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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 sectors
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 rationalised.”
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 industry.”
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 for yourself?”
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 connections?”
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 Dharmapalan.
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. GTB
Further reading from Global Telecoms Business:
Multiple choice answers for mobile broadband explosion 24 Oct 2011
Wireless, satellite, fibre and copper compete to bring fast ... 18 Oct 2011
Multi-technology approach to broadband 10 Dec 2010
China's 3G puzzle 01 Oct 2007