Telcos Would Do Better in a Functionally-Separated or Structurally-Separated Model, IBM Institute Argues

By Gary Kim, Contributing Editor

Any way you look at it, the global telecom industry faces huge challenges over the next decade, and at least half the most-likely scenarios developed by IBM (News - Alert) Institute for Business Value analysts suggest major restructuring. 

The worst-case scenario entails a continued stagnation or decline in revenues for those service providers in developed markets have not significantly changed their voice communications service portfolios and have not expanded horizontally or into new verticals. IBM analysts predict global revenues between 2010 to 2015 would grow just 0.2 percent in this scenario.

As investors flee, a cash crisis will spur industry consolidation. 

In a more-hopeful scenario, providers consolidate, cooperate and create alliances to compete with over-the-top players and device or network manufacturers. In this scenario, telcos develop a portfolio of premium network services and integrated digital content capabilities. In this scenario, revenue growth might average 1.8 percent revenue growth. 

The other two scenarios, one more helpful than the other, necessarily entail a fundamental reorganization of the industry ecosystem, functionally or structurally separating the network facilities business from retail operations. 

In one variant, investors force providers to disaggregate assets into separate businesses with different return profiles. Retail brands then will emerge to collect and package services from the disaggregated units. This functionally-separated industry structure would resemble the way BT (News - Alert) now operates, but with more separation into vertical customer segments. In this scenario, growth might be 3.3 percent.

The more-intrusive structural separation model has infrastructure providers integrating horizontally to form a limited number of network co-operatives that provide pervasive, affordable and unrestricted open connectivity to any person, device or object, including a rapidly expanding class of innovative, asset-light service providers. IBM analysts actually believe this path will result in the highest industry growth profile, averaging about 5.3 percent. 

The upshot is that the analysts predict telcos in the developed world will do better if they functionally or structurally separate into distinct network services and retail units. 

(source: http://ibm-news.tmcnet.com/ibm/articles/86860-telcos-would-better-a-functionally-separated-structurally-separated.htm)