Telecoms is fast becoming a dirty word for companies that want to become much more than providers of basic connections in a digital world in which technology is undermining traditional revenues.

Companies in the sector are still at risk of being left behind or being pushed to the margins as simple providers of the pipework that technology groups use to make their fortunes.

And even the latter holds dangers if the telecoms groups cannot keep up with ever increasing demands from customers for instant videos and entertainment by investing heavily in next generation networks capable of carrying vast quantities of data.

The signs are that most groups are rising to the challenge, helped in regions such as Europe by regulators encouraging industrial growth through consolidation. This, alongside better economic conditions, is leading to higher profits and rising share prices.

Now companies have the breathing space to invest in their future — and various strategies are emerging among managements keen not to be left behind.

Hans Vestberg, chief executive of Ericsson, the Swedish telecoms equipment maker, says the biggest risk is not making the right decisions on strategy, given that the market is moving so fast.

“You need to move now to where you want to play in future,” he says. “Ten years ago, they all did the same things. But now carriers have suddenly got a lot of options — some will go into TV and media, others into cloud services, others the connected car and home. Some will do them all.”

At the heart of most strategies remains the desire to become the gatekeeper of the internet — and with it, the provider of services and content such as TV and music.

In this market, the distinction between mobile or fixed-line access to the internet becomes immaterial. Instead, the consumer gets to choose which screens to watch, play or work on, from a smartphone to a tablet or TV. This trend is being played out in mergers and acquisitions in the sector, for example in the £12.5bn acquisition of mobile group EE by BT in the UK.

But, inevitably during one of the most tumultuous periods of change for telecoms since European deregulation of the sector two decades ago, there are risks — not least that some overstretch, or others under-reach, in setting out business strategies.

Mr Vestberg predicts a segmentation of the industry, as some concentrate on network provision, while others look to open new markets. But, he says: “It’s new turf. There will be competitors in the technology industry wanting the same customers.”

Illustration for Connected Business March 2015 by Oivind Hovland

Some still ask why telecoms groups worry about maintaining the status quo. On the face of it, there is little cause for concern. Mobile revenues are estimated at close to $100bn a month, according to research by The Mobile World, an industry database provider. This is generated by rising global mobile connections, more than 7bn at present.

The telecoms market generated nearly $2tn in revenues in the past 12 months, Mobile World said, with 61 per cent from mobile services. These grew almost 4 per cent in the past year, even if fixed revenues slid almost 1 per cent.

But the overall positive industry numbers belie a more mixed picture in many developed markets, in particular in Europe, where revenues have fallen and profits barely cover investment costs.

More importantly, the bigger risks are ignoring what is happening elsewhere, in particular as the technology sector looks to compete directly with telecoms groups in internet-based voice, messaging and network services. Network operators still control certain parts of the customer relationship but these are coming under attack.

One obvious area is customer billing, which has been crucial for telecoms companies as the trusted provider of communications and digital services. However, the introduction of services such as iTunes, Google Play and Amazon have disrupted this link with the customer.

Meanwhile, control of the technology for directing communications in IP-based networks is being challenged by various technology-led services, while even the trusty Sim card — the piece of plastic that gives a phone its identity and connection — is being challenged by Apple’s own electronic version, launched in autumn 2014.

The network operator, in other words, is losing control of the customer, and with it the ability to make more money than by just providing a basic level of connectivity.

But Bain & Company, the management consultancy, sees a chance to make telecoms services premium again. A study by the group found that the fight for market share has driven down prices for network services such as voice, text and data as well as devices. This has taught customers to make price the main criterion over factors such as network quality, brand or services.

Laurent-Pierre Baculard, partner with Bain, says: “As connectivity costs have fallen, customers have begun to think of telcos as mere providers of pipes and have shifted their perceptions of value from the network to their mobile devices and content providers.”

Mr Baculard says that telecoms groups need to invest in their networks to provide better connectivity and monitoring of sensors and other connected objects and become “enablers of an integrated, premium digital lifestyle . . . not only entertainment and communication, but also smart and connected homes and cars, security, healthcare and other digital services”.

Ben Verwaayen, former chief executive of BT and Alcatel-Lucent, similarly sees an important role for telecoms companies — if they want to take it.

But Mr Verwaayen says that while telecoms groups are all about providing individual services, precisely what these will be will be decided by customers and not the networks that serve them. As for the original use of the phone, he says: “Voice is now just an application.”

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