Telecommunications companies have to make service an independent line of business to stay competitive

• Our telecommunications study shows that delivering good services as part of a core product offering does not suffice as the sole differentiator in highly competitive markets
• Companies in similar circumstances, e.g. computer or telecom hardware providers, have demonstrated that service can be an attractive "second leg" to stand on
• Telcos need to learn from other industry best practices to gain a competitive edge in and expand beyond their core markets

Telecommunications companies are facing difficult times: their products are very similar commodities, competition is fierce and pressure on margins is high. Incumbent operators are trying to set themselves apart through better service. Therefore, companies should learn from other industry best practices to gain a competitive edge in and expand beyond their core markets. Other industries, such as computer or telecom hardware, have shown that business development based on new services can be a successful road to new growth. To make this possible, a dedicated unit focused on developing the service business, with full control over its entire value chain, has to be the nucleus. These are the key findings of a market survey conducted by Roland Berger Strategy Consultants titled "From product to service: how service orientation can generate long-term growth in the telco industry".

"Telecommunication services are facing stiff competition. The pressure on margins is high and business in established markets shrinking," says Klaus-Ulrich Feiler, Partner with Roland Berger Strategy Consultants. Incumbent operators are desperately trying to differentiate themselves by providing better service, but new products and services have hardly any impact on the top line. Companies should learn from other industry best practices to gain a competitive edge in and expand beyond their core markets. Other industries, such as computer or telecom hardware, have shown that business development based on new services is key to successful growth. Providing the right platform is essential to establishing an independent service revenue stream. Telecommunications providers should create dedicated service units that focus exclusively on developing the service business. These units should have full control over the entire value chain, the freedom and leeway to develop their own business and full management attention and support in doing so.

Service can become a sizeable business

"Previously, product-focused companies have used different strategies to succeed in a service-driven environment," says Klaus-Ulrich Feiler. They would roll out the successful service transformation experience to new business units and customer groups. Services were set up either as front-line or as innovation and delivery-focused organizations. In addition to this, extensive partnering and M&A activity made it possible to make services a sizeable business. Successful growth through service requires a robust innovation process for quick scaling, says Feiler. Telecommunications firms need to develop separate communications and IT solutions and outsource businesses for the global market of large corporate clients.

Companies have to grow through services in mass (residential and business) markets. However, local efforts may not be enough to make a meaningful business out of services for mass markets – rethinking overall strategy and organization is also critical. "The way the telecom business is changing is very similar to the way the information technology sector has changed. If the telco companies correctly apply the lessons learned by the IT industry and set up proper service units, they can provide growth and better margins," says Roland Berger partner Feiler.