On the one hand, increasing competition at all layers in the value chain is translating into price erosion and product bundling, resulting in shrinking revenues and profits. On the other hand, new technology trends - such as next generation broadband networks and immensely more sophisticated devices - offer participants intriguing new options for growing through new entertainment and data services, or those linked to the convergence of fixed and mobile services. The rapidly evolving environment also offers options for reducing operating costs and thus mitigating profit declines. Capturing these potential savings, however, involves many complex issues in migrating to next-generation networks and the new products and services they enable.

Bain & Company has identified more than 40 shifting telecom trends that can be categorized into five different groups:

• Technology: New developments in networks, devices and software, such as next generation broadband networks
• Consumer: Technology and entertainment demands, such as "always connected" and expanded service offerings like applications, gaming, on-demand media and data services
• Business model changes: Emerging new services, pricing and bundling schemes or delivery models, such as IPTV, mobile advertising
• Competition: New players, as well as blurring of the boundaries between telecom and adjacent sectors , such as Telco versus Cable, Telco vs. IT Service providers
• Regulatory environment: Potential changes in regional regulatory policies, such as network neutrality and new access network regulatory approaches

For example, in the mobile ecosystem, some participants are leaning towards more vertically integrated value chains (such as the one built around Apple's iPhone). Others are betting just as heavily on a more open, horizontally delayered model (such as the one built around Google's Android platform). The reality is that neither of these extremes is pure - there are many "open" elements even to Apple's model (including applications, services, advertising) and many proprietary "hooks" to the delayered models (such as Google links to maps, search, advertising). And we see the same kinds of model variations not just in wireless - but in how telecommunications expands into new services for both consumers (video, media and entertainment) and for businesses of all sizes (network, IT and business services).

The challenge for all telecommunications value-chain participants (operators, device and equipment suppliers, software and service providers, advertisers and content providers) is choosing where and how to participate. Each choice comes with a different set of execution challenges. The foremost are optimizing the resulting complex ecosystem of partnerships, distribution deals and revenue sharing arrangements, and ensuring that you emerge with some profit to show for your efforts. This requires a detailed understanding of industry evolution and the opportunities and threats this will create at each layer, for each participant - and how it will differ by market around the world. Only with this understanding can industry participants make intelligent choices about their strategies and the resulting investment requirements.

Some participants will find that industry trends push them to transform how they compete. For instance, as operators continue to consolidate and focus on reducing costs, that creates margin pressure on equipment manufacturers. Some have responded by shifting a large part of their business to managed services. However, this is a complex business and requires vastly different organizational capabilities than manufacturing based businesses.

Bain can help you determine your future. We are working with telecommunications clients around the world across all layers of the value chain on key strategic issues, such as:

• Helping executive teams build a detailed understanding of the industry "game board," including how non-traditional players could end up controlling much of the profit pool
• Defining and launching new media and entertainment offerings
• Aggressively reducing operating costs
• Developing customer segmentation strategies to effectively reduce churn and drive ARPU
• Understanding when and how to roll-out new offerings including complex managed network and IT services aimed at the enterprise space
• Evaluating which assets may generate more value outside the company

Bain's Telecommunications experience

Bain is one of the world's leading consulting firms for the telecommunications industry. Our clients include nearly 80% of the top 25 global telecom companies. We've worked for the vast majority of the major communications equipment suppliers to help them address the many changes in the communications industry. We've conducted more than 1,500 studies for service providers and for manufacturers of telecom, satellite and wireless equipment. Our projects have focused on strategies for improved customer retention, customer segmentation, pricing policies, supply chain management, growth and extensive cost reduction. We've counseled telecom clients on revamping their organizations for faster decision-making and increased customer focus, as well as on reducing operating complexity, evaluating the competitive landscape and evaluating and executing on acquisitions and mergers.

Bain helps companies defend old markets, enter new ones, improve performance, control costs and profitably invest resources. In addition, our Private Equity Group has an extensive history of involvement in the telecommunications industry.

To find out more about our work in this industry, please contact Bain's Telecom practice.