn - are attractive to third party advertisers."

KPMG International

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