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Communications Businesses The Almighty Buck Technology

Hello, Mobile Operators? This is Your Age of Disruption Calling (mckinsey.com) 43

Analysts at McKinsey & Company write: For the better part of a decade, telecom companies have suffered through declining revenues, cash flow, and return on investment just as tech companies like Google, Facebook, Amazon, and others have mushroomed by building their businesses on the operators' own infrastructure. While these tech visionaries have enjoyed well over $1 trillion in combined market-cap growth by innovating and thinking differently and adeptly, telecom companies have tried to compete by implementing the same old survival tactics: cutting costs, reducing the workforce, and timidly entering into new business adjacencies. The trouble is that playbook no longer applies. [...] We've seen this before in other capital-intensive industries. The airline industry, for example, despite incredible growth in travel during the early part of this century, destroyed economic value until 2015 when, for the first time, the industry-level average return on invested capital (ROIC) was just in excess of its cost of capital. This return to economic profitability was achieved through a combination of falling fuel prices; significant industry consolidation, especially in the United States; and the growth of ancillary revenues, such as checked-baggage fees. If global operators were to follow the airline industry's prior trajectory, the implications could be dramatic. That's not just for the operators that would see declining investment as capital and talent move into sectors with superior returns but also for current and future over-the-top (OTT) players, such as Amazon, Apple, Facebook, Google, and Netflix, who rely so heavily on the operators' networks and investments.
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Hello, Mobile Operators? This is Your Age of Disruption Calling

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  • Age of Disruption? (Score:5, Insightful)

    by FrankHaynes ( 467244 ) on Friday October 06, 2017 @02:02PM (#55323485)

    Well, I've certainly had my unfair share of calls disrupted, so turnabout is fair play.

    They're common carriers. We just want their transport and can do without all the expensive add-ons that they want to cram on our bills. But that's not a sexy business model.

    • Well, I've certainly had my unfair share of calls disrupted, so turnabout is fair play.

      They're common carriers. We just want their transport and can do without all the expensive add-ons that they want to cram on our bills. But that's not a sexy business model.

      Electricity isn't "sexy". Neither is city water or trash disposal services.

      Common carriers are a necessary component driving many other services, and given the demand I'm failing to understand how or why any of them are struggling.

      • by Okian Warrior ( 537106 ) on Friday October 06, 2017 @02:43PM (#55323803) Homepage Journal

        Electricity isn't "sexy". Neither is city water or trash disposal services.

        Common carriers are a necessary component driving many other services, and given the demand I'm failing to understand how or why any of them are struggling.

        It's possibly because they're universal dicks.

        They made answering machines obsolete by providing the service for free, and the service is now too awkward and unwieldy to use. Whereas before, you could say "this is Jeff, leave a message", it's now "the number you have dialed, digit... digit... ... is not available. At the tone, please leave a message. To leave a callback number..."

        It was a grab for billing, because if they could keep the caller beyond 1 minute, then they could charge for another full minute.

        The result? Almost no one uses voicemail any more.

        They let affiliates engage in "cramming" (putting unwanted charges on your phone bill), then argue with customers who want to take the charges off. They implemented "caller ID" and then made it trivial to spoof, they don't do a thing about spam calls, telemarketer calls, or fraud calls such as "This is Barbara from cardholder services...".

        [Earlier in this century] They freely give out customer information and "who we called, and when" to the government without a warrant, then said "It's not a constitutional violation because we're not the government". They let the US government copy all call information and send it to the government, they give out location information without a warrant ("cell tower information is not on paper, so 4th amendment doesn't apply").

        Their customer service has a reputation for being one of the worst, they took $200B to wire up "the rest of the country" for broadband, then sat on the money and did nothing, they don't bother to upgrade their equipment in areas with spotty coverage...

        The list goes on, this is only off the top of my head.

        The telcos have never considered the phone users to be their actual customers, so they never bothered to make their customers happy. This was the "you are not the customer, you're the product" modern business model.

        By ignoring their customer base and not changing with the times, they're getting their lunch eaten by other companies.

    • But that's not a sexy business model.

      The Age of Disruption will come to the telecom industry . . . when Jeff Bezos buys a telecom. And he won't buy one, until he has some ideas about what a sexy business model would look like.

      The folks currently running the telecoms aren't going to come up with any sexy business models. They simply would like to charge customers more without offering anything that customers would really like to pay for.

      And when Bezos buys a telecom . . . watch the stocks of other telecoms take a deep dive. Just like with

      • by Rob Y. ( 110975 ) on Friday October 06, 2017 @04:18PM (#55324475)

        ...monopoly pays. Every one of those tech giants has - or is verging on - a virtual monopoly on their corner of the tech universe. I'm not saying those positions haven't been earned, but of course, they've remained resistant to competition in no small part due to acquisitions - which allowed them to fend of new technologies around the edges that might have grown into serious competition. And those acquisitions might not have been allowed in a regime that understood the problems of monopolization.

        Where there's competition for essentially identical service, there is minimal profit. That's good for the public, and not so good for the corporations. Not so bad for them either. They're still making money and providing millions of jobs. It's just that Wall Street doesn't see enough potential for explosive growth to care. And that, of course, is because they're all busy chasing the new monopolies - and looking for the next one. And that's driven by a tax system that encourages businesses to focus on low-taxed capital gains instead of higher-taxed wage income. Seems there's a way to fix some of this by rewriting the tax code - wanna bet on that happening... ;-)

        In any case, judging from the diminishing returns in the Airline and Telecom industries - where consolidation has been brutal, it doesn't even take so much competition for it to work its magic. So what we're left with is competition + low prices + shitty service - versus new tech industries with monopoly profits, pretty good service (as long as a machine can provide it) and phantom low prices at the cost of all privacy, and pervasive advertising. Hmmm.

        • by Anonymous Coward

          In California, nearly all income is taxed at the same rate. Wages, cap gains, dividends, it's all the same. Downside of that is that the state revenue flops around drastically when the economy hiccups; a few % drop in cap gains can produce 20% drop in revenue given the high rates paid by people with high incomes. So be careful what you ask for: there may be side effects.

  • I thought this was going to be about the constant disruptions I receive on my mobile device, because Direct Marketers' Association members refuse to respect the Do Not Call List and Telephone Consumer Protection Act of 1991.
  • by 140Mandak262Jamuna ( 970587 ) on Friday October 06, 2017 @02:11PM (#55323565) Journal
    It is the same set of people who work for PWC one day, McKinsey next day, Arthur Andersen the day after then coming back to Accenture ....

    And these jokers collectively almost destroyed capitalism as we knew it. "I can take bad debts and consolidate enough of them and they will be good debts. Then I will slice off the good debt and magically we have transformed 10 million dollars worth of junk loans into 10 million dollars worth of gilt edged widows-and-orphans securities! Aren't we amazing!"

    The sad thing is we solve partial differential equations or manage warehouses or trudge through snow and ice to keep a power plant operating. And hand over all our investments and retirements funds over to these idiots to manage.

    • by glitch! ( 57276 )

      "I can take bad debts and consolidate enough of them and they will be good debts. Then I will slice off the good debt and magically we have transformed 10 million dollars worth of junk loans into 10 million dollars worth of gilt edged widows-and-orphans securities!

      That is a great way of putting it. It makes me think "Homeopathic Debt Securities." Diluting it makes it stronger!

    • by Luthair ( 847766 ) on Friday October 06, 2017 @03:05PM (#55323955)

      If you read up on McKinsey it reads like a crackpot cult. Unfortunately a lot of CEOs listen to and hire McKinsey - these clowns are also responsible for insurance companies lowballing payouts and delaying claims - http://www.huffingtonpost.ca/e... [huffingtonpost.ca]

      It may be of interest that Sundar Pichai CEO of Google is a former McKinsey.

    • You seem to be confusing consulting and auditing.

  • by ErichTheRed ( 39327 ) on Friday October 06, 2017 @02:21PM (#55323637)

    Consider the source of this advice...McKinsey and the other white shoe management consulting firms make obscene amounts of money convincing companies to pay them for advice. These companies are the entry level job for Ivy League MBA students; it's a reward for getting into the club. The nature of the job itself is to get these "consultants" into key leadership positions in customers so they can then funnel more service business to the firm later on...and so the cycle of disruption continues.

    Telecoms need to concentrate on one thing...operating their network efficiently. That's their job and everything else is a distraction. They're operating a utility that everything else rides on top of. The main focus should be operating the most reliable network and doing it cheaply enough to earn a profit. If they try to become an entertainment company, content provider, device manufacturer or whatever, they're just going to take away from that because other companies do these jobs better. Running a network might be a boring job, but look how much money the traditional telcos make just by keeping connections up and pumping services into peoples' homes and phones.

    • by Anonymous Coward

      Telecoms need to concentrate on one thing...operating their network efficiently. That's their job and everything else is a distraction.

      worker safety is a distraction, it interferes with efficient network operation. all that money spent on preventing antenna workers from falling to their deaths is money wasted

      and for sure a telecom can operate more efficiently if they can control who their customers are, if they can ignore poor areas then they can increase their efficiency

  • This return to economic profitability was achieved through a combination of falling fuel prices; significant industry consolidation, especially in the United States; and the growth of ancillary revenues, such as checked-baggage fees.

    So... the key to this is hidden fees? That's what they're saying? They do know that mobile phone companies PIONEERED hidden fees, right?

    The mobile operators are actually moving away from that bullshit. Slowly, sure, but they are moving away from it.

  • Telecoms has become a commodity service. No money in that. Get over it. It's a race to the bottom. You can try to screw your customers out of more money but they'll just go to your competitor.

  • How do you offer that without cutting costs and headcount?

    For a lot of people like myself the quality of the network is secondary to my device. I'm willing to pay less $$$ for a crappier network and spend the difference on a better phone with more local storage to carry my content around with me and not have to rely on the network

  • with people spending hours on the internet to literally save one whole dollar on a flight, the airlines cut costs to give people what they wanted

    Yes we had half empty planes in the 80's and 90's. But we also paid 2 to 3 times today's prices for tickets and had to deal with planes crashing and killing most of their passengers on a regular basis

  • What, they don't pay for their connection like everybody else?

  • We, as users, pay every month four our Internet, so that the Internet is ours. Every website is our guest. Please let it be this way.

    Unfortunately, most people only want to pay as little as possible. Either that, or there is a de-facto monopoly. In the first case, mantenance suffers to cut costs, in the second case thereâ(TM)s no reason to innovate.

    We should keep the Internet ours and prevent the likes of Facebook and Amazon from starting to subsidize/buy Internet providers to enable/incentivize them t

  • The report is just McKinsey fishing for consulting business.

    Both mobile operators and airlines have the same problems, namely regulation enforcing an UNcompetitive environment (which does not apply to the advertising, retail and media based FANG companies) and and economy that is burdened with excessive capital, allowing those so-called competitors to continue functioning with what would otherwise be crippling debt.

    I've long said the U.S. telecommunications market is ripe for disruption [seekingalpha.com] and that could event

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