At a recent session of the PTC Academy, APTelecom President Sean Bergin starkly contrasted the choices connectivity providers (telcos and others) now face. As demand for traditional connectivity services continues to decline, service providers face two basic choices: stick to the core business or create a new business.
Telekom Malaysia is among the firms that believe they must move away from the historic core competency of connectivity and into the applications parts of the business. Whether it will succeed is not yet clear. So far, connectivity revenues still drive the business, and growth has slowed or declined. But acquiring a significant, revenue-boosting role in a new segment of the business takes time.
Source: Telekom Malaysia
The former strategy includes options such as reducing operating costs, perhaps making acquisitions to gain scale or taking other steps that lower costs to match declining revenues, thereby sustaining profit margins.
The latter strategy, admittedly riskier, requires creation of new products beyond the current offerings, and almost always involves some degree of movement into different parts of the ecosystem or value chain. Think of the former as “role” (connectivity, device, application). Think of the latter as “function” (semiconductors, devices, connectivity, platform, app, business model) within any single role.
As a practical matter, not every firm in the connectivity business can actually “change roles or functions.” Doing so requires new competencies, capital, different supply chains and often different sales channels as well.
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