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Telecoms needs to profit from everyone else’s dependence on it, says E&Y's Jonathan Dharmapalan
24 February 2012
The telecoms industry is growing fast, and other industries’ dependence on it is growing too. Operators need to work out ways of benefiting from the value they create, says Ernst & Young’s Jonathan Dharmapalan
Jonathan Dharmapalan: The big promise of the industry is that
the sector has become the underpinning for other
Telecommunications is not just a significant industry in itself
- but it has achieved a importance far and away above that. But
at the same time the telecoms industry has challenges that many
people in the business are all too aware of, yet few have until
now developed any answers.
Jonathan Dharmapalan leads 2,000 telecoms specialists for Ernst
& Young and he's a telecoms specialist himself - having
started out as an engineer in Bell Labs working on switching
systems and signalling systems.
"The big promise of the telecoms industry is that the sector
has become the underpinning for other sectors," says
Dharmapalan. The public sector, healthcare, utilities, energy,
the automotive industry and many other areas of economic life
rely on telecoms. "They are all looking at telecoms to make
their sectors work," says Dharmapalan.
There is great promise for telecoms: it has reached into all
corners of the world, and is daily demonstrating to other
sectors that they can also increase their reach. The media and
entertainment businesses show what other sectors are capable of
doing. "That's the promise for the sector."
But alongside that there are challenges. "The industry has
always relied on voice. Unfortunately data is without question
going to be the prevailing business."
As the industry knows, data usage is growing fast, and
operators are at a loss as to how to charge for it - and how to
thereby pay for the infrastructure that carries the data.
"A carefully worked out model for data doesn't exist," says
Dharmapalan. "Voice itself has got a rationale. The value
proposition of various forms of data has not been
The customer - the business that relies on the data - benefits
from the greater value of high-speed data services, "but the
telecoms sector doesn't realise the greater value", he adds.
"Getting that rationale is the biggest challenge for the
This has direct effect on the capital expenditure that
operators are expected to make. They are having to take
investment decisions to carry an unknown amount of broadband -
directly affecting their future earnings and profitability -
yet they still cannot set prices according to the value that
the data carried represents to the end customer.
"There are two or three important things that need to happen,"
says Dharmapalan. "What is the value proposition of different
types of data? How does a user value one type compared with
another? How does the market value it? How do you measure and
how do you differentiate the data? And how do you create value
Telecoms operators are used to charging different values .
"This is a highly simplified example, but there was a time when
the phone company charge less for phone calls at night than
during business hours. That was clearly recognising a value
differential," he says.
"Even today in the voice world a call from San Francisco to New
York has a different cost than a call from San Francisco to
London. All parties have accepted the value differentiation."
But there's disruption even to that model ahead. "The real
disruption is that voice itself is data. There are
opportunities to arbitrage between voice pricing and data
pricing," he points out. This "has not been rationalised."
Before taking up his current role, Dharmapalan was based in
Ernst & Young's Beijing office, as partner in charge of the
consultancy's telecommunications centre there, focusing on its
emerging markets practice and serving operators in rapidly
growing markets around the world.
So how will the industry move to a more sensible footing? "It
will probably happen in lots of different angles," he says.
"There will be a significant regulatory debate about what makes
sense and what's fair. There will be metering and quantifying
moves about data. "Nobody thinks about what makes data," he
says. "We need to get to a point where we can tell the
difference and how consumers place a value on the different
types of data."
Consumers have started to change, but there is a long way to go
- and there are challenges ahead, he notes. "In the future
there may not be a human at the end of a connection. How do you
create a value proposition when machines consume data
People-to-machine communications are already more common that
we think: in some ways that's what happens when people
communicate with social networking sites. That may be a
relatively trivial example, but more serious cases will emerge
with the development of health monitoring systems - where
tolerance of failure will be low. "How does an operator
differentiate between these types of services?" asks
This discussion is going to continue. The telecoms industry is
responsible for profound changes in society. "The number of
connected devices is unbelievable - I have just counted them
and I have 18 in my family." But "the whole phenomenon is no
more than a few years old and we have not yet had time to
react," he notes. "People have been predicting convergence for
20 years - yet when it happened everyone was taken aback."
The good news for the industry is "that the demand seems
unlimited", says Dharmapalan. But the industry needs to work
out how to turn that demand into a continuing business.
Further reading from Global Telecoms Business:
Multiple choice answers for mobile
broadband explosion 24
Wireless, satellite, fibre and
copper compete to bring fast ... 18 Oct 2011
Multi-technology approach to
broadband 10 Dec
China's 3G puzzle 01 Oct