Is Innovation Too Tough for Big Telecom?
Minutes after Martin Creaner, president and CEO of TM Forum, outlined the innovation acceleration program on tap for 2012, Heavy Reading's Chief Analyst Graham Finnie pointed to the telecom industry's failure to reorganize internally to enable innovation, even though they claim to want it.
The same companies that ignored advice several years to adopt an applications ecosystem and open APIs -- ahead of Apple -- are still giving too much weight to their network operations, over their IT and software development arms, Finnie said.
"Do they have assets that are valuable and defensible -- yes," Finnie said. "They have assets in the sense of providing a very rich set of context for delivering applications. Do they have the will and the means to exploit those assets? I have severe doubts."
Finnie added that innovative thinkers employed by big telecom companies often get frustrated and quit after hitting a brick wall internally, losing the battle to network operations and BSS/OSS resistance to change.
Hannes Wittig, telecom analyst with JP Morgan, insisted the investment community will reward innovators and those with long-term plans for growth but admitted the risks must be managed. Moving too early in the technology cycle can be too risky for investors, he said.
One approach is to spin off a separate unit of the larger company to innovate, as Telefónica SA (NYSE: TEF) has done with Telefónica Digital, offered TM Forum Chairman Keith Willetts, who took time off from promoting his book to participate in the session.
"I will be interested to see how much freedom they have, whether they are allowed to compete against the parent, which they have to do," said Willetts, author of Unzipping the Digital World, which goes on sale this week.
Lawrence Sugarman, head of telecoms for Liberum Capital, said such spinoffs face "very big issues around how much autonomy you are willing to give," adding that they can be burdened with high expectations for profits. He believes big telecom is better off looking for partnerships with outside innovators.
Willetts warned, however, that all large companies -- not just telecom players -- face an innovation challenge and must be prepared to sacrifice their current product lines. Some companies, such as Kodak, have lost everything because of an unwillingness to sacrifice its existing business (film) to support what was next (digital cameras), Willetts said.
Wittig singled out Xavier Niel, CEO of Free Mobile , as an innovator in the telecom space for radically reinventing the mobile value chain and offering service that is 90 percent cheaper than existing French players. The company has added more than 2 million subs since January of this year with its new model.
Finding innovation at a smaller, newer player is much easier than finding it within telecom operators, Sugarman said.
Ultimately, a major culture change is required for telecom operators to have any hope of incorporating innovation into their business models, Finnie added. He believes they can still take advantage of the vast stores of information on their networks and their customers to provide context for applications, but doing so requires a transfer of power to the IT/software side of the telecom house, and Finnie is not sure that is going to happen.
— Carol Wilson, Chief Editor, Events, Light Reading