Telecom Providers

Dumb pipes joined smart ecosystems

Content providers and device manufacturers converged.

In this stage of a long metamorphosis, telecoms, the so-called “dumb pipes” struggling against commoditization, emerged as the indispensible delivery component in emerging ecosystems.

Apple catalyzed the formation of ecosystems when it introduced the iPad in 2010. The mobile device liberated rich content from the home. And telecoms delivered it wirelessly. Last year, two transactions advanced the formation of ecosystems.

Google purchased Motorola Mobility and Microsoft formed a partnership with Nokia. With Motorola, Google can develop smart devices using its Android platform. Nokia will manufacture smartphones running Microsoft’s Windows.

Along with Apple, Google and Microsoft, Amazon also represents an ecosystem (Please see Retail story on page 80). The brand offers content, such as movies and other entertainment, as well as shopping on its Kindle device, which could provide an edge in m-commerce.

Not all telecom growth involved ecosystems. Mobile phone ownership continued to soar in fast growing economies. Ownership in India, for example grew 26 percent just in the three-year period between 2008 and 2011, according to TGI (Please see Spotlight on page 95).

The mobile devices in these markets usually are affordable function phones that enable countries to leapfrog inadequate landline infrastructure and rapidly achieve high telecommunications penetration, over 80 percent in Brazil, India, Russia and South Africa and over 90 percent in China, according to TGI.

This year, MTN, a South African telecom, became the first brand from Africa to appear in the BrandZ™ ranking of the most valuable global brands. MTN operates in 21 countries across Africa and the Middle East. The telecom Airtel became the second Indian brand to appear in the ranking.

Leaders formed partnerships

The rapid growth of mobile, combined with vast subscriber audiences, over 100 million each in the case of Verizon and at &t, made the telecoms attractive partners. But the telecoms faced the challenge of finding sufficient capacity and forming the most productive partnerships.

Verizon entered a joint venture with Time Warner Cable, an adversary with which it now will cross-sell products. The arrangement was part of a deal in which Time Warner along with Comcast and Bright House Networks, two other cable companies, agreed to sell wireless spectrum to Verizon.

Verizon further expanded its content offering and delivery options, early in 2012, when it entered a joint venture with Redbox, which operates DVD kiosks at retail locations in the US and maintains relationships with major film studios. Verizon is 45 percent owned by Vodafone, which finally saw a long-term investment pay off with the income boost Verizon enjoyed when it became an iPhone carrier in 2010.

At&t also spent much of 2011 attempting to increase its wireless spectrum, by planning a merger with T-Mobile, the Deutsche Telekom brand. The strategy ultimately failed when the US Federal Communication Commission rejected the deal, leaving at &t to explore options for “data throttling,” rationing system access based on customer value.

Competing and collaborating

In a sense, the telecoms shifted toward ecosystems several years ago when they bundled services into “triple plays” of phone, online and cable. Telecoms became brands that customers experienced every time they accessed content, rather than only once a month when they received an incomprehensible bill.

Continuing to evolve as brands requires functioning effectively within ecosystems comprised of diverse cultures and areas of expertise, including engineering, content creation and design. The challenge is compounded for brands like Vodafone, which operates across many country markets. Vodafone and Verizon last year extended their relationship to find efficiencies and to work more closely together on standardizing technology and serving global business clients.

As exemplified by the Verizon arrangement with Time Warner, business effectiveness also requires sometimes competing and collaborating simultaneously. Orange and T-Mobile collaborated in the UK, creating a new brand called Everything Everywhere. It uses the combined offering of Orange and T-Mobile to customize programs that best serve individual customers. This simplified, personal approach can be compelling in a category often criticized for its complexity and opaqueness.

A sharp rise in capital expenditure, required to expand capacity and meet data demand, will drive collaboration in the construction of 4G infrastructure. While a shared network spreads cost and risk, it also reduces the possibilities for brand differentiation based on network quality, which is significant as the telecoms promote the speed of 4G and 4G LTE (Long Term Evolution).

Struggling to differentiate

And while telecoms collaborate with device manufacturers within ecosystems, they continue to struggle for relative brand prominence. The device generally wins, because consumers decide on their phone or tablet brand before selecting a carrier.

In the UK, Vodafone last year ended its Vodafone 360 service, an attempt add value by offering apps, like search and mapping, along with music and a function that linked a user’s address book and social network sites. Along with its Verizon investment in the US, Vodafone maintains more than 40 partnerships in over 30 countries worldwide.

O2, the UK brand of Spain’s Telefónica, created special offers connected with events at the O2 Arena, the entertainment complex it sponsors. In anticipation of the London Olympics and the Queen’s Diamond Jubilee, O2 planned the creation of free WiFi zones in areas of London expected to attract many international tourists.

In a separate development, the telecoms explored Near Field Communications (NFC), which enable a mobile phone to be used as a wallet for completing financial transactions, such as payment at a retail checkout or texting money transfers. This cashless society already is a reality in parts of Africa as a brand named M-Pesa. The prospect of more activity on mobile devices potentially benefits telecoms, although NFC initiatives have been limited so far.

Competition grew in fast growing economies

Movistar, the Telefónica brand in Spain and Latin America, felt the impact of Spain’s economic problems and a slowdown in Latin America and other developing markets. Orange, which also felt the impact of Europe’s financial uncertainty, continued to focus on Africa. Of the 32 countries where the brand is present, 17 are in Africa. South Africa’s MTN offered its low-priced phones and calling plans throughout Africa and the Middle East.

The Indian brand Airtel also maintained a strong African presence. In India, Airtel emphasized the strength of its network. Price is especially important in India, since an aggressive promotion by Docomo, the Tata-owned brand. Vodafone in India cultivated a customer care image. Idea focused on value added-services.

Russia is experiencing a step-change in mobile communications with the introduction of bundled service offerings as the three leading brands—MTS, MegaFon and Beeline—struggle to differentiate and grow market share. These brands are squeezed between the state-owned Rostelecom and two newer, privately owned telecoms, Tele2 and Yota.

BrandZ Top 100 2012

BrandZ Global 2012 Report Top 100 Report

Top 100 Chart

Methodology and valuation by Kantar Millward Brown

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